RETAIL FIRST LOOK
November 19, 2009
TODAY’S CALL OUT
Bottom-line: Comp and GM came in better than expected driving the beat as the company managed costs and succeeded in significantly reducing inventory (-3%). Significant conservatism embedded in Q4 guidance, but the comp guidance suggests there needs to be more than just guns&ammo rolling off in Q4 and we’re not necessarily willing to make that bet – will be a key focus of call.
Headline (and clean) EPS of $0.16 vs. $0.09E and Guidance of $0.04-$0.07
Revs (+7%) up on a 1 & 2Yr basis as well as comp and store growth in-line with plan.
(11 stores added on base of 500 – declining avg. sq. ft. trend continues).
Comps +1.9% (vs. -3%E)
GM: -40bps (vs. expectation of -200bps as DKS clears golf inventory)
EPS $1.04-$1.09 (vs. $1.13E)
EPS $0.41-$0.46 (vs. $0.57E)
Implying massive deceleration on a 1 & 2Yr basis – Is undoubtedly conservative but significantly divergent from the +7.5% needed to keep trends flat on a 2yr basis (there has to be more to this than just guns&ammo rolloff – will be a focus of the call)
Call at 10EST
LEVINE’S LOW DOWN
- Contrary to most retailers, BJ’s Wholesale management noted that private label sales have not been a key contributor to gross margin expansion this year. They also went on to note that sales of private label products haven’t really grown this year. While the comments on the topic end there, it surprising to find out that this key area of “value” for the consumer has not been outperforming at BJ’s as it has been for all other retailers ranging from department stores to dollar stores.
- While some retailers have suggested trends have slowed since the October, due in part to warmer weather, Chico’s is not seeing any slowdown. While their overall outlook for 4Q does not call for an acceleration in same store sales trends, sales are currently increasing in the double-digit range.
- As the Costco/Coca Cola wars perk up, we’re nostalgic for a couple of notable retailer/supplier battles from the past. While we fully expect Costco and Coca-Cola to kiss and make up in short time (after all Buffet is the largest shareholder of KO and Munger is on the board of COST), we can’t forget the Wal-Mart/Rubbermaid debacle (hurt Rubbermaid big time) or the infamous Foot Locker/Nike battle. It’s unlikely this current situation overheats to damaging proportions, but rest assure we’ll be watching for the first sign of Vitamin Water being restocked in our local Costco.
OECD Doubles 2010 Growth Forecast, Recovery to Widen - The Organization for Economic Cooperation and Development doubled its growth forecast for the leading developed economies next year and predicted a further acceleration in 2011 as China and other emerging countries power a global recovery.
The combined economy of the group’s 30 member countries will expand 1.9 percent next year and 2.5 percent in 2011, the Paris-based organization said in a report today. Output will contract 3.5 percent this year. The OECD, which advises members on economic policy, forecast 2010 growth of 0.7 percent in June. The MSCI World Index has surged 69 percent in the past eight months as the world economy emerges from its worst recession in more than half a century. While the U.S. and the euro region will return to growth next year, mounting debt burdens will keep the expansion in check, the OECD said. <bloomberg.com>
Leading Economic Index in U.S. Probably Rose for Seventh Month - The index of U.S. leading indicators probably rose for a seventh consecutive month in October, signaling the economy will keep growing into next year, economists said before a report today. The Conference Board’s gauge of the outlook for the next three to six months rose 0.4 percent after climbing 1 percent in September, according to the median forecast of 58 economists surveyed by Bloomberg News. Another report may show manufacturing accelerated in the Philadelphia region this month. The rally in stocks, longer factory workweek and fewer jobless claims that have accompanied the recovery help mend household finances, limiting the risk the economy will again retrench. A pickup in growth is dependent on gains in hiring that have yet to develop, one reason why Federal Reserve Chairman Ben S. Bernanke this week said the U.S. still faces “headwinds.” <bloomberg.com>
Obama Wants South Korean Trade Deal Done - President Obama said Wednesday he is committed to resolving issues with South Korea that have stalled a major free trade agreement and “get a deal done.” Obama’s comments, in an interview with Fox News during his weeklong trip to Asia, marked the most definitive support he has shown for the deal, which has created divisions between U.S. importers and domestic manufacturers. Obama arrived in South Korea on Wednesday and was to meet with President Lee Myung-bak today. Obama said the trade deal between the U.S. and South Korea, negotiated by former President George W. Bush and completed in April 2007 but stalled in Congress, will benefit U.S. exporters. Year-to-date imports of textiles and apparel from South Korea have fallen 14.2 percent to 1.1 billion square meter equivalents, according to the Commerce Department’s Office of Textiles & Apparel. In dollar value, imports of textiles and apparel have fallen 30.3 percent to $603 million year-to-date. <wwd.com>
Congress Hears Arguments on U.S. Trade Preference Programs - Executives from Levi Strauss & Co. and Mount Vernon Mills Inc. on Tuesday outlined the sharp differences between importers and manufacturers that Congress will consider in any revamp of U.S. trade preference programs that cover billions of dollars in goods. The House Ways & Means subcommittee on trade began examining whether to overhaul five U.S. trade preference programs that covered $110 billion in trade in 2008 and provide duty free benefits to hundreds of countries from South America to sub-Saharan Africa. With the global economic downturn hurting several developing countries, lawmakers are considering whether to change the programs, create new criteria and streamline and possibly expand them. Lawmakers must balance the impact of changes on U.S. manufacturers, as well as the current trade preference beneficiary countries. <wwd.com>
EU: Footwear sector under threat - The European Footwear Alliance calls on EU Member States to reject the Commission’s proposal to extend antidumping duties on footwear. The duties harm consumers, retailers and the modern footwear sector and any continuation would breach the 2006 agreement to end them after two years. “The decision tomorrow on footwear duties will have a direct and immediate effect on European consumers and businesses,” said Manfred Junkert, Director of the Federation of the German Footwear Industry. “Just as we begin to see a glimmer of economic recovery, the Commission is proposing to extend the dumping duties. It’s unthinkable,” he said. Representatives from the 27 EU Member States meet tomorrow to vote on whether or not to extend antidumping duties on leather footwear imports from China and Vietnam. <fibre2fashion.com>
Exclusive: GM Must Pay Debt, Make Money Before IPO - General Motors should focus on making money and repaying U.S. Treasury loans before turning to public markets to sell the taxpayer's stake in the automaker, a senior government official said. Ron Bloom, head of the Obama administration's autos task force, nevertheless told Reuters that an initial public offering could come as soon as the fourth quarter of 2010 if the automaker meets its recovery targets and the financial markets are receptive.
Bloom said the government had previously expressed concerns about GM operations but now trusts the directors and management to do what is best for shareholders. Ensuring corporate independence at GM and Fiat-led Chrysler includes accepting decisions that may surprise the government or diverge from administration goals, such as production of electric vehicles. <abcnews.go.com>
Moody's upgrades Jones Apparel's liquidity rating - Moody's Investors Service on Wednesday upgraded Jones Apparel Group Inc. by one notch on its liquidity rating, which remained in speculative grade territory. Moody's moved Jones to "SGL-1" from "SGL-2" and affirmed all other ratings. Moody's said the rating outlook remains "Stable." The upgrade in its liquidity rating is based on the New York company's improving operating margins, more efficient use of working capital and lower planned capital expenditures. Moody's said Jones Apparel would maintain a substantial existing cash balance in fiscal 2010, meaning it will have little need to dip into existing available credit. It now has about $160 million cash on hand, Moody's said. The agency also said the company had nothing currently outstanding <google.com/hostednews>
STONY APPAREL Chooses NGC for Integrated PLM, Global Sourcing and Apparel ERP Solution - NGC(R) (New Generation Computing(R)) today announced that STONY APPAREL, a branded and private label manufacturer of girls and junior apparel for some of the nation's largest retailers, is implementing NGC's Global Enterprise System software suite, including e-PLM(R) for Product Lifecycle Management, e-SPS(R) for Global Sourcing & Visibility, and RedHorse(R) ERP for EDI, Customer Order Processing, Inventory Management, Shipping and Financial Accounting. The implementation is currently underway, and STONY APPAREL is quickly realizing benefits even in the early stages of the rollout. For example, NGC helped STONY APPAREL quickly implement the EDI module in RedHorse. As a result, STONY was able to meet a complex EDI requirement from a Tier 1 retailer and book a very large order -- something that wouldn't have been possible without the new software. <money.cnn.com>
Russell Agrees to Rehire 1,200 Workers in Honduras - Russell Athletic has agreed to rehire 1,200 workers in Honduras who lost their jobs when Russell closed their factory soon after the workers had unionized, according to a report in The New York Times. Russell has long contended the plant was closed due to the economic downturn and not because of unionizing efforts. Since Russell closed the factory in January 2009, United Students Against Sweatshops has initiated a nationwide campaign across college campuses against Russell. The Times report noted that the movement persuaded the administrations of Boston College, Columbia, Harvard, New York University, Stanford, Michigan, North Carolina and 89 other colleges and universities to sever or suspend their licensing agreements with Russell. <sportsonesource.com>
US: Apparel retailers see growth in October - US apparel retailers have seen positive growth in October right before the Christmas holiday, said the National Retail Federation (NRF). October retail sales, according to the US Commerce Department, including non-general merchandise categories such as autos, gasoline stations and restaurants increased 1.4% seasonally adjusted from the previous month, but decreased 1.7% unadjusted year-over-year. Clothing and clothing accessories stores saw strong gains, with sales increasing 0.4% seasonally adjusted from the previous month and 3.6% unadjusted year-on-year. <fashionnetasia.com>
China: Mainland's sportswear brand goes int'l through Hong Kong - China-based Sportswear brand Xtep International has launched its first flagship store for the Disney Sport products in Hong Kong as its stepping stone into the overseas market. Established in 1999, Xtep is one of a growing number of mainland brands, with 5,800 stores across China. "Hong Kong is an irreplaceable financial center and commercial hub, which is the key reason for us to choose to list in Hong Kong," Ding Shui Po, company chairman and chief executive officer referring to the listing of the company's shares in Hong Kong last year. Ding said he planned to use Hong Kong as a platform to expand his business to emerging markets, including the Middle Eastand the southeast Asian countries. <fashionnetasia.com>
Hal Extends Offer Period for Safilo - Hal Holding NV has extended through next week the provisional deadline for holders of Safilo Group SpA securities to tender their notes in the debt-ridden eyewear maker, after not enough did so by the original “early-bird” date on Wednesday. “Hal has decided to extend the offer period until November 27, 2009 5:00 p.m. CET. The new settlement date will be on December 2, 2009,” Hal stated. The extension keeps alive Safilo’s hopes of survival after Safilo chief executive officer Roberto Vedovotto warned last week that without a successful tender off, the company would likely default on its banking facilities by yearend, leaving bankruptcy its only alternative. <wwd.com>
Foot Locker Elects Ken Hicks to Additional Position of Chairman - Foot Locker, Inc. announced that its board of directors has elected Ken C. Hicks, its president and chief executive officer, to the additional position of chairman of the board, effective January 31, 2010, the beginning of its next fiscal year. He succeeds Matthew D. Serra, who, as previously announced, will retire from the company and the Board of Directors on January 30, 2010. James E. Preston, Foot Locker's lead director, stated "The Board of Directors is very pleased that, as part of the planned transition in connection with Matt Serra's retirement, Ken Hicks will take on the additional role of Chairman of the Board. Ken is a seasoned retail company executive who has the background and experience to be a strong leader of Foot Locker." <sportsonesource.com>
Female "Tween" Apparel Spending Down YOY - The tween market is morphing almost as fast as its customers. First there were Mary-Kate and Ashley Olsen. Then Hilary Duff. Now, Miley Cyrus is growing her fashion empire. Who among the newest stable of starlets — including Keke Palmer and Selena Gomez — is poised to reign as the next tween queen? The opportunities are ripe, although the category hasn’t been immune to the recession. There are about 20 million girls between the ages of five and 14, according to the U.S. Census Bureau. Girls between the ages of seven and 12 accounted for $7.45 billion in clothing sales in the 12 months through August. The same age group spent $7.85 billion a year ago, according to research firm The NPD Group. <wwd.com>
After 36 Years, J.C. Penney Ends 'Big Book' Catalogue - J.C. Penney is bidding farewell to its biannual “big book” catalogue. Instead, the retailer said it will throw greater weight behind “customized, more timely” specialty catalogues for targeted audiences, and online and social media opportunities. The 36-year-old big book had the heft of a telephone book and ranged from 900 to 1,500 pages. It surpassed $1 billion in sales in 1979. The big book became a victim of rising costs and a shift by customers to shopping online. Penney’s direct business, catalogue and online, exceeds $4 billion. Sears had the longest-running big book, but it folded in 1993 after 106 years. Penney’s final big book is the current fall-winter edition. <wwd.com>
Nike Tops Annual Climate Action Scores - Nike has topped Climate Counts' third annual corporate climate performance scorecard with 83 points (out of a possible 100) for the second year in a row. Stoneyfield Farm followed closely with 81 points. Unilever received 80 points. The climate performance scorecard ranks 90 American companies in 12 sectors. Compiled by the nonprofit group Climate Counts, the survey found that most of the 90 companies were addressing environmental responsibility, either by cutting their energy use, measuring their output of greenhouse gases, adopting policies to reduce emissions or pushing for federal legislation to do the same. Among Apparel/Accessories companies that were tracked, Nike was followed by Levi Strauss, with a rank of 58; Gap Inc., 52; Limited Brands, 35; Jones Apparel Group, 20; Liz Claiborne, 7; and VF Corp., 6. <sportsonesource.com>
Adidas to Make €1 Sneakers - Adidas has reached an agreement to make €1 sneakers for millions of people around the world who cannot afford to buy shoes, with pilot production to begin next year in Bangladesh. The move, according to the Daily Telegraphy, was inspired by Bangladesh's Nobel prize winner, Muhammad Yunus. Yunos is the pioneer of micro-loans which help the poor start their own businesses. Adidas has agreed it will produce shoes in Bangladesh on a non-profit basis, although a spokesman stressed the final price may be higher than the €1 target. <sportsonesource.com>
Walmart Offers Black Friday Sales One Week Early - Beginning Saturday, Walmart will serve up discounts similar to day-after-Thanksgiving sales on various toys and entertainment. Licensed products in the one-week-early campaign include discounts on toys and video games for as much as 60 percent off. Offerings include Barbie Generation of Dreams collectors' doll for $25, Disney Princess scooter for $99, Nerf Capture the Flag for $19 and others. Video games such as Band Hero (with drum and guitar controllers, microphone and game), DJ Hero and Guitar Hero 5 are also part of the promotion. <licensemag.com>
The North Face Launches PlanetExplore in Denver - The North Face announced the Denver, Colorado, launch of PlanetExplore, a new online community that connects people to the outdoors in meaningful ways by serving as a hub for local outdoor activities and events. “Denver is very special to The North Face,” says Steve Rendle, president of The North Face. “In many ways, Colorado leads the nation and sets an example of what embracing the outdoors is about—this is why we decided to make Denver a pilot city for PlanetExplore, to build on this excellent foundation.” <sportsonesource.com>
INSIDER TRANSACTION ACTIVITY
VLCM: Richard Woolcott, Chariman & CEO, sold 20,000 shares for a gain of $334k.
FOSL: Tom Kartsotis, Chairman, sold 100,000 shares for a gain of $3.2mm.
GPS: John Fisher, 10% Owner, sold 26,000 shares for a gain of $562k.
KSS: John Worthington Sr. EVP, sold 20,600 shares after exercising options to buy 20,600 shares for a net gain of $247k.
COH: Lew Frankfurt, Chairman & CEO, sold 2.2mm shares after exercising options to buy 2.2mm shares for a net gain of $48mm.
- Allen Lenzmeier, Vice Chairman, sold 150,000 shares after exercising options to buy 150,000 shares for a net gain of $90k.
- John Pershing, EVP-Human Capital, sold 5,000 shares after exercising options to buy 5,000 shares for a net gain of $77k.
- Andrew Jassy, SVP, sold 15,000 shares after exercising options to buy 13,000 shares for a net gain of $1.95mm.
- Jeffrey Wilke, SVP, sold 17,000 shares after exercising options to buy 17,000 shares for a net gain of $2.2mm.
- Steven Kessel, SVP, sold 13,000 shares after exercising options to buy 13,000 shares for a net gain of $1.7mm.
- Michelle Wilson, SVP, sold 13,000 shares after exercising options to buy 13,000 shares for a net gain of $1.7mm.
- Diego Piacentini, SVP, sold 10,000 shares after exercising options to buy 17,000 shares for a net gain of $1.33mm.
- Jeffrey Blackburn, SVP, sold 6,000 shares after exercising options to buy 15,000 shares for a net gain of $786k.
WMT: Lee Scott Jr., Chairman of the Executive Committee, sold 244,000 shares for a gain of $13mm.
DECK: Constance Rishwain, President of Simple & UGG, sold 3,000 shares for a gain of $300k.