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December 18, 2009


Last I checked, in order to ‘sell stuff’, you have to ‘own stuff’.

Anyone that knows me knows that my style does not lend itself to walking into a mall, observing a trend, and making a call based on that trend. While some might consider such mall-checking an investment process, I consider relying on it too heavily a recipe for failure. Note: another one of my favorites is “my wife thinks that the fit is wrong on those shoes, and therefore the stock must be a short.”  In the wise words of Austin Powers, ‘that sort of thing ain’t my bag, baby.”  (my tween boys are currently obsessed with watching the trilogy).

We won’t ignore such anecdotes, but will use them as a small part of a multi-factor process to drill down the direction of cash flows and returns.

Yesterday afternoon our Retail team hit a local mall in Milford, CT, which is a ‘B’ mall with a whole lot of average Joes and Janes. Here are some bullets from our walk. Take from them what you want, and leave the rest. But there’s one that I need to call-out, because it was one of the most bizarre things I’ve seen at retail in a while. That’s Abercrombie.  The picture below says it all. There were literally half a dozen full-wall clearance setups in the mid-back of the store with nothing on them. No, they were not in the midst of a floor reset, and they did not just come off a period where a strong consumer and/or product cycle created a meaningful supply/demand imbalance -- which are often the reason for empty shelves. This is all about just not having any product.  Also, for what it’s worth, (and I realize that this is completely irrelevant) I had 2 salespeople approach me when I was there, and they actually attempted a conversation.  Every other time I’ve gone in there I was either flat-out ignored by employees, or sneered at in a way that says “hey geeky old guy, what makes you think you have the right to shop in this den of coolness.” The first thought that went through my mind was that either I am cooler, or maybe that exclusive ideology has been restricted. Trust me, I get less cool by the day…

R3: ANF/Not My Bag, Baby - 1

Why do I bring this up? Abercrombie has been one of the names we have debated a lot internally (such debate often leads to our best ideas). Keith has liked it from a quant/factor perspective, I have liked it from a directional financial perspective, but Levine has put the kabash on it due to concerns about how the company is managing the brand, controlling inventory and driving sales.

While I cannot base any conclusion on one store in the middle of a Thursday afternoon, I do have a better anecdotal glimpse as to what he’s talking about now.

Score 1 for the process.

Here are some other notables from our tour.

  • DKS
  • Pre-packaged racks shipped ready-for-display (entire displays made from cardboard, selling socks)
  • Thin inventory on select shelves (notably North Face and outwerwear)
  • Easytones (Reebok’s ‘fitness shoe’) very light on inventory; front-and-center display
    • FINL – UA apparel 40% of mix; no UA footwear, though
    • FINL, Lady FL showcasing Shape-Ups in Lease Line displays
    • FL – UA running shoe commentary from clerk: “UA moving units, but we can’t get enough sizes to put in the front of the store” (shoe was towards the back on the bottom of the shelf)
    • BBY Mobile had some prime real-estate w/ regards to foot traffic (near food court); counted at least another 5 wireless outlets in the mall
    • GPS didn’t have any employees in the front half of the store (and it wasn’t busy)
    • AEO had the longest line and most shoppers per sq. foot (buy one top get one 50% off sale seemed to be working)
    • Growth concepts not too far from parent co. (Pink next door to Victoria’s Secret; Aeire 20 yards away from AEO)
    • Charlotte Russe, DKS, ANF empty racks (see picture)
    • ARO had heavy discounting (50-70% off); women’s inventory looked thin, with some empty hanging racks; offset was cardboard boxes filled with merchandise sitting under tables
    • UGG knock-offs prevalent across retailers (AEO, ARO, DKS, Hollister)
    • GH Bass (EARTH) Wellness shoe spotted in Champs


  • Discover Financial indicated that sales volume in its credit card business has trended positively since mid-October, including the most recent week. While comparisons mimic those in retail, the consistency of the positive trend is encouraging.
  • Pier One indicated that its sales of seasonal merchandise have been encouraging and selling through at full price. In fact, the company has not broken price on the seasonal product yet, even with less than one week to go. Given clean inventories and better than planned full price sell-throughs, management now anticipates January sales could be negatively impacted given lack of clearance inventory and difficult compares with last year’s highly promotional post-Christmas sales.
  • When asked about Tiger Woods’ situation and it’s impact on Nike Golf, Nike’s CEO responded with, ”The only thing I'll say right now about Tiger is that we all know that he's chosen to step away from the game, and out of respect for his time and space he needs, that he's asked for, we'll respect that and we'll continue to support Tiger and his family as we, of course, look forward to his return.”


Chanel Workers Demonstrate - About 200 Chanel employees demonstrated Thursday over salary conditions outside the company’s Neuilly-sur-Seine, France-based headquarters. At issue was the 1 percent pay raise to be given to staff earning less than 3,000 euros, or $4,301 at average exchange, per month. They are demanding a 2.5 percent salary hike instead. Chanel executives are surprised by the demand because the proposed 1 percent salary increase allows its employees to preserve their spending power and even raise it in the difficult economy, according to a spokeswoman. She added only one of the four unions at Chanel called for the employees to demonstrate and also that all of the workers’ benefits have been renewed, and some of them increased. <wwd.com>

Sally Beauty Holdings Buys Sinelco Group - Sally Beauty Holdings Inc. said Thursday it has acquired Belgian beauty distributor Sinelco Group NV in a cash deal worth 25.5 million euros, or about $37.1 million at current exchange. The wholesaler supplies sundries, accessories, basic salon goods and electrical products to 1,500 customers in 35 countries, Sally Beauty said. Chad Selvidge, vice president of the Denton, Tex.-based firm, said Sally Beauty expects the acquisition to accelerate its growth abroad. “The addition of Sinelco, which sources many of its products in Asia, will provide us with the opportunity to sell to distributors of professional products in many countries in which we lack a physical presence,” Selvidge said.  <wwd.com>

L&T to Launch First Outlet - Lord & Taylor is entering the outlet business, a move that reflects mounting interest in the sector among consumers, retailers and developers. Lord & Taylor executives said Thursday the department store chain will open its first outlet, a 15,000-square-foot unit, in mid-February at the Jersey Gardens outlet center in Elizabeth, N.J., located about 18 miles west of Manhattan. The unit, which will be in New Jersey’s largest outlet mall, is considered a test that could lead to additional locations, officials said. The outlet sector, along with the Internet, is one of the few bright spots in the depressed retail landscape. It is attracting more and more consumers in what many retailers call a “secular” shift to trading down amid economic upheaval. Lower occupancy costs also make outlets desirable expansion strategies for retailers and brands. Macy’s might be the next department store player to enter the outlet arena. Officials have acknowledged that the company is exploring the possibility, but have yet to announce a site. <wwd.com>

Delta Apparel to Acquire Art Gun Technologies - Delta Apparel, Inc. (NYSE Amex: DLA) has signed a letter of intent and expects to acquire substantially all of the net assets of Art Gun Technologies, LLC by December 31, 2009. Through its innovative technology or "virtual art studio", Art Gun provides shoppers the ability to design apparel products by choosing different styles, colors and graphics to create their one-of-a-kind customized garment. Art Gun's unique software application can be fully integrated into any company's e-commerce platform, allowing Art Gun to manage the entire process from web design and integration to digitally printing and shipping the garment. <graphicartsonline.com>

Permira Buys Back Valentino Debt - Private equity group Permira gave Valentino Fashion Group a vote of confidence Thursday when it agreed to re-purchase a chunk of the company’s debt from Citigroup. According to industry sources here, Permira and the Marzotto family, which together own VFG, have agreed to pay Citigroup 250 million euros, or $362.5 million at current exchange, for an original debt load worth 730 million euros, or $1.06 billion. The purchase will reduce VFG’s outstanding debts by one-third. “The papers are signed, and they are expected to complete the transaction by the end of the year,” said a source close to the deal. A Permira spokeswoman declined to comment. <wwd.com>

Italy's Coin Takes Control of Upim Chain - Italian midmarket retailer Gruppo Coin SpA has taken control of mass market store chain Upim Srl, creating a giant retail group that will count 900 stores. Through a capital increase, Venice-based Coin will give a 7.5 percent stake in the new group to Upim investors, which include the Borletti family, one of the owners of high-end department store chain La Rinascente, equity fund Investitori Associati, Deutsche Bank Real Estate Opportunities Group and real estate group Pirelli RE. As part of the agreement, before the deal can be completed, investors must reduce Upim’s debt by 52.5 million euros, or $76.3 million at current exchange. Coin, which is controlled by PAI Partners, declined to provide the total debt figure.  <wwd.com>

Urban Outfitters Announces Retirement of John E. Kyees and Appointment of Eric Artz as Chief Financial Officer - Urban Outfitters, Inc. (Nasdaq:URBN), a leading lifestyle specialty retail company operating under the Anthropologie, Free People, Leifsdottir, Terrain and Urban Outfitters brands, today announced that John E. Kyees, Chief Financial Officer, will retire and be succeeded by Eric Artz on February 1, 2010. Mr. Kyees, 63, who most recently helped URBN successfully navigate the most challenging retail environment in decades, has been with the Company since 2003.  <money.cnn.com>

Building a Global Brand: Tory Burch Launches Overseas Expansion - With the opening here of her first overseas flagship, the designer has taken the initial step in a major international push. The eventual goal is to have overseas markets represent about 60 percent of the business. The two-story, 2,551-square-foot store in Ginza here is the first of about 30 planned for Japan alone over the next few years, including a flagship in Tokyo’s Aoyama neighborhood. The Japanese stores are being opened in partnership with Look Inc. <wwd.com>

American Apparel Launches Nail Polish Line - Long favored by the types of young ladies who would likely also paint their nails all manner of eye-popping shades, American Apparel is taking the leap into beauty with its first line of nail polish in 18 vivid colors, for $6 a pop. True to form, the shades are an extension of the brand's already-vivid array of versatile cotton separates (hot purple leggings, aqua tank tops, and the like), and they come armed with quirky names like "Downtown LA" (a brick red), "Office" (a minty green), "Coney Island" (a bubble-gum pink), and even "Hassid" (a dark black). Also like the clothing, the polish is all made in the USA and, as American Apparel's creative director told WWD, "the palette is inteded for year-round use." (Read: Don't expect the brand to launch any new powder-pink options come spring.) <nbcnewyork.com>

Moosejaw Raises Additional Equity - Moosejaw has landed an undisclosed amount of equity capital from Glencoe Capital's Michigan Opportunities Fund. Glencoe is the second firm to invest in Moosejaw following Parallel Investment Partners in February of 2007. Moosejaw will use the money to "enter promising new retail environments for outdoor active apparel and equipment. "We are extremely pleased to find a Michigan-based company that offers sterling opportunities for revenue growth and the promise of expansion in the state," said Evans. "Moosejaw presents a compelling story in the specialty outdoor active apparel and equipment marketplace, with national reach and highly loyal customers."  <sportsonesource.com>

Layaway shopping online is new trend - Before every department store issued its own credit card and before everyone’s wallet carried plastic, there was another way to get something you couldn’t quite afford at the moment: layaway. As quaint as the sweet-smiling elevator lady who took you up to housewares in the giant department store, layaway is enjoying a practical, albeit limited, comeback during a credit-stressed economy. The newest innovation offers layaway shopping online. And one major retailer is offering layaway just for the holiday season. “In an economy like this one, people don’t want to rely on credit,” said Ellen Davis, a spokeswoman for the National Retail Federation. Layaway, which involves making incremental payments on merchandise held at the store, offers other benefits during the holiday season, she said. <timesherald.com>

U.K. Consumer confidence falls for second month - Consumer confidence dropped in December for the second month running and consumers are wary about prospects in the new year according to a study. Although levels of confidence are much higher than a year ago, Gfk NOP’s Consumer Confidence Index - which is compiled on behalf of the European Commission - fell by two points to -19 in December. Consumers’ expectations for the next six months fell nine points and confidence in the outlook for personal finances over the next year declined by two points. However, the measurement of the climate for major purchases improved by three points. Gfk NOP social research managing director Nick Moon said: “After a dramatic increase in the index from August to October the index has now fallen back for two months in a row, and another month of falls could see all of the gains since August disappear. <drapersonline.com>