RETAIL FIRST LOOK: REVISITING SHORT INTEREST
October 30, 2009
REMINDER: Q4 RETAIL THEMES & KEY IDEAS CALL @ 11am
TODAY’S CALL OUT
With all the enthusiasm over the past few weeks surrounding improving same store sales, positive earnings pre-announcements, and early positive sell-throughs on cold weather goods, it’s time to revisit the short interest for the retail and apparel sectors. As shown below, there has clearly been a reduction in short interest since the summer, as sector fundamentals improved and the “pain trade” took its toll. However, with so many investors “looking for shorts” and the reality that we are now in the absolute sweet spot for easy sales and margin comparisons with last year’s Perfect Storm, we would not be surprised to see the trend reverse as holiday hype begins to build. Short interest alone is not the sole factor in looking at the group, but it certainly has been a tailwind for retailers and apparel manufacturers that have been printing substantial upside against what until recently was still a big wall of worry.
LEVINE’S LOW DOWN
Some Notable Call Outs
- Whether it’s the “green” nature of Timberland’s Earthkeepers product line or the overall styling, the consumer seems to be responding well to the innovative offering. Given the line’s success since the launch with 4 SKU’s in 2007, management now believes the brand will comprise approximately 10% of the company’s entire footwear sales and 50% of apparel sales by Fall 2010. After the shoes/boots reach their useful life, they can be returned to Timberland at which point they are disassembled and the parts are recycled.
- The mixed read on a retail recovery in California continues. Office Depot reported that California remains a challenging market and actually showed a deceleration in 3Q vs. 2Q and also performed below the company average for the quarter (comps down over 14%). Management went on to say they “are worried about the situation” in California. The company’s exposure to the public sector as well as small businesses in that region is a key reason for the continued weakness.
- Office Max management indicated that “cherry pick” rates were up for the second year in a row over the back to school season and are expected to continue to rise over the holiday season. Consumers are apparently willing to shop multiple doors (with gas prices at more reasonable levels this year) in order to buy specific items that are on promotion. As a result, both basket size and gross margin is pressured as the consumer purchases fewer, less profitable items.
Retail Groups Oppose Health Bill - Major retail groups were critical of an $894 billion bill unveiled by House Democrats on Thursday that would overhaul the health care system and require payroll tax penalties for uninsured workers. House Speaker Nancy Pelosi (D., Calif.) and Democratic leaders spent months merging three House committee bills and might vote on the legislation next week. The National Retail Federation and the Retail Industry Leaders Association both expressed reservations about the House bill, which President Obama hailed as a “historic step forward.” <wwd.com>
New Issues Arise at U.S. China Trade Talks - The United States and China diffused some trade tensions during high-level talks held here this week, but new rifts emerged just as quickly to take their place. Top trade officials from both sides met in this coastal city for the 20th meeting of the U.S.-China Joint Commission on Trade and Commerce, where on Thursday they unveiled new breakthroughs on sticky two-way trade tensions involving poultry and pork. Chinese Minister of Commerce Chen Deming pledged China would soon lift the ban it had placed on American pork imports in May after the emergence of the H1N1 flu virus in North America. In turn, the Chinese government hopes the U.S. Congress will follow through with a recent proposal to end the 2007 prohibition on Chinese chicken imports to America. <wwd.com>
U.S. Consumer Spending Probably Fell as ‘Clunkers’ Plan Ended - Spending by U.S. consumers probably fell in September for the first time in five months as auto dealer showrooms emptied in the wake of the government’s auto- rebate program, economists said before a report today. Purchases decreased 0.5 percent after a 1.3 percent jump in August that was the biggest in almost eight years, according to the median forecast of 75 economists surveyed by Bloomberg News. Other reports may show consumer sentiment dropped this month and business activity shrank at a slower pace. <bloomberg.com>
Sanofi-Aventis to Acquire Oenobiol - Sanofi-Aventis said it would acquire Laboratoire Oenobiol, the French maker of nutritional, health and beauty supplements. Terms were not disclosed. Founded in 1985, Oenobiol has annual revenues of 57.2 million euros, or $84.8 million at current exchange. Eighty-five percent of its business is generated in France, with the rest stemming from countries such as Italy, Spain, Belgium, Poland and Portugal. <wwd.com>
Amazon.com launches PayPhrase as a new online payments option - Amazon Payments Inc., a subsidiary of Amazon.com Inc., today launched Amazon PayPhrase as a new option for speeding up online checkout, including on the sites of retailers Buy.com and J&R Electronics. At Buy.com, which launched PayPhrase today along with the Checkout by Amazon payment feature, PayPhrase promises to offer a new level of shopping convenience, Buy.com Inc. president and CEO Neel Grover tells Internet Retailer. “This new technology brings an exciting new feature into alternative payments,” he says. “We think our customers will want to use this during the holiday shopping season and beyond.” <internetretailer.com>
Barnes & Noble puts its considerable weight behind the EPUB e-book standard - Adobe Systems Inc. and Barnes & Noble Inc. have joined forces to further e-book standardization based on the open EPUB standard and on PDF files. They also are collaborating on a content protection standard based on Adobe and Barnes & Noble technology. The collaboration enables users of Barnes & Noble’s nook e-reader hardware as well as users of Barnes & Noble e-reader software for iPhones, PCs, BlackBerrys and other smartphones, to access digital content from thousands of content providers across the web that is copy-protected with Adobe technology. In addition, e-book users with devices that use the Adobe Reader Mobile software development kit will soon be able to purchase and read content from BN.com. <internetretailer.com>
China: Textile firms expect an upturn despite labor woes - The Chinese textile and garment industry has seen signs of recovery despite an acute labor shortage, riding largely on the revitalization plan charted by the government for the sector. Figures from National Bureau of Statistics indicate that garment exports from January to August were around $101.7 billion, down 11.8% over the same period last year. Garment exports dropped 35.8% in the first two months of this year. The current figures indicate that decline has narrowed by 24% points over the first two months. However, the whole sector has shown signs of recovery in terms of investment volumes and profitability after the industry revitalization plan was launched by the State Council in April. <fashionnetasia.com>
Volcom Net Slips in Third Quarter - Volcom Inc. delivered a lower but better-than-anticipated bottom line in the third quarter and, despite sales declines and softened forecasts for the current quarter, said it was poised to take market share in the next fiscal year. In the three months ended Sept. 30, the Costa Mesa, Calif.-based surf and skate brand reported net income of $13.3 million, or 54 cents a share, 18.5 percent below the $16.3 million, or 67 cents a share, generated a year ago. <wwd.com>
P&G, Revlon Profits Fall - As quarterly results from Procter & Gamble Co., Revlon Inc. and others attested Thursday morning, the beauty world is still struggling to limit recession-driven sales declines as shoppers hold on tight to their dollars. P&G’s first-quarter net income slid 1.2 percent to $3.31 billion, or $1.06 a diluted share, on a 5.6 percent dip in sales to $19.81 billion. Income for the quarter, which included July, August and September, came in ahead of the 99 cents Wall Street expected. The company boosted its guidance and said it now expects sales for the year to rise 3 percent to 6 percent. <wwd.com>
Callaway's Q3 Profit Sink 25%; Sales Down 11% - Callaway Golf Company said third quarter net sales slid 11% to $190.9 million from $213.5 million in the year-ago period. On a currency neutral basis, the company said net sales would have been $194 million, a decrease of 9% compared to the third quarter of 2008. Gross profit fell 25.7% to $59.6 million compared to $80.1 million a year ago, yielding a gross margin of 31% compared to 38% a year ago. <sportsonesource.com>
North America: Holiday sales expect a marginal growth - North America's retail holiday sales, particularly after Halloween, are likely to be marginally better than last year's, according to North American retail advisory firm Karabus Managment Inc. The firm foresee flat to 1% growth in holiday sales this year due to the "recession weariness" and aggressive inventory management. <fashionnetasia.com>
German Retail Sales Unexpectedly Dropped in September - Retail sales in Germany, Europe’s largest economy, unexpectedly fell for a second month in September after companies shortened working hours, leaving consumers with less money to spend. Sales, adjusted for inflation and seasonal swings, slipped 0.5 percent from August, when they dropped 1.8 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a gain of 1 percent, according to the median of 23 estimates in a Bloomberg News survey. From a year earlier, sales declined 3.9 percent. <bloomberg.com>
A&F Opens in Milan - Move over H&M — the opening of the Abercrombie & Fitch store here Thursday drew a crowd of girls with their moms, teens, university students and young men and women taking a day off from work. At 10 a.m. sharp, they all surged into Abercrombie & Fitch’s second European store, after London, as the doors opened. “We are really proud to open a store here in Italy, especially in a fashion capital like Milan,” said a spokeswoman for Abercrombie & Fitch. <wwd.com>
Movie Gallery Late on Rent, May Shut 200 More Stores - Movie Gallery Inc., owner of the Hollywood Video chain, is renegotiating leases and past-due rent and may close 200 more stores as customers defect to mail-order and kiosk retailers. The Wilsonville, Oregon-based operator of Movie Gallery and Hollywood Video has shuttered 250 stores since Sept. 1, cutting the number of outlets to 2,921, according to Chief Marketing Officer Clifford Torng. Another 150 to 200 may close by year- end, he said. <bloomberg.com>
Ebay to Appeal French Court Ruling - EBay is appealing a French court decision that the online auction giant should pay damages to LVMH Moët Hennessy Louis Vuitton SA for allowing a keyword search for the French company’s perfumes without authorization. Last month, eBay was ordered to pay 80,000 euros, or $117,820 at average exchange rates for the period, after LVMH complained keyword searches on the site for Christian Dior, Kenzo, Givenchy and Guerlain perfumes provided links to sites selling these products. <wwd.com>
Online display ad spending dips this year, as overall web ads grow - Spending on Internet display ads by retailers, catalogers and other marketers this year will decline by 1.2% to $7.2 billion from $7.3 billion last year, but advertising expenditures for all forms of non-e-mail Internet advertising will grow 1.1% to $23.1 billion, the Direct Marketing Association says in a new report. <internetretailer.com>
Bally Taps Hauptkorn as CEO - Bally has appointed Berndt Hauptkorn as chief executive officer, effective Monday. Hauptkorn is no stranger to Bally since previously he was ceo of Labelux Group, the two-year-old, Vienna-based luxury goods holding company. Owned by Joh. A. Benckiser SE, a family-controlled financial holding company, Labelux acquired Bally in April 2008 from private investment fund TPG Capital. <wwd.com>
Walmart One Stop Shopping: Food, Apparel & Caskets - It now seems that you could be caught dead inside Walmart, in one of their caskets, that is. Walmart's looking to bury its competition, and has undertaken selling caskets on its website at discount prices. That could mean grave news for funeral homes, that have to accept third party caskets by law. But for consumers, it means they won't be "coffin" up as much cash at a time of bereavement. <kbmt12.com>
INSIDER TRANSACTION ACTIVITY:
NFLX: Reed Hastings, CEO, sold 10,000 shares after exercising options to buy 4,500 shares for a net gain of $522k.