RETAIL FIRST LOOK
November 20, 2009
TODAY’S CALL OUT
When all is said and done, those with apparel exposure printed the best numbers. Consistent with our recent incremental thoughts on the space, we think that the setup for athletic footwear remains solid headed into ’10. If FL is not on your list of long candidates, it should be. NKE starting to look better too.
- DKS & HIBB reported better than expected results while FL missed the quarter (it’s also the only one of the 3 that doesn’t provide guidance)
- The SIGMA for all three reflected both an improved sales/inventory ratio and margins across the board
- Comps improved on a 1Yr & 2Yr basis for all three
- Both apparel and hard goods posted positive comps in Q3 (DKS & HIBB)
- Footwear comped positively for DKS, but negative for HIBB (non-cleated business)
- Outlook disparity b/w DKS and HIBB Q4 guidance and an implied trends at FL (flat on 2Yr) clearly stands out implying a 7% sequential deceleration.
- DKS attributed the conservatism not to current deterioration of trends, but rather the shift of cold weather product demand into the 3Q, uncertainty about consumer spending in light of healthcare bill, unemployment, etc. as well as the anniversary of record guns&ammo demand.
- Store growth: HIBB easing (expect 22 net new stores in F09 vs. 30-32 noted last qtr) while DKS is stepping on the accelerator commenting that if properties become available as was the case with Joes that fit the DKS footprint (35-55k), they will move to acquire add’l locations.
- Every category (including footwear) comped positively for the 3Q
- Mgmt noted that footwear has been a good business, but that they are bit different from ‘mall-based retailers’ in that they focus on the core athlete (football, baseball player) implying that similar to HIBB it was the cleated footwear business that outperformed within footwear.
- Noted there were no real highs or lows to note.
- While revs were modestly better than expected, footwear was highlighted as the most challenging category in the quarter and continues to be.
- On the other hand apparel, accessories and hard goods and cleated footwear was all positive in the 3Q – trend expected to cont. in 4Q.
- Only commentary of consequence is that the Int’l business is outperforming domestic sales.
MISS: Reported EPS of $0.04 (Clean $0.10 ex impairment charges) vs. $0.13E
Revs (-7%) up on a 1 & 2Yr basis as well as comp.
Store consolidation continues -14 net
(-14 net store reduction on base of 3600 –declining avg. sq. ft. trend continues (-3%-4%)).
Fx (0.3%) impact
Comps -8.2% (vs. -5.8%E)
Int’l outperformed domestic US business with improved trends in Eur through 3Q and positive performance in APac.
BEAT: Reported (clean) EPS of $0.30 vs. $0.24E
Revs (+4%) up on a 1 & 2Yr basis as well as comp.
Opened 5 net new stores, but dialing back plans for net adds in FY09 to 22 from 30-32
Comps -0.2% (vs. -0.8%E)
EPS $0.95-$1.02 (vs. $0.92E) and guidance of $0.85-$0.95
Implied EPS $0.24-$0.31 (vs. $0.27E)
- Authorized a new stock repurchase authorization of $250mm replacing the existing plan set to expire in Jan ’10.
FL call @ 9am
HIBB call @ 10am
LEVINE’S LOW DOWN
- William Sonoma management indicated that early sales of the holiday assortment are selling better than expected at this point in the season. There is a sense that their customers are decorating again and continue to entertain at home. As a result, there may be some inventory shortages resulting from continued demand improvement across the business. As a result, management is now expecting to pull some early spring product into late December to meet demand as well as offer newness into the assortment.
- Despite substantial inventory management improvements over the past two years, ROST management still believes it can reduce inventories further in 2010 by mid to high single digits. Embedded in this assumption is the company’s ability to buy and process units closer to need. However, with inventory tight across the entire supply chain we wonder how much more opportunity there really is to buy closer to need.
- As retailers continue to create a web of confusion surrounding November sales performance, add PVH to the list of those that are still seeing positive momentum. After reporting a better than expected 6% same store sales increase in the quarter, management noted that the same trend has continued through the third week of November. Sales momentum is being driven primarily by higher AUR’s and conversion, with traffic that is essentially flat.
- In effort to support the success of its first holiday season in southern California, Dicks Sporting Goods is investing heavily in promotions and marketing in 4Q in that region. The cost of these efforts is expected to be $14 million or $0.07 per share, split 60/40 between marketing and promotions. Management was quick to point out that region has not necessarily gotten worse but that the company is taking the opportunity to invest in the region to further build its brand presence.
- Management of GameStop attributes the company’s ability to sell 2.5 million units of Modern Warfare 2 in the first 72 hours to the company’s ability to offer trade credit through its used game program. There continues to be an increasing amount of new launch titles being purchased with credit, reflecting both the company’s market share in the used game industry as well as the consumers’ appetite for value.
- After chasing inventory in the denim category in September and October, Gap is just now back in stock, by size, fit, and wash for the Thanksgiving weekend. This is the first time since the denim re-launch in August that inventory has been well positioned. On a go forward basis, management is focused on making more frequent month by month introductions in the category to continuously reinforce the company’s commitment to innovation in the category.
- Given Steinmart’s demographic focus on a lower income consumer, management noted that sales conditions continue to be challenging. The company’s customers are reliant on incentives (i.e coupons) to come into the stores to shop. Additionally, the lack of clearance inventory in the mix did have a negative impact on sales, further indicating that their customer remains very focused on value and price.
- If your already annoyed by Gap’s recent return to TV advertising (maybe a little too much cheer?), there is good news ahead. The second through the fifth weeks of the campaign will feature different twists to the initial programming we have seen over the past seven days. Along with a new campaign, the company will continue to test the balance between rebranding and the use of promotion.
Retail Groups Express Concerns Over Senate Health Care Bill - Retail groups voiced strong opposition to employer mandates in an $849 billion bill unveiled by Senate Democrats Wednesday night that would overhaul the health care system and assess fees on employers to help pay for workers eligible for government health insurance subsidies. The National Retail Federation and the Retail Industry Leader Association were critical of the bill’s employer requirements, while Wal-Mart Stores Inc., which supports a mandate for businesses to pay for employee health care, remained neutral on the Senate bill. The AFL-CIO, on the other hand, lent overall support for the bill, but expressed concern over several issues, including employer mandates that the union said fall short in providing more coverage to workers. <wwd.com>
GAO Report Finds Credit Card Swiping Fees on the Rise - The National Retail Federation welcomed a report issued today by the General Accountability Office on the $48 billion in “swipe” fees that credit card companies collect from merchants and their customers each year. “This report shines a spotlight on credit card fees and their cost to consumers,” NRF Senior Vice President and General Counsel Mallory Duncan said. “In the past two weeks we’ve seen the Federal Reserve Bank of Kansas City hold a major conference on credit cards, a study from the Hispanic Institute on how card companies take from the poor and give to the rich, and now this document. Clearly, there is a growing focus on this issue and it’s time for action. With this information in hand, we hope Congress will move quickly to pass legislation to bring these fees and practices under control.” <sportsonesource.com>
China Will Face Its Own Bubble to Face as Consumer Demand Falters - Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Chinese growth is likely to be hurt by an absence of consumer demand from trading partners such as the U.S. “The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. “It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.” “With unemployment in the double digits and likely to stay close to that for the next six months despite job creation ahead, the Fed has nowhere to go,” Gross, co-founder and co-chief investment officer of Pimco, said on Bloomberg Television. <bloomberg.com>
Bank of Japan Keeps Rate at 0.1% as Kan Urges Deflation Fight - The Bank of Japan kept interest rates near zero and raised its economic assessment even as government pressure for it to fight deflation intensified. Governor Masaaki Shirakawa and his colleagues held the overnight lending rate at 0.1 percent, the central bank said in a statement today in Tokyo. The release came hours after Deputy Prime Minister Naoto Kan warned about the danger that falling prices pose to Japan’s recovery from its worst postwar slump. <bloomberg.com>
Japan’s Department Store Sales Fall 10.5 Percent - The Japan Department Store Association said sales for the month of October dropped to 513.55 billion yen, or $5.71 billion at average exchange, a decline of 10.5 percent compared to the same month last year. This is the 20th consecutive month of decline and biggest monthly drop yet. Sales of clothing fell 13.6 percent overall, with women's apparel dropping 13.5 percent. The largest drop in a single category was 17.2 percent, in furniture. The only area that posted an increase was consumer electronics, up 11.3 percent. <wwd.com>
INDEX IQ introduces M&A ETF - This week has already seen a number of unique ETFs come into the market place. The IQ ARB Merger Arbitrage ETF (NYSEArca: MNA), linked to the IQ ARB Merger Arbitrage Index, is another one. MNA is the first ETF to invest (long and/or short) in global companies that are potential takeover candidates. The new ETF seeks to achieve capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer. This differentiated approach is based on a passive strategy of owning certain announced takeover targets, with the goal of generating returns that are representative of global merger arbitrage activity. The index also includes short exposure to global securities as a partial equity market hedge. <etfguide.com>
Adidas Targets Mountaineers as $59 Billion Outdoor Market Booms - Adidas AG, the world’s second- largest sporting-goods maker, will start selling a new range of 400-euro ($595) mountaineering jackets next year as it aims to capture a larger share of the growing outdoor-pursuits market. The Herzogenaurach, Germany-based company wants to become a leading brand for so-called performance-sports gear by 2015, Rolf Reinschmidt, head of the global outdoor division, said by phone. Adidas is “among the top 10 labels” in the market, he said, declining to be more specific or provide figures. Sales of outdoor gear will rise about 0.7 percent in Europe this year, outperforming the declining sporting-goods market, according to industry body European Outdoor Group. The fragmented nature of the market makes it attractive for Adidas. VF Corp., owner of The North Face brand, leads the $59 billion industry with outdoor-sports sales of $2.74 billion, the association says. <bloomberg.com>
Malaysia Economic Contraction Eases as Asia Recovers - Malaysia’s economy shrank the least in three quarters as government stimulus boosted consumption and the global recession eased, strengthening an Asian recovery. Gross domestic product contracted 1.2 percent in the third quarter from a year earlier, after declining 3.9 percent in the previous three months, the central bank said in Kuala Lumpur today. That was better than the median forecast of a 2 percent drop in a Bloomberg News survey of 19 economists. <bloomberg.com>
Tommy Hilfiger Set for Major Global Expansion - Tommy Hilfiger has some big expansion plans in the works — now he just has to make sure he controls the growth. Hilfiger plans to open 100 stores in the months remaining in the current fiscal year ending March 31, adding to the tally of 950 stores he currently operates worldwide. They will be split between Europe, North America and emerging markets. In an exclusive interview, Hilfiger pointed to Central and South America, where the brand has been present for the past 20 years and where it has 130 stores, as hot properties. “We see the region as a big emerging growth market,” he said. “Brazil is untapped. We’ve seeded Argentina, Peru, Colombia, Venezuela and Mexico — and now we’re poised for growth there. The brand is primed for those areas, too, with cotton and bright colors.” <wwd.com>
Casual Male to Open Superstores in 2010 - Casual Male Retail Group Inc. will unveil a new superstore concept in the spring. In reporting third-quarter earnings on Thursday, where the company posted a net loss of $1.4 million, or 3 cents a diluted share, the Canton, Mass.-based big and tall men’s wear retailer revealed plans to open three Destination XL stores in 2010. The concept will bring together the merchandise offered by all of the company’s existing divisions: the moderately priced Casual Male, the more-upscale Rochester Big & Tall, the B&T Factory Outlet as well as the catalogues Shoes XL and Living XL. The latter offers products in many categories that address the needs of the larger-size customer such as seat belt expanders, heavy-capacity chairs and step stools. <wwd.com>
Tesco unveils broadband ambitions - Tesco is to take on broadband telecoms players such as BT, TalkTalk and Virgin media as it targets extra profits of £200m annually. The giant grocer has struck a five-year deal with Cable & Wireless to offer combined broadband and home phone packages. Tesco will also double its number of in-store phone shops to 200 by the end of next year and ultimately to have 500. Tesco is targeting eventual sales of £2bn a year and profits of £200m from broadband and landline services, which are a step on from the established Tesco mobile business. <retail-week.com>
Piazza Sempione Plots U.S. Expansion - The financial bubble may have burst, but for Piazza Sempione, the U.S. is still a ballooning market. The fashion firm is pushing ahead with a bullish retail program with the opening of three freestanding stores in The Shop at the Bravern mall in Bellevue, Wash.; in Chevy Chase, Md., outside Washington, and in The Plaza at King of Prussia, Pa. Between 1,200 and 2,300 square feet in size, each unit is expected to generate annual sales of $2.8 million. Earlier this year, Piazza Sempione spent $1.5 million to open a store in Chicago and is seeking the right location in New York. Piazza Sempione has 13 stand-alone stores and 600 doors worldwide. <wwd.com>
Limited closing Canadian apparel chain - Limited Brands Inc. got out of the U.S. tween girl market 10 years ago and now will do the same in Canada. The Columbus-based retailer said Thursday it is closing the 42-unit La Senza Girl chain north of the border. The apparel chain aimed at 7-to-14-year-old girls, akin to the former Limited Too chain, was part of the 2007 purchase of Canada lingerie chain La Senza Corp. for $609 million. Limited bought the more than 600-unit business for its international foothold in lingerie though, not its modest girl apparel business. “Frankly, since the time of the acquisition, we had thought it probably would not be a go-forward business for us,” Martyn Redgrave, chief administrative officer, said during a call for stock analysts. <columbus.bizjournals.com
Reshaping manufacturing costs in a post crisis world: Asia's not so cheap any more - A decade or more ago Asia was by far the low-cost producer. Recent reports – including the analysis by Alix Partners – show that Asia’s production costs are 15% or 20% higher than they were just four years ago. A US Bureau of Labor Statistics (BLS) report from March reaches the same conclusion. Compensation costs in East Asia – a region that includes China but excludes Japan – rose from 32% of U.S. wages in 2002 to 43% in 2007. Since wages are advancing at a rate of 8% to 9% a year, and many types of taxes are escalating, too, East Asia’s overall costs have no doubt escalated even more in the two years since the BLS figures were reported. <fashionnetasia.com>
Private equity firms table first-round Matalan bids - Five private equity groups are understood to have tabled bids for value fashion group Matalan, which may be sold for as much as £1.5bn. BC Partners, Blackstone, TPG and Warburg Pincus have all tabled indicative offers, the Financial Times reported, The fifth is Advent, which already owns value variety store chain Poundland and whose bid would be led by former Boots chief executive Richard Baker. If Matalan attracts the mooted £1.5bn price tag it would be valued at more than 10 times EBITDA of £145m in the year to February 28. The hefty price being demanded is understood to have dissuaded some potential bidders from submitting offers. <retail-week.com>
Burkle’s Yucaipa to Buy Piece of Barneys Debt - Ron Burkle’s evolution from food to fashion may be ready to take another step. Sources said Thursday that Burkle’s Yucaipa Cos. investment vehicle, which previously has taken stakes in Sean John and Scoop, is in the final stages of purchasing some of Barneys New York’s debt from Citibank. “We know Yucaipa bought some of it,” said one financial source. “It has more to do with Citibank,” which is struggling and anxious to shore up its finances. “But it also shows a recovery in pricing of Barneys’ debt,” said another source familiar with the deal. It is believed the amount of debt Yucaipa will own will be less than that of Perry Capital. That hedge fund is headed by Richard Perry, husband of designer Lisa Perry. <wwd.com>
General Growth, CIT Make Progress in Ch. 11 - General Growth Properties and CIT Group hope to exit Chapter 11 proceedings next month. General Growth said on Thursday it has reached an agreement with lenders to extend the due dates on its mortgages by almost five years, with interest continuing at the “current nondefault rate.” The mall operator said the average interest rate for the 70 loans covered by the agreements is 5.35 percent. If approved by the bankruptcy court, none of the 70 loans would mature before Jan. 1, 2014. <wwd.com>
Ralph Lauren's Grand Entrance in Connecticut - After an absence of more than a decade, Ralph Lauren is returning to Greenwich — and making quite an entrance. Today, Lauren is opening a nearly 19,000-square-foot store on Greenwich Avenue with all the ingredients increasingly emblematic of the designer’s retail network. The store is housed inside a newly built structure with an imposing Beaux-Arts limestone facade, large arched windows and balconies; the residential-like interior has several smaller rooms and a grand staircase, and there is a noticeable spotlight on women’s apparel and accessories. <wwd.com>
VF Outdoor Launching Two New Value Backpack Brands - VF Outdoor, Inc., a subsidiary of VF Corporation is introducing the launch of two new backpack brands, Wolf Creek™ and L8R™ to service the sporting goods, mid-tier, mass and club channels in Fall 2010. VF Outdoor says the the Wolf Creek and L8R brands were created to "offer consumer-valued feature sets at compelling prices." “Wolf Creek and L8R will enable retailers to capture healthy margins and sales volume, ensured by the power of the VF Outdoor supply chain,” said Steve Rendle, President of VF Outdoor Americas. “This meets a need for junior lifestyle and young men’s consumers in sporting goods, mid-tier, mass and club channels in a way that complements the overall VF Corporation brand portfolio.” <sportsonesource.com>
Timberland Names VP, North America Wholesale Sales - The Timberland Co. promoted Mike Noonan to VP of North America wholesale sales. In this role, he will lead the sales operations for Timberland's wholesale customers throughout North America. Departments reporting to Noonan will include field sales - headed by National Sales Manager Tom Lucas - sales operations and customer/consumer service. In his new role, Noonan reports to VP and GM Mark Bryden. <sportsonesource.com>
Wal-Mart enters the mobile app realm with product recommendations - Wal-Mart Stores Inc. already operates a successful m-commerce site (1.58 million unique monthly visitors in August, according to The Nielsen Co.) and conducts text messaging with customers. Now it has added the third leg of the mobile commerce stool by launching a mobile app. The new app, designed for the iPhone and iPod Touch and available for free at Apple Inc.’s App Store, focuses on electronics product recommendations. It also includes a store locator and a social media tool to ask friends for help. Wal-Mart says this is only the first version of the app and that future versions will include additional functions. <internetretailer.com>
INSIDER TRANSACTION ACTIVITY
TJX: Ernie Herrman, SEVP, sold 20,000 shares after exercising options to buy 20,000 shares for a net gain of $350k.
LOW: Michael Mabry, EVP, sold 35,000 shares for a gain of $756k.
BBY: Bradbury Anderson, Vice Chairman, sold 31,000 shares after exercising options to buy 31,000 shares for a net gain of $341k.
BGFV: Richard Johnson, EVP, sold 15,000 shares for a gain of $255k.
NFLX: Reed Hastings, CEO, sold 10,000 shares after exercising options to buy 4,500 shares for a net gain of $590k.
- John McCarvel, EVP of Ops, sold 14,000 shares for a gain of $80k.
- Russell Hammer, SVP/CFO, sold 7,000 shares for a gain of $40k.
- Erick Rebich, VP of Gen. Counsel, sold 7,000 shares for a gain of $40k.