RETAIL FIRST LOOK: NYY ADD FUEL TO THE FIRE

RETAIL FIRST LOOK: NYY ADD FUEL TO THE FIRE

October 26, 2009

TODAY’S CALL OUT

Less than 30 minutes after winning the pennant in game six of the ALCS, DKS sent out an email offering freshly-printed American League Champions gear to New York Yankee fans [and disappointed Yankee-haters alike].  If we factor in the 20 minutes of lead-time needed for a message to get through a mass marketing platform, then we’re looking at a sub 10 min response time from the end of the game for DKS marketing team. Not bad at all. Like it or not, the Yankees being in the World Series is a positive for DKS – if not the whole sports retail space. We’re already seeing elevated levels of NFL Jersey sales, which has been propping numbers in recent weeks to trends not seen in over 3 years. Now tack on what is perhaps the most marketable team in American sports making a run at the championship for the first time in 6 years, and it adds natural momentum to the space. VFC will likely hit on this later on their call, as its Majestic subsidiary owns the right to sell replica Jerseys and authentic MLB product. Unfortunately, it’s  only 3% of sales. The better bet here is the retailers – especially DKS, HIBB and to a lesser extent FINL.

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LEVINE’S LOW DOWN

Some Notable Call Outs

  • According to the latest E-Tailing Group survey, 55% of frequent web shoppers plan to shop online, up from 49% last year. Overall holiday spending share for e-commerce is forecast to be 26%, up from 21% this year. 91% of respondents cited free shipping as an important factor to shopping online while 81% cited free returns. We know we’re repetitive, but it’s fair to say the free shipping wars are likely to be a big factor this holiday.
  • While the average price for gasoline is still 12 cents below last year, the last two weeks marked a substantial increase in average prices at the pump. The two-week rise of 18 cents is the largest gasoline price increase since early August. Historically, the Fall season has typically showed a seasonal decrease in prices at the pump.
  • In an effort to spur growth in the very profitable gift card business, there are some signs that retailers are selling the pre-paid cards at a discount. While this is just another creative form of promotion, it is still likely to be a more profitable proposition than outright discounting of merchandise. Remember, that while it may take a while for the accounting to kick in and allow a retailer to drop unused gift card reserves to the bottom line, eventually the “breakage” is realized.

MORNING NEWS 

-Amazon.com Breaks Dot-Com Record as Profit Beats - Amazon.com Inc., cited a decade ago as an example of an overvalued dot-com stock, rose to a record in Nasdaq trading today after third-quarter earnings trounced analysts’ estimates. The world’s largest online retailer climbed $25.04, or 27 percent, to $118.49, a day after reporting a 69 percent jump in profit and a 28 percent gain in revenue. The shares have more than doubled this year. <bloomberg.com>

-Adidas Will Get Record Soccer Sales From World Cup, CEO Says - Adidas AG will get record sales from its soccer business next year, boosted by the World Cup, Chief Executive Officer Herbert Hainer said in an interview. The world’s second-largest sporting equipment maker will make the jerseys of as many as 12 teams participating in the South African-hosted event, up from 8 squads in the 2006 tournament in Germany, Hainer said Oct. 23 at the Global Sport Summit in London. “In 2010 with the help of the World Cup we will break a new record in terms of sales for our football business which will be bigger than 2008,” Hainer said. “We will definitely hit the new record.” <bloomberg.com>

-Jordan’s Son Refuses to Wear Adidas Shoes - Michael Jordan’s son Marcus, a freshman guard at Central Florida, is refusing to wear shoes made by Adidas, which has a six-year, $3 million contract with the university for all of its sports. He said he would wear only his father’s Nike Air Jordans. The university said it was working with Adidas “in determining how this unique set of circumstances will work for both parties.” <nytimes.com>

-Rite Aid Sells Debt as Fed Policy Lowers Credit Costs - Rite Aid Corp., the third-largest U.S. drugstore chain, and satellite-communications provider ViaSat Inc. led a 19.2 percent rise in high-yield, high-risk bond sales this week as borrowing costs fell to the lowest since January 2008 on investor optimism that defaults have peaked. Rite Aid offered $270 million of bonds as part of a $1.57 billion refinancing, and ViaSat sold $275 million to fund a purchase, according to data compiled by Bloomberg. High-yield sales rose for the third straight week as issuers sold at least $5.2 billion of debt, compared with $4.4 billion last week. <bloomberg.com>

-Olsens to Launch Junior Brand for Penney’s - Mary-Kate and Ashley Olsen are expanding their fashion reach. The sisters, entertainers and marketers almost since their infancy who last week became members of the Council of Fashion Designers of America, have signed a deal with J.C. Penney Co. Inc. to launch Olsenboye, a junior brand that will be exclusive to the chain. The collection will have a major rollout, set for 600 Penney’s stores in February. <wwd.com>

-Apparel recall widens; more deaths reported - 300,000 items are recalled due to burn hazard; 9 deaths in total. The U.S. Consumer Product Safety Commission and Blair LLC, of Warren, Pa., are expanding Blair’s voluntary recall of women’s full length chenille robes to include additional chenille robes and three other chenille products all manufactured by A-One Textile & Towel. CPSC and Blair also are re-announcing the earlier recall of women’s robes. In April 2009, Blair recalled 162,000 chenille robes after it learned of three robes catching on fire, including one report of second degree burns. Blair then received several reports of deaths allegedly due to robes catching fire. <msnbc.msn.com>

-Escada Bidding Nears End - Escada’s search for a buyer is nearing the final phase, with unbinding offers from six interested parties now on the table and binding offers from these and possibly a seventh to be submitted next week. A signed agreement is expected in the first week of November, a source close to the proceedings said. Those bidding, the source said, involve more family groups than the typical private equity and investment firms, though some of the latter are in the running. He declined to be more specific. <wwd.com>

-Delta Apparel Net Climbs to $2.6M -Delta Apparel Inc. soared 24.2% Friday after it saw its first-quarter profits more than triple on improved sales and margins. In the three months ended Sept. 26, the Greenville, S.C.-based vendor recorded net income of $2.6 million, or 30 cents a diluted share. The results were an improvement from a year ago, when first-quarter earnings totaled $674,000, or 8 cents a share. <wwd.com>

-For CVS customers, just what the doctor ordered: refills on the go - CVS/pharmacy believes it has just what the doctor ordered for customers on the move—CVS.com Mobile, a mobile commerce web site. The site, m.CVS.com, provides customers a secure, on-the-go pharmacy resource to find store locations and refill, transfer and manage prescriptions. <internetretailer.com>

INSIDER TRANSACTION ACTIVITY:

NILE:

  • Diane Irvine, CEO, sold 1,000 shares ($65k) after exercising options to buy 1,000 shares.
  • Dwight Gaston, Senior VP, sold 2,000 shares ($130k) after exercising options to buy 2,000 shares.

COH: Michael Devine, EVP, CFO, sold 16,000 shares ($546k).

LULU: Christine Day, CEO, purchased 3,000 shares ($75k).

NKE: Phillip Knight, Director, sold 531,000 shares ($34.5mm).

SWY: Oder Kenneth, Director, purchased 10,000 shares ($222k).

TRADING CALL OUTS

As we often say at Research Edge, prices don’t lie. The market is always telling us something. Here are some names that are showing outside movements relative to the market, peers, and volume trends…

  • Internet and catalogue retailers outperformed the market by a mile, literally, due to gains from AMZN better than expected earnings.  Internet and catalogue retailers was the only positive sector Friday, but household durables, sporting goods, and food and staples retailers performed better than the average.  Leisure equipment and products, family footwear, and auto retailers underperformed. 
  • Of the 42 stocks that were positive in retail, only 8 made gains on low volume, meaning that the gainers on Friday earned their positive move.
  • The four biggest outperformers of Friday were AMZN, DLA, RCKY, and NFLX which were up 27%, 24%, 19%, and 11%.  The top four stocks were positive across all durations with positive volume.
  • NDN deserves a positive callout due to its turnaround on Friday.  NDN was one of the top 5 worst performing stocks last week on every duration imaginable between 1 day and 6 months and the negative moves were confirmed by positive volume.  After preannouncing its lower than expected sales, the stock has been hit aggressively.  This will be an interesting stock to follow over the next two weeks as it nears full earnings report on the 4th of November.
  • SMRT, TUES, SSI, ACAT, HZO, and BBW were significant underperformers on large volume. 
  • BGFV took some significant losses on Friday on strong volume to flash negative for a couple of reasons.  On fundamentals, BGFV has been an outperformer with comp trends leading the sporting goods retailers.  Something is fishy here with BGFV down 7% while the sporting goods sector was an outperformer for the day.  That marks a serious divergence from the group and from the fundamental position.

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