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RETAIL FIRST LOOK

December 15, 2009

TODAY’S CALL OUT

With the USD putting in a near-term bottom, that might seem naturally bad for Nike. But the delta remains positive from Nike's last EPS report -- even though the stock has not moved and estimates have bottomed.

With a 4% move in the dollar since the recent November 24th low, how could we NOT acknowledge this as it relates to Nike? A 4% move might not seem like much in the grand scheme of things -- but lets not forget that we're talking a currency here, not a stock. 4% over 2 weeks is big.  With over half of its sales coming from outside the US, a stronger dollar is clearly bad for Nike over a shorter time period.  I stress 'near term' as a strong US Dollar is ultimately going to lead this country to higher real-rates of return on American fixed incomes. It's also going to expedite the exit of losing businesses who don't have much of a reason to exist, which is good for companies like Nike.

A very important near-term point to consider is that since Nike's last print, the currency delta is a net favorable one in spite of the fact that we've seen recent strength. The chart below shows what the FX outlook was three months back vs. today (our analysis weights forex based on every relevant country where Nike does business).  

Required Retail Reading: NKE: FX Context - NKE FX 12 15 09

On top of that, add the fact that this is the first real quarter where Nike has some SG&A runway due to its layoffs earlier this year (though much will be reinvested), downward earnings revisions have (justifiably) slowed materially, and we're now only 1-2 quarters away from when we think both futures and EBIT should improve substantially as Nike starts its next 'burst' of growth. Package all that together and its getting tougher to find a reason not to like this stock. This should be a winner in 2010.

LEVINE’S LOW DOWN 

  • In a survey based on the volume and number online posts, as well as the overall tone of the posts (positive/negative), Amazon.com, Target, Nike, and Wal-Mart were the retail brands included in the top 10 for 2009. The top 10 list compiled by Zeta Interactive, is often used as a measure of which brands or companies are utilizing social media to effectively generate positive “buzz” surrounding their brands.
  • This is the last week to take advantage of the broad-based free shipping offers in order to deliver gifts by December 25th. Many online retailers will end their free-shipping offers by December 18th, which is also the last day retailers will allow orders guaranteeing Christmas delivery for those using free shipping options. 62.3% of retailers will expire their holiday shipping offers exactly one week before Christmas.
  • While conventional wisdom may suggest that the premium denim trend has passed, the ability to sell privately owned premium denim brands may still be a possibility. West Coast based denim company, J Brand Denim is reportedly in the process of being sold. The rumored sales price is $90 million with the buyer rumored to be a private equity firm.

MORNING NEWS 

Barneys' Extended Temporary Lifeline as Abu Dhabi Bails Out Dubai World - As the retailer’s ultimate parent company, Dubai World, on Monday revealed a $10 billion lifeline from Abu Dhabi, speculation continues to swirl over Barneys’ future and whether it will be sold. While sources said a sale isn’t imminent, they’re not ruling it out down the road. There have been signs of a pickup at Barneys, with business up 7 percent in October, although sales slid back into the negative column in November, approximately in the high teens. Factors and vendors continue to show support and ship with extended payment terms. For now at least, all of this enables Barneys to put off a sale, a bankruptcy or some other restructuring, and hold off on announcing a strategy for the future until after the luxury chain digests its holiday business, according to sources. The state of limbo is heightened by the fact that Barneys has strangely operated without a chief executive officer since July 2008, and there is no one in line for the job. <wwd.com>

Kohl's Said Eyeing Broadway Site - Kohl’s Corp. is stepping up its search for its first Manhattan location. “They were in town last week,” said one real estate source familiar with the property search. The focus seems to be on 1775 Broadway, which is being fully renovated by Moinian Group, the landlord, and is located between 57th and 58th Streets and between Broadway and Eighth Avenue, just south of Columbus Circle. Comp USA was the last big-box retailer on the site. “The building has a pretty good size footprint. Most of the space is vacant. They could assemble a block of space over 100,000 square feet,” which would consist of three levels at around 33,000 square feet each, the real estate source said. Typical Kohl’s stores contain 80,000 to 90,000 gross square feet. WWD first reported in August that Kohl’s was scouting Manhattan and Broadway. Crain’s New York and The Real Deal reported last month that 1775 Broadway was the focus.  <wwd.com>

Timberland launches campaign to make people aware of climate change - Timberland has just launched a global campaign to get citizens mobilized. The slogan is "Don’t tell us it can’t be done!" The aim is to impact the 192 governments attending the UN Climate Change Conference taking place in Copenhagen. Timberland’s proposal is aimed at having the greatest number of governments sign an agreement outlining the norms for greenhouse gas emissions. The initiative also encourages citizens to become involved in this public debate via a Global Action Center and have an active presence in social networking sites such as Facebook, Twitter, YouTube and print media as well as in all its outlets throughout the world. <fashionnetasia.com>

Adidas names a head of global e-commerce to accelerate its online sales - Athletic footwear manufacturer Adidas Group is creating a new e-commerce team alongside its existing wholesale and retail units. To lead the new initiative, Germany-based Adidas has selected company veteran Christophe Bezu, who since 2003 has been the CEO of Adidas’ Reebok brand in the Asia-Pacific region. Bezu, who also was recently named the company’s managing director for Greater China, will head up a global project called Excellence in e-Commerce. He will report to Herbert Hainer, Adidas Group CEO and chairman, who will chair the steering committee for the new e-commerce group.  <internetretailer.com>

Israel Departs Sears - Sears, Roebuck & Co.’s top apparel executive, Craig Israel, has left the company. Israel was president of apparel and recently began reporting to John Goodman, who last month joined Sears Holding Corp., the parent of Sears and Kmart, as executive vice president of apparel and home, a new post. A spokesman for Sears said Monday that with Israel’s departure, Goodman will serve as interim leader of the Sears apparel business until a successor is found. Goodman is also serving as interim president of Kmart Apparel until a permanent officer is named to that post.  <wwd.com>

Saks Ends 'Poison Pill' Provision - Saks Inc. on Monday ended a “poison pill” provision in its shareholders’ rights plan that it had adopted last year to prevent a takeover. The luxury retailer enacted the condition, meant to kick in if a single investor held more than 20 percent of its shares, in November 2008, shortly after Mexican billionaire Carlos Slim Helú upped his stake in the firm to 18.3 percent. Chairman and chief executive officer Stephen I. Sadove said the rights plan had served its purpose and was no longer necessary because the firm increased a change-of-control threshold to 40 percent when it altered its revolving credit agreement on Nov. 23. In December 2008, Saks distributed a preferred share purchase right for each outstanding share of its common stock. The right would have only been redeemable if an investor acquired 20 percent or more of the firm’s shares and was designed to dilute such an acquirer’s stake. In a Securities and Exchange Commission filing at the time, the company said it had done so to “protect shareholders from coercive or otherwise unfair takeover tactics.”  <wwd.com>

Korean Retailer Who.A.U. to Open in N.Y. - One little-known youth-oriented foreign retailer trying to break into the U.S. market is taking over the retail space of another little-known youth-oriented foreign retailer that failed in its bid to enter the American market. Who.A.U. California Dream, a South Korean brand with two mall stores in the U.S., will open a 12,000-square-foot multilevel flagship at 22 West 34th Street between Fifth and Sixth Avenues. Kira Plastinina, the Russian brand designed by the teenager of the same name, was the last tenant to occupy the space. Kira Plastinina shuttered the location in December 2008.  <wwd.com>

Kahn Named Wet Seal Chairman - Foothill Ranch, Calif.–based The Wet Seal Inc. announced the retirement its chairman of the board, Alan Siegel on Dec. 14. Harold Kahn, another member of Wet Seal’s board, has been named as his replacement. Siegel served the young woman’s retailer for 20-years. He decided to resign because of his age. He will be 75 in January. He also will devote more of his time to working as the executor of the Wade F.B. Thompson Charitable Foundation based in Niantic, Conn. <apparelnews.net>

Online Shoppers Moving Away from Credit - The quest for fiscal fitness is leading online shoppers to increase their use of cash and debit cards even as issuers’ own policies and consumers’ desire to avoid debt have discouraged credit card use. According to a survey of more than 2,000 U.S. Internet users conducted in October by comScore Inc., 65 percent of respondents have changed the way they pay for items online because of concerns about the economy, down from 67 percent in the previous year. Of those who indicated they had altered their behavior, 42 percent said they are more likely to use cash, versus 50 percent in the 2008 study, and 40 percent said they are more likely to use a debit card, up from 34 percent. Twenty-three percent said they were more likely to use a credit card, up from 18 percent last year, and 13 percent said they had begun to consolidate spending to fewer credit cards, up from 12 percent. The percentage saying they had spread their spending among a greater number of cards advanced to 6 percent from 5 percent.  <wwd.com>

Online holiday spending is up 3.4% compared to a year ago - Shoppers have spent nearly $19.94 billion online this holiday shopping season, which began Nov. 1, a 3.4% percent jump from $19.28 billion a year ago, reports comScore Inc. Of the 10 largest shopping days on record, four have taken place this year (in $mm USD):

  • Monday, Nov. 30, $887
  • Tuesday, Dec. 1, $886
  • Thursday, Dec. 10, $852
  • Tuesday, Dec. 8, $828

Online sales shot up 4% last week when consumers spent more than $800 million on two separate days, says comScore. Since comScore began tracking e-commerce spending in 2001, it has recorded 13 spending days that have eclipsed $800 million. <internetretailer.com>

CIT Sweetens Small Business Loans - CIT Group Inc., back after fewer than six weeks in bankruptcy court, said it would waive a $1,000 packaging fee on loans approved under a Small Business Administration program. The lender, which last week emerged from bankruptcy as a public company, said it would waive the fee on the federal agency’s 7(a) loan applications through March 10. CIT previously committed $500 million to support government-guaranteed loan programs for the sector. “The small business sector remains a key driver of job creation in America,” said Chris Reilly, president of the lender’s small business unit. “These recent announcements reflect our commitment to bringing much needed credit to this sector, and to helping small businesses access the capital they need to weather this difficult economic environment.” CIT said small businesses employ nearly 59 million Americans. <wwd.com>