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Living up To Expectations

October 8, 2009




My big hesitation heading into today was centered around expectations that were seemingly heading out of control. There was no question that September was going to be a good month, but didn’t the Street already know this? Well, the monthly results are now in and it is clear that this month met high expectations with results further supported by several upside earnings revisions. Even the few companies that fell short of expectations, fell short by a very small margin. Overall, a solid beginning to a season of “easy comparisons” as we enter a period in which last year’s results were amongst the worst in decades. The real question is if the consumer is really back in full force and we’re not convinced this is the case. But a slow and gradual recovery is underway and it’s hard to ignore meaningful upside revisions (better sales, tight inventories) that are likely to continue through the end of the year.

  • Upside with positive earnings revisions: ROST, TJX, JCP, TGT, TJX, ARO, AEO, KSS, GYMB, FRED
  • Upside to sales expectations: LTD, PLCE, ANF, HOTT, ZUMZ, M, DDS, BONT, JWN,
  • Downside(essentially in line): GPS, BKE, SKS, BJ, SSI

Living up to Expectations - 1

Living up to Expectations - 2




Some Notable Call Outs

  • Both COST and FDO highlighted the pros and cons of lower employee turnover during this time of high unemployment. In the case of COST, lower turnover is leading to higher healthcare costs, as more employees are meeting the six month minimum time on the payroll required to be eligible for healthcare coverage. In the case of FDO, management believes that with 90% of store managers having had experience with the corporation during holiday ’08, there will be a benefit to customer service and store level execution for this holiday season. Absent any major changes in the job market, lower turnover across the entire retail sector should translate into a better customer experience.
  • For the first time in over a year, Costco reported positive same store sales in both hardlines and softlines categories. Additionally, the Southern California market showed the largest sequential positive delta from reported fiscal 4Q results. Deflation, while still prevalent in the food/sundries categories, has subsided a bit from July and August levels.
  • Last quarter after stressing that retailers were producing more at-once orders and relying less on “futures”, Wolverine World Wide management relayed that the pendulum appears to be swinging back to a more normalized balance. Futures orders at the end of 3Q are tracking down mid single digits, but ramp to being “solidly positive” by for the Spring ’10 season. Additionally, management remains confident that mid to high single digit declines in product costs will be a key contributor to gross margins over the next three quarters.
  • With one store already in LA, look out for the NYC opening of Superdry in November. The UK based chain is making its way to the U.S. and aims to target the Abercrombie, Urban Outfitters, and TopShop demographic. The men’s and women’s apparel has been said to combine a vintage Americana aesthetic crossed with some Japanese influence. If that sounds confusing, then just check out: http://www.superdrystore.com/



Consumers say their holiday budgets are tight, but 85% will shop online - Despite plans to tighten their belts, 85% of consumers plan to shop online and 69% plan to make an online holiday purchase, a new survey from Burst finds. Consumers also anticipate using the Internet to shop around, with 57% of consumers planning to compare different retailers to find the best price and 55% planning to use the web to compare brands’ features, according to the Burst report. The survey also found that more than 27% of consumers who made an online purchase a year ago plan to increase their online spending this year. Nearly 15% will decrease online spending. <internetretailer.com>

Obama to Make Appeal to Voters for Consumer Agency - President Barack Obama plans to appeal to voters for help in moving forward his proposal to create a new agency to oversee consumer financial products, an administration official said. The banking industry has opposed the agency, saying it would stifle consumer choice and limit access to credit. Republicans in Congress also have been critical of the plan. The agency would oversee products such as mortgages and credit cards. Representative Barney Frank, chairman of the House Financial Services Committee, has proposed scaling back Obama’s proposal to exclude retailers, merchants and non- financial businesses. <bloomberg.com>

Adidas Redeems Debt - Adidas AG announces that the company is redeeming the €400 million convertible bond, issued in August 2003 and guaranteed by Adidas AG, pursuant to § 3 (3) of the Terms and Conditions of the Bonds prior to maturity on October 8, 2009, effective November 23, 2009. In accordance with the Terms and Conditions of the Bonds, outstanding bonds will be redeemed on this date at their principal amount plus interest accrued as far as bondholders do not exercise their conversion rights by the end of November 9, 2009. In light of the current Adidas AG share price, the company expects that most or all bondholders will exercise their conversion rights. If all bondholders exercise their conversion rights, this would result in up to 15,684,313 new shares being issued from the company's Contingent Capital 2003/II. <sportsonesource.com>

Nike Names VP of Central and Eastern Europe - Nike, Inc. announced that Michaela (Michi) Stitz has been named as vice president of Central and Eastern Europe (CEE). Stitz will be responsible for driving continued market leadership and growth for the CEE geography, replacing Marc van Pappelendam, who was recently named as VP of the UK/Ireland territory. Having started her Nike career in 1996, Stitz set up the equipment business for Nike Austria, Switzerland, Slovenia and Croatia. In 1998 she became Footwear Business Director, followed with the position of General Manager for Nike Austria, Slovenia and Croatia in 2002. She moved on to become Sales Director for Nike Germany, and then after briefly taking a break to move back to Austria, Stitz returned to Nike 18 months ago as GM of Austria, Germany, Slovenia and Switzerland (AGSS). <sportsonesource.com>

Target Reduces Price on Holiday Toys - Discounts and price cuts have been made on popular licensed holiday toys at Target, including Barbie, G.I. Joe and others. Select toys at Target have been discounted up to 50 percent, including Mattel's Barbie fashion doll for $5, Hasbro's G.I. Joe Tough Troopers figure for $14.99 and Fisher-Price's Little People Play 'N Go Farm 50th anniversary edition play set for $11. A complete listing of the discounted holiday toys can be seen at www.target.com/weeklyad. <licensemag.com>

Fast Retailing Profit May Rise 25% on Uniqlo Sales - Fast Retailing Co., Japan’s biggest clothing retailer, said full-year profit may rise 25% as its +J brand, overseen by German designer Jil Sander, and other new clothing lines boost sales at its Uniqlo chain. Net income may be 62 billion yen ($703 million) for the 12 months ending August 2010 from 49.8 billion yen last year, the company said today. That compares with the 64.6 billion yen average estimate of 18 analysts compiled by Bloomberg. Cashmere short-sleeve sweaters, skinny jeans and other hit products are driving sales even as job losses and wage cuts chill household spending in Japan. <bloomberg.com>

August Outdoor Sales Soft, Upward Movement in Select Categories - Retail sales for all core outdoor stores combined (chain, internet, specialty)* declined 6% compared to last August, moving from $346M to $325M, according to the most recent edition of the Outdoor Industry Association (OIA) Outdoor Topline Report. Select equipment, accessory, outerwear and footwear categories continued positive momentum in August. Year-to-date sales (January - August 2009) totaled $2.9B, down just 5% from the same period a year ago. <sportsonesource.com>

Carrefour Denies Talk of Sale - Carrefour SA, the world’s second largest retailer, has denied it plans to sell its operations in the fast-growing Chinese and Latin American markets. Press reports here said the company was facing pressure from its biggest investors, including luxury titan Bernard Arnault, to exit China and Latin America. Carrefour said its strategy to focus on France and other European countries in the short term, and growth markets like Brazil and China in the long-term, remains unchanged. In the first six months of 2009, Carrefour’s Latin American business reported a sales hike of 18.3 percent, while sales in China rose 6.4 percent. <wwd.com>

Shoppers With Money to Spend Find Less to Buy at Saks, Neiman - Jennifer Prentice spent half of what she usually does when she and a friend shopped at Neiman Marcus Group Inc., Saks Inc. and Nordstrom Inc. stores on a recent business trip to San Francisco. They weren’t cutting back. They just didn’t find much to buy. U.S. luxury chains may stand to lose more sales to shoppers like Prentice as they remain wedded to conservative plans for high-end inventories and are unable to shorten delivery times for designer clothes, shoes and accessories, said Stacey Widlitz, a retail equity analyst at Pali Capital in New York. <bloomberg.com>

PPR SA to Float Africa Unit - French retail-to-luxury group PPR SA plans to spin off its African distribution unit on the Euronext stock exchange in Paris by the end of this year, if market conditions are favorable. PPR, which also owns Gucci and Yves Saint Laurent, said it expects to sell its majority stake in CFAO, which distributes pharmaceuticals and cars mostly in Africa. <wwd.com>

Eddie Bauer to Launch First Ascent on October 12 - Eddie Bauer will launch First Ascent in 183 of its stores across North America on October 12, 2009. First Ascent is Eddie Bauer's new line of expedition-quality mountaineering outerwear, apparel, and gear built by some of the foremost mountain guides, including Peter Whittaker, Ed Viesturs and Dave Hahn. <sportsonesource.com>

Seiko Pursues Luxury Market With Ananta - With the launch of its first global watch collection this fall, Seiko is signaling its intention to pursue the fine men’s watch business in the U.S. Best known for the affordable quartz watches it pioneered 40 years ago, Seiko is shifting gears with Ananta, a group of watches priced between $2,100 and $6,300 that make their U.S. debut this month. That may not be easy in a market where luxury spending has declined and once-robust demand for fine watches has cooled. For the first eight months of this year, domestic receipts for watches priced $1,000 to $10,000 fell 25 percent to $1.08 billion, according to watch research firm LGI Networks. Watches priced below $1,000 dropped 14.4 percent to $849 million for the same period. <wwd.com>


NKE: Alan Graf exercised his right to buy 10,000 shares ($220k).

BGFV: Thomas Schlauch, Senior VP, Buying, sold 13,000 shares ($208k), roughly 37% of total common holdings.

KR: Joseph Grieshaber, Group VP, purchased 500 shares ($9k).

WAG: J.R. Lewis, Senior VP sold 1,300 shares ($52k), nearly 5% of total common holdings.

CMRG: Jesse Choper, Director, exercised his right to buy 15,000 shares ($20k).

PETS: Menderes Akdag, President & CEO sold 10,000 shares ($200k), nearly 3% of total common holdings.

VLCM: Rene Woolcott, Director, sold 20,000 shares ($300k), less than 2% of total common holdings.