Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart

Takeaway: Wal-Mart Squeezed Vendors In The Spring, Now It's Doing It Again. KATE adds depth to org. chart.

WMT - Wal-Mart Squeezed Vendors In The Spring. Now It's Doing It Again.

(http://www.reuters.com/article/2015/06/24/us-wal-mart-stores-suppliers-idUSKBN0P400K20150624?feedType=RSS&feedName=topNews&utm_source=twitter)

 

1) It’s been almost 3 months since a story hit about WMT squeezing its vendors for concessions. But this year, unlike prior years it is to pay employees instead of customers (or shareholders by way of better margins).

2)  We've seen a stark contrast in risk management processes from companies who operate in this space. When 3 of the top 6 private sector employers in the country (WMT, MCD, and TGT) announce that all employees will receive a 25% premium to the government mandated minimum wage it’s impossible to think that it won't have ripple effects across the industry. While many have talked down the potential hit, the well run companies are actively managing the business in a way to offset the rising employment cost pressures. That's exactly what this move by WMT is all about.

3) Unfortunately for WMT, the higher wage rate isn't resulting in a meaningfully better shopping experience -- or if it is, we're just not seeing it in WMT's comp. It makes sense that the retailer would take a second whack at pricing pressure.

4) All in we're looking at a 4%-8% annualized EPS hit at each of the following retailers if we extrapolate the estimated cost per employee at WMT to the relevant number of employees in each retailers workforce.  

Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart - chart1 6 24 15

5) The reason why we haven’t seen elevated compensation expense pressure yet is because we’re now at a seasonal lull for retail. By mid-July, retailers will start beefing up temporary workforce ranks for ‘Back to School’ and then they kick it up a notch again in October as they prepare for Holiday. With the exception of grocery retailers, they ALL follow that pattern. That’s precisely when we’ll see the biggest wage pressure.

  

KATE - Kate Spade & Company Appoints Emilia Fabricant Executive Vice President, President Of North America

(http://phx.corporate-ir.net/phoenix.zhtml?c=82611&p=irol-newsArticle&ID=2061846)

 

KATE announced the addition of a President of North America to its ranks yesterday. This makes perfect sense from where we sit. The KSNY brand should hit the $1bn mark in NA by years end. And this will take some of the executional responsibility off the plates of the C-Suite. In fact, we're surprised that KATE has not added more people at the top ranks sooner. KATE now has leadership in place for both its North American and International segments with the announced hiring of Emilia Fabricant yesterday. We don't know Fabricant personally, and parts of her resume are kind of a head scratcher to us (bebe, Aeropostale, Charlotte Ruse). But Leavitt has made good HR decisions to date...and we'll give him the benefit of the doubt on this one while we vet her on our own. Also, this is not the kind of role (ie Creative) where a person can walk in the door and do damage on their first day on the job.

 

All in, we still like the KATE story a lot, and think it is egregiously undervalued here relative to the underlying earnings power and growth potential.

  

OTHER NEWS

 

SPLS, ODP - Staples merger unlikely after judge blocks Sysco/US Foods union

(http://nypost.com/2015/06/24/staples-merger-unlikely-after-judge-blocks-syscous-foods-union/)

 

JWN - Advantage Sales & Marketing LLC CEO Tanya Domier Joins Nordstrom Board Of Directors

(http://investor.nordstrom.com/phoenix.zhtml?c=93295&p=irol-newsArticle&ID=2061866)

 

CVS, TGT - CVS Health has a new marketing chief

(http://www.retailingtoday.com/article/cvs-health-has-new-marketing-chief)

 

Li & Fung Joins With Chinese Retailers for Joint Venture

(http://wwd.com/retail-news/department-stores/li-fung-joins-with-chinese-retailers-for-joint-venture-10163997/)

 

Meijer opens first Wisconsin stores

(http://www.retailingtoday.com/article/meijer-opens-first-wisconsin-stores)

 


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more