RETAIL FIRST LOOK: A LITTLE TOPLINE

RETAIL FIRST LOOK: A LITTLE TOPLINE

October 29, 2009

TODAY’S CALL OUT

After what some may view as disappointing topline guidance from JNY yesterday, we now have two examples where the topline is both a source of upside and potentially a driver of increased visibility as we move into 2010. Both Hanes Brands and Timberland reported higher than expected 3Q EPS. A couple of highlights/lowlights for each:

HBI: Management quantified its growth opportunity driven by shelf space gains in the mass/mid-tier channel, which is now expected to generate a 5% increase in total topline growth next year (we were at 2%). In an environment where most are dependent on a pickup in consumer spending, this is clearly a net positive for HBI. On the flipside, bears will focus on the quality of the Q3 beat (which was primarily tax related) and a slightly weaker outlook for Q4 (although this likely driven by investment spend to support the company’s ramp in mass channel growth). Additionally, the company also announced a leverage target of 2x-3x Debt/EBITDA, which could be achieved as early as 2011. Management now believes it is the appropriate time to refinance their debt, a process which has been sidelined for several months as the credit markets remained tight.

RETAIL FIRST LOOK: A LITTLE TOPLINE - HBI SIGMA

TBL: With the conference call currently underway, the quick takeaway here is BETTER TOPLINE. The key source of upside was better sales from both US and International wholesale. The US actually posted a 2% increase (vs. our forecast for -8%) and International was -2% (vs. our forecast of -9%). Even more impressive was the growth in the US which was up against a 25% increase last year. Commensurate with upside on sales was better expense leverage, while gross margins were weaker than we expected. While we anticipated this would be a good quarter given very low expectations, we are surprised at the nature of the upside. Clearly a better topline is key to a recovery for TBL, a company which has now struggled for at least 3 years to generate incremental growth. We are careful not to extrapolate the reported results just yet, as we do need to clarify if orders were pulled forward into the quarter, a trend that has been common throughout the footwear industry this Fall season. More details after the call…

RETAIL FIRST LOOK: A LITTLE TOPLINE - TBL SIGMA

LEVINE’S LOW DOWN

Some Notable Call Outs

  • Jones Apparel management highlighted strength in its footwear business and went as far saying the boot business is “exceptional”. Boots were also described as being “the clear fashion trend for the season”. We continue to believe the positive boot trend and the commensurate higher than average ASP’s bodes well for those with women’s fashion boot exposure.
  • While Black Friday garners more media attention and hype than it probably deserves, it’s still worth noting that Sears is attempting to one-up the entire retail industry by hosting its own “Black Friday” events every Saturday from now until Christmas. The events will take place from 7AM to 12PM and will attempt to replicate the “doorbuster” type promotions seen on the real Black Friday.
  • A series of Youtube videos depicting a naked man running through the Streets of New York with running shoes, tube socks, and a fanny pack have been making the rounds across the internet. The videos, which appear to be homemade, have now been revealed as part of a viral marketing campaign for Zappos. The campaign is yet another push by the company to build awareness of its apparel offering. The company has been selling apparel since 2007, but is largely known for its shoes. As we have said before, we would not be surprised to see an increased focus on apparel given the size of the market and the company’s recent tie-up with Amazon.

MORNING NEWS 

-TPG’s Myer Valued at A$2.4 Billion in Initial Public Offering - Myer Group Pty, Australia’s largest department-store chain, sold shares in an initial public offering that values the company at A$2.4 billion ($2.2 billion), offloading its stock near the bottom of its forecast range. The shares were sold at A$4.10 apiece, Melbourne-based Myer, controlled by buyout firm TPG Inc., said in a statement today. That compares with the A$3.90 to A$4.90 range the company predicted when announcing the IPO on Sept. 28. The IPO prices Myer stock at 15.1 times forecast earnings. David Jones Ltd., Australia’s second-largest department store, is trading at 17 times earnings. <bloomberg.com>

-Vitamin Shoppe launches IPO today with higher than expected stock price - Vitamin Shoppe Inc., a multichannel retailer of nutritional supplements, began trading on the New York Stock Exchange today at a share price of $17, up from a planned $14-$16 range. It plans to use net proceeds of about $121.2 million for the redemption of preferred stock and the repurchase of senior secured notes. Vitamin Shoppe raised a total of $154.6 million. The company, trading under the symbol VSI, offered a total of 9,096,077 shares of stock. That total included 7,666,667 shares of common stock, with the remaining 1,429,410 shares offered by selling stockholders. Vitamin Shoppe`s stock price reached $18 at the close of markets today, up 5.9% from yesterday. <internetretailer.com>

-Bill Targets Barriers to U.S. Exports - Senate Democrats introduced a bill Wednesday that would give trade officials more authority to crack down on barriers to U.S. exports. The bill would reinstate the U.S. Trade Representative’s authority to require federal officials to identify and report on the most serious trade barriers to U.S. goods, begin consultations with a country and negotiate remedies. “This bill will hold countries accountable for violating our trade rules,” said Sen. Debbie Stabenow (D., Michigan). She said the bill does so by “identifying and prosecuting countries that cheat, and opening up foreign markets for our American-made products.” <wwd.com>

-President Obama Signs Bill Boosting Customs Funding - President Obama signed a $42.8 billion bill Wednesday that boosts funding for the Customs & Border Protection agency and could potentially delay a 100 percent cargo scanning deadline. The measure provides funds for the Department of Homeland Security, which includes Customs, for the 2010 fiscal year that began Oct. 1. Retailers praised language in the bill that calls into question the feasibility of meeting the 2012 deadline to scan all U.S.-bound cargo containers at foreign ports to determine if they contain terrorist weapons. <wwd.com>

-Struggling CIT Secures New $4.5B Loan - CIT Group Inc. secured a lifeline on Wednesday in the form of an additional $4.5 billion in financing from lenders and bondholders, its latest move to avoid a bankruptcy filing as it tries to obtain bondholder support for restructuring initiatives to reduce its debt load. According to CIT, the new loan matures in January 2012. In securing the loan, CIT rejected a $4.5 billion term loan offer from bondholder Carl Icahn on Tuesday. Icahn in recent days has stepped up his campaign to try to get bondholders to reject CIT’s proposed restructuring plan. <wwd.com>

-Trade Groups Lobby Clinton on Honduras - A coalition of trade associations on Wednesday called on Secretary of State Hillary Rodham Clinton to increase pressure on the Honduran government to resolve a four-month-old coup before the textile and apparel industry deteriorates further. Seven textile and apparel industry associations sent their second letter in a month to Clinton expressing concern. The groups warned that if the current standoff continues, the textile and apparel sector in Honduras could be permanently damaged. <wwd.com>

-Kohl’s Predicts Online Sales Will Grow at Least 30% This Year - Kohl’s Corp., the fourth-largest U.S. department-store chain, expects Internet sales to climb at least 30 percent this year as it boosts advertising through sites including AOL.com. “We have a lot of opportunity to grow” online, Chief Executive Officer Kevin Mansell, 57, said yesterday in a telephone interview. The chain’s Internet sales trail Macy’s Inc., the second- largest U.S. department-store chain, and J.C. Penney Co., the third-biggest, the CEO said. Sears Holdings Corp. is the biggest U.S. department-store chain. <bloomberg.com>

-Amazon pulls the cork on plans to sell wine - In a communication to wineries lined up to support its planned entry into wine sales, Amazon Inc. this week announced it is cancelling those plans. “I am very sorry to let you know we have recently decided not to resume shipping. As you know, we were excited to work with you to build the AmazonWine business. For that reason, this was a very tough choice for us,” read the letter, which regional managers for Amazon Services sent to wineries in their areas. Amazon Services provides third-party services, including fulfillment, to other online merchants. <internetretailer.com>

-Versace Eyes 25% Cut in Staff, Return to Black in 2011 - After only three months in the job, Gian Giacomo Ferraris, chief executive officer of Versace SpA, has launched an extensive reorganization plan aimed at returning the company to profitability in 2011. After forecasting an 18.8 percent drop in 2009 sales to 273 million euros, or $405.6 million, and an operating loss of 30 million euros, or $44.6 million, Versace will cut 350 jobs, which is about 25 percent of its workforce. <wwd.com>

-Madden Signs Apparel License - Steve Madden is expanding his brand’s fashion range and getting into the women’s apparel business for spring under a licensing agreement with L’Koral Industries. L’Koral, headed by chief executive officer Jane Siskin, will design and market the line to better department and specialty stores. <wwd.com>

-Yoox Looks to Grow - When Federico Marchetti set up Yoox Group in 2000 in a small workshop near Bologna, Italy, there were plenty of skeptics who said he wouldn’t be able to sell high-end clothing and accessories online. Not anymore. After reporting revenues of nearly $150 million in 2008, the founder and chief executive officer of the fashion e-tailer plans to drive home his first mover advantage by listing on the Milan Stock Exchange before yearend, despite the fragile state of the financial markets. <wwd.com>

-Charlotte Russe and People's Liberation Sue Each Other - An exclusive three-year deal between mall retailer Charlotte Russe and premium denim brand People’s Liberation came to a contentious halt this week as the firms accused each other of breach of contract. The dueling suits stem from a December agreement that called for Charlotte Russe to carry the People’s Liberation line starting with the 2009 back-to-school season. Shortly after the firms made the deal, Charlotte Russe put itself up for sale and, this month, Boston-based private equity firm Advent International Corp. took the company private for $380 million. <wwd.com>

-Henkel Profits Slip 1.5 Percent - German consumer products giant Henkel reported a slight dip in third-quarter adjusted operating profit, and warned that fourth-quarter results may be weak. The Düsseldorf–based firm - maker of brands including Schwarzkopf, Dial, Fa and Taft -said sales in the quarter ended Sept. 30 fell 2.5 percent to 3.49 billion euros, or $4.99 billion. That figure, part of preliminary results released late Wednesday, is down from the previous year’s 3.76 billion euros, or $5.38 billion, a decrease of 2.5 percent when adjusted for foreign exchange and acquisitions and divestments. <wwd.com>

-Preshrunk Prices: Designer Jeans Fad Rescinding - THE $300 pair of designer jeans is now, courtesy of the recession, the $200 pair of designer jeans. “It was all just a fad,” said Jeff Rudes, a founder of the hot-denim-label-du-jour J Brand Jeans and an astute observer of the suspiciously inflated prices of fashion’s most eternally reinvented staple. Like any commodity that becomes overpriced, there eventually comes a market correction. And denim’s day of reckoning was long overdue. <nytimes.com>

-Fashion's Night Out to Be Repeated in 2010 - Fashion’s Night Out, the global shopping event that gave retail a much-needed kick last month, is due for an encore in 2010. Today, Mayor Michael R. Bloomberg, Vogue magazine, the Council of Fashion Designers of America and NYC & Co. will unveil the return of the event on Sept. 9 — and the plan is to make the second one bigger and better than the first. <wwd.com>

INSIDER TRANSACTION ACTIVITY:

COH: Monda Keith, President & COO, sold 46,000 shares for a gain of $1.6mm.

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…

  • A negative day for both the market and retail.  The divergence between the MVR and RTH can be explained by WMT's outperformance yesterday with an improvement of 0.1%.  6% or 14 out of 241 retail stocks were positive yesterday.
  • 6 out of the 14 sectors declined by more than 4%, leaving food and staples retailers as the best performing sector with a loss of 0.6% yesterday on down volume.  The only sector that is positive on the 1-Week and 3-Week durations is internet and catalogue retail which is due in part to AMZN's 26% gain on Monday.
  •  Outperformers with volume confirmation on all three trends include NTRI, STMP, and DFZ.  CRI had a bounce back from yesterday's significant declines due to the cancelation of the Q3 09 earnings report on Tuesday evening.  Although  micro stocks, RCKY and DLA deserve callouts for significant outperformance on the 1-Week and 3-Week durations.
  • UA, GOLF, BZH, RGR, and CROX were the 5 worst performing stocks in retail yesterday.  ANN flashed negative with significant losses on all 3 durations backed by volume.  CMRG has taken over the lead from CONN as the worst performing stock because it has been one of the biggest losers in all 3 durations while CONN has decreased its losses on the 1-Week and 3-Week trend.

RETAIL FIRST LOOK: A LITTLE TOPLINE - 3

RETAIL FIRST LOOK: A LITTLE TOPLINE - 4