R3: Black Monday, February 22, 2010?


December 24, 2009





Our Financial’s sector head, Josh Steiner, pointed out an interesting item to put on the calendar for early next year.  With substantial changes coming in the area of credit card regulation, there is sure to be a growing interest in how this may impact consumers and retailers alike.


On February 22, 2010 new credit card laws become effective. One of the provisions of the new law will require that consumers “opt-in” to be charged over-limit fees. You might ask why would anyone do that? The rationale is that if you don’t, you will be denied at the point of purchase (if that particular purchase is in danger of putting  you over-limit).


Considering this is a universal program, meaning every credit card in America will be affected, and close to zero people will have opted in (this requires reading the fine print!), there may be an abnormally high rate of point of purchase declines on Monday February 22, 2010 and the week thereafter. Now, maybe consumers will instead use cash or another card, but on the margin there will probably be a sizeable block of people who just walk away. The potential impact may not be enough to skew February sales, but it’s probably worth noting.  At the very least this may be a new “excuse” retailers will use to explain away weak sales.   


And of course, Happy Holidays from the Retail Team!  




  • In 2010, 40% of Finish Line’s store base will be up for renewal or renegotiation. With such a substantial percentage of the store base up for repositioning or potential lease concessions, the opportunity for SG&A reductions should continue for some time. Management also remains focused on downsizing opportunities in effort to shrink some larger format stores that are no longer meeting productivity hurdles.


  • First it was Gucci, now it’s Marc Jacobs and Balenciaga. The latter two brands have recently been spotted at DSW in Manhattan. While luxury will never be a key strategy for the off-price shoe retailer, the benefits of a weak economy to the value-based consumer continue to show.


  • After highlighting that the state of Minnesota had its first snow free November in 46 years, it appears that I may have jinxed The Land of 10,000 Lakes. Current weather forecasts for Minnesota are now calling for Christmas to be the snowiest in 30 years! How quickly sales of boots, shovels, and down coats can change…





As snow falls, online sales rise 13% over the last weekend before Christmas - Online retailers can easily spot the silver lining in the huge snowstorm that blanketed must of the eastern portion of the nation last weekend: sales shot up 13% compared to the final weekend before Christmas last year, reports web measurement firm comScore Inc. That helped boost online retail sales to a 6% gain for the week that ended Sunday, Dec. 20, and eclipsing the record for the biggest single week in e-retail history, a record set just two weeks ago, according to comScore. “The major snowstorms hitting the Eastern seaboard over the weekend appear to have given holiday e-commerce an additional boost, resulting in the heaviest online spending week on record at $4.8 billion,” says comScore chairman Gian Fulgoni. “Consumers have clearly continued to spend online later into the season this year, with several very strong spending days in the most recent week including the heaviest online spending day in history—Tuesday, Dec. 15 with $913 million. Retailers have been very aggressive with late season promotions while informing consumers that they could still get their purchases shipped in time for Christmas, and these tactics seem to be paying off.” Sales for the week ended Dec. 20 totaled $4.803 billion, compared with $4.532 billion during the comparable week last year. Weekend sales came in at $767 million, up 13% from $677 million last year, comScore say. For the first 50 days of the holiday season—Nov. 1-Dec. 20—comScore says online sales total $25.524 billion, up 4% from $24.550 billion during the comparable period last year. <>


Small web retailers expect better times ahead in 2010 - A year ago the worst recession in decades wreaked havoc on holiday sales for many small web retailers. This Christmas more merchants say business has improved, and they forecast better conditions in 2010. As the holiday shopping season winds down, the small web merchants that survived 2009 can likely anticipate better business conditions in 2010, says Paula Rosenbloom, managing partner at Retail Systems Research LLC. “Many small web retailers are happy just to have survived and to do that they had to provide excellent customer service and offer their customers extremely competitive pricing,” she says. “This year was a make or break year for a lot of small online retailers and if they made it to the holiday season, they’re probably in good shape for 2010. Congratulations to the survivors.” <>


Import cargo volume at retail container ports expected to grow in early 2010 which will be the first growth in over 2 years - Import cargo volume at major U.S. retail container ports is expected to increase year-over-year for the first time in more than two years during the early months of 2010, according to a Port Tracker report released Tuesday. January volume will show a continued decline, but the downward trend is likely to break in February with three consecutive months of increases, said the National Retail Federation and IHS Global Insight, which coauthored the report. In October, U.S. ports surveyed by Port Tracker handled 1.2 million 20-foot equivalent units. October container traffic was 4% higher than September, but was still down 14% compared with a year earlier. Port Tracker surveyed ports, including Los Angeles-Long Beach, New York-New Jersey and Houston. <>


U.S. retailers used extra promotions and extended hours to draw procrastinators and shoppers delayed by the East Coast snowstorm in the final stretch before Christmas - Target Corp. extended its hours to midnight Dec. 21 through yesterday. Borders Group Inc., Wal-Mart Stores Inc. and Toys “R” Us Inc. also kept stores open longer. Best Buy Co. offered some DVDs for half off and Jos. A. Bank Clothiers Inc., a men’s clothing chain, deepened discounts to at least 50%. “We didn’t intend to do everything, and now we’re doing everything,” Jos. A. Bank Chief Executive Officer Neal Black said Dec. 22. “We’ll be slugging right down to the last minute.” Sales will be compressed into the final days before Christmas, said Marshal Cohen, chief industry analyst at NPD Group Inc. The snowstorm disrupted the Saturday before Dec. 25. Last year, that was the second-biggest shopping day after Black Friday, the day after U.S. Thanksgiving. Shoppers already had procrastinated more than in recent seasons. The Washington-based National Retail Federation was holding to its forecast for a 1% drop in holiday sales. The International Council of Shopping Centers reiterated on Dec. 22 its forecast for a 2% increase in sales at stores open at least a year in December, after reporting that the storm slowed growth to 0.4% year over year in the week ended Dec. 19. Jos. A. Bank cut prices of all clothing Dec. 21 and Dec. 22, after store visits slowed, Black said. The chain had planned to offer some of that merchandise at 40% and 30% off.  <>


Consumer survey from Market Force Information say Kohl's and Target are the consumer's No. 1 and No. 2 favorite fashion accessory retailers - The findings emerged from a survey Market Force conducted among it network of 300,000 independent mystery shoppers and merchandisers. The shoppers were shown a list of the country's top 55 retailers (top fashion retailers according to Hoovers) and asked to select their favorite. Wal-Mart received the highest number of votes, with consumers citing low prices as the primary reason. Initially, this put Wal-Mart at the top of the list with 16% of the votes, followed by Kohl's with 12%, and Target and J.C. Penney tied for third place with 8% of the vote. However, when the number of stores is factored in--Wal-Mart has 3,600 locations in North America, while Kohl's and Target have one-third that number--Kohl's came out on top with 13.2% of the vote, followed by Target with 8.8%. Target got a call out from consumers for having speed of service, overall atmosphere and green/sustainable growth policies. Target also tied for first with J.C. Penney for "ability to find what I need" and friendly service, while Kohl's, Wal-Mart ad Target virtually tied for first place in overall value. Macy's took the top spot for brand names carried, according to the survey.   <>


Frugality expected to reduce cosmetic purchases - American consumers will maintain and even intensify their focus on thrift in 2010, and their frugality is expected to reduce cosmetics purchases by women by nearly 9 percent. According to a survey of 600 Americans, age 25 and up, by AlixPartners’ consumer products group, women are expected to reduce spending on cosmetics by 8.7% next year, greater than the 7.5% decline expected for prepared food and prepackaged meals or the 3.4% drop foreseen for health and personal care items among all respondents. Seventy-five percent of those surveyed said they expected to be more frugal when shopping for food in 2010 and 55 percent said they would reduce their spending on household-care products. “In personal care, consumers plan to spend less overall, but indicate they will remain loyal to brand names,” said David Garfield, a managing director of Alix and leader of its CPG practice. He noted that while consumers have been “value shoppers” in 2009, “they have evolved into ‘value-hunters, tracking down deals and perceived value.” The study showed the consumers in the South are less likely to scale back buying in 2010 than those in other U.S. regions. “At a time when the CPG industry is already facing lower sales and tighter margins, companies will need to adopt more strategically targeted marketing strategies and leaner cost structures to succeed,” said Rich Vitaro, a director at Alix.  <>


The Senate renewed two trade preference programs Tuesday night that were set to expire at the end of the year -The unanimous voice vote paved the way for a one-year extension of both the Generalized System of Preferences, which provides duty free benefits to 131 designated countries covering about 4,800 products, and a program of duty free benefits for the Andean countries. The House previously passed one-year extensions for the programs, which will take effect after being signed by President Obama. “I applaud the U.S. Senate for taking action to keep these important programs from lapsing,” said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. Julia Hughes, senior vice president international trade for the U.S. Association of Importers of Textiles & Apparel, said, “This gives us 2010 as the year to seriously review all the trade preference programs and hopefully package an updated 21st-century preference program early.” Apparel importers and retailers are pushing for changes to overhaul the trade preference programs. They have proposed a simpler, unified rule of origin and an expansion of duty free benefits to include Bangladesh and Cambodia. U.S. textile groups have opposed expansion of the programs and support the GSP and Andean preferences in their current form. Tuesday’s vote provides “stability in the marketplace,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. “We like the programs in their current form. We have concerns with folks who are proposing significant changes.” <>


Rretailers who kept a lid on inventories to try to squeeze out profits are looking to holiday’s second season (the week between Christmas and New Year’s) - True to form, Wal-Mart Stores Inc. plans even deeper discounts and department store and fashion chains across the U.S. will elevate markdowns to more than 50% to make room for resort and spring goods. The world’s largest retailer said Wednesday that from Dec. 26 through New Year’s Day it will offer new deals such as a $50 gift card with an Xbox 360 purchase, an eMachine netbook for $228 and as much as 50% off clearance on hundreds of home holiday items such as candles, ribbons, bows and toys. Wal-Mart alsowill extend other holiday deals such as Blu-ray movies for less than $20. Wal-Mart sees gift cards figuring in big in the post-holiday week, particularly among mothers getting them as gifts. Two out of five Wal-Mart-shopping mothers plan to use their gift cards immediately after Christmas, believing they will find the best prices at that time, the retailer said. Season-long strategies to cut costs, keep inventories low and markdowns contained appear to be paying off — even as research indicated more consumers than ever were delaying purchases in the hope of discounts — with several retailers saying fourth-quarter margins are healthy and ahead of last year’s, which don’t take much to beat. Merchandise stocks were cut about 25% at soft goods stores and 10% in electronics stores, along with reductions in personnel and administrative expenses. The downsizings came amid reduced demand, double-digit unemployment, the soft housing market and overall economic turmoil. Some merchants acknowledged going too far with the inventory reductions in certain categories and missing potential sales in areas such as shoes, handbags and contemporary sportswear, though overall, they don’t regret the paradigm shift. <>


Claire's Stores is working to make jewelry and accessories available to a wider age group - Claire’s Stores Inc.’s European president, Kenny Wilson, wants to make the jewelry and accessories retailer’s products as relevant to girls of 18 as they are to those of eight. Wilson said he is trying to infuse the products with more fashionable elements, expand Claire’s presence in Europe and revamp the label’s stores. “In the U.K. and France, we’re market leading with the three- to seven-year-olds and we’re market leading with the seven- to 12-year-olds,” said Wilson, an 18-year veteran of Levi Strauss & Co. “But by the time you get to the 13- to 18-year-olds, they don’t say Claire’s [is their favorite brand].…I think a big part of what that 13- to 18-year-old is into is not just the product itself, but the intangible values around the product. So that’s really where we’re putting that emphasis.” “The feedback we’re getting from customers is that this is far less cluttered for them,” Wilson said. “The three- to seven-year-old loves Claire’s and she knows she can find [her product], so she’ll seek it out. Therefore, we’re giving the prime space up front to the customer that we want to attract.” Wilson has recruited more designers and given Claire’s buying teams “the opportunity to be able to put a little bit more into the cost of goods, to be able to raise the quality of the item for the consumer. The goal is to be further ahead on the fashion curve.” For spring, themes for Claire’s collections will revolve around trend-led stories such as “rock chick” and “tribal.’’ Prices for the line have also risen slightly, with the average price now 5 pounds, or about $8, for a piece such as a hair accessory or jewelry item. Prices range from 1.50 pounds, or $2.40, for stud earrings, to 40 pounds, or $64, for a handbag. Next, Wilson plans to maximize the label’s footprint in Europe. The majority of the label’s European stores are in the U.K. and France, but Wilson believes Spain and Germany, where the company has 93 and 35 stores, respectively, are prime for expansion. <>


Early Spring collections a cash generator for high end retailers with a focus on menswear - Resort, early spring, pre-collection — the description may vary, but one thing is clear: The season known most often in men’s wear as pre-spring is increasingly becoming a major cash generator for high-end retailers. When these items hit stores right before holiday, they provide needed pop on the selling floor and give merchants an opportunity to sell fresh goods at full price during a heightened promotional period. Whether bought as gifts or by men shopping for themselves, pre-spring goods often are scooped up by shoppers seeking something new and different that hasn’t yet been picked over. In a fast-fashion era of Zara and H&M, pre-spring appeals to the male consumers’ propensity to shop more often. The collections also address the need for lighter-weight goods at stores located in warm-weather regions. And they remain at full price all during the post-holiday clearance period. True “resort” merchandise — swimwear, T-shirts and shorts designed for vacationers — is a small business in men’s and pales in comparison with pre-spring goods. In fact, retailers said pre-spring has become so important that, depending on vendor and category, it can account for 30% to 60%of their budgets for the season. As a result, designer brands ranging from Gucci, Armani and Dolce & Gabbana to luxury labels such as Ermenegildo Zegna and Loro Piana have come to embrace pre-spring collections over the last several years for providing significant add-on business. Although it requires more work in the design studio, the payoff on the bottom line is significant enough to warrant the extra work. Pre-spring is “extremely important in men’s wear,” said Russ Patrick, senior vice president and general merchandise manager of men’s wear for Neiman Marcus. Over the past 10 years, the Dallas-based retailer has worked hard to encourage designers it carries to offer an extra delivery that hits stores in November.  <>


Best Buy Co., the largest electronics retailer, outpaced rivals in electronics sales this holiday shopping season by offering discounts on laptops and flat-panel televisions - Consumer spending at Best Buy rose faster than at competitors such as Newegg Inc., Fry’s Electronics Inc. and RadioShack Corp., according to, a personal-finance Web site that was acquired by Intuit Inc. last month. The site has about 1.8 million users. Best Buy, based in Richfield, Minnesota, captured a larger share of the consumer-electronics market after Circuit City Stores Inc. ceased operations this year and CompUSA closed stores. The company also lowered prices on some products last quarter to compete with Wal-Mart Stores Inc. and Inc. <>


America Apparel's use of YouTube for its line of dog clothing - American Apparel has been targeting ads to over 100 videos of pets, including a clip of a skateboarding canine, to promote its line of dog clothing. The Los Angeles-based brand chose the videos based on suggestions from employees. "It would be hard to do an advertisement on the back page of LA Weekly or a fashion magazine for the dog T-shirt," noted Ryan Holiday, a Web marketing executive at American Apparel. YouTube hopes more advertisers will follow American Apparel's lead. The venue has little problem drumming up interest in its front-page and marquee placements, but it needs to entice advertisers deeper into the site to pair their brands with long-tail content. Knowing some companies are still uncomfortable with category-wide targeting -- YouTube has a pets and animals channel, for example -- the Google-owned property began offering specific video targeting earlier this month. The initiative lets advertisers build custom video lists from among the clips entered in YouTube's partner program. "There is a perfect ad for every video," said Shishir Mehrotra, director of product management, video monetization at Google. He believes the dogs-on-skateboards examples proves the point, since those types of videos have served as what he calls a "punching bag" for YouTube critics who contend the site will fail to attract advertisers to the vast majority of its content. <>


US: Landowners to take legal action against Prime Tanning - Lawsuits were filed on behalf of 24 plaintiffs against Prime Tanning Corporation of St Joseph, Missouri and three affiliated businesses over fertilizers they spread on farms in Northwest Missouri. This is the latest set-back for National Beef Leathers the current owners of the former Prime Tanning site which have so far successfully fought-off other legal challenges earlier this year. The lawsuits were filed at the Buchanan County Court House and represented 17 Buchanan County landowners, one Clinton County landowner (Stewartsville) and six DeKalb County Landowners (Amity and Clarksdale). <>


H.H. Brown is banking on its 125-year heritage in the domestic shoemaking business to spark interest in its new Vintage Shoe Co. division - The line of men’s and women’s shoes are inspired by American styles that the Greenwich, Conn.-based company said has withstood the tests of time. Included in the men’s offering are engineer, harness, Western and jodhpur boots, in addition to classic chukkas, brogues and penny mocs. Playing up the nostalgic element, the leathers have a weathered and timeworn finish. The collection is produced in the company’s U.S. factory and is made with domestic leathers. Set to retail from $220 to $375, it will be aimed at high-end boutiques, department and specialty stores and is slated March and April delivery. <>

Targeting Risk

“The best investors do not target returns; they focus first on risk.”

-Seth Klarman


Seth Klarman is the founder of Boston based Baupost Group. While I have never met the man, some of his risk management conclusions continue impress me from afar. He is one of the few large scale money managers who believes in tactically raising his cash position above 50%.


Yesterday, with the US stock market hitting my immediate term TRADE target of 1120, I raised more cash in the Asset Allocation Model. With a 68% position in US cash, I am at one of the highest cash positions that I have carried since the 2008 crash. I don’t call this being short the market. I simply call this Standing Still.


I’ll keep this holiday note short. This morning here is a list of some of the risk management levels that have prompted this low-risk decision:


1.       The US Dollar Index has put in an immediate term bottom and is starting to breakout from its intermediate term TREND line at $76.31

2.       The Yield Spread (10- 2-year yields) is trading at its widest margin EVER this morning (284 basis points) and forecasting an earlier than expected Fed hike

3.       The short end of the US Treasury curve (2-year yields) has broken out above its intermediate term TREND line of 0.89%

4.       The SP500 is immediate term overbought at 1024

5.       The Nasdaq is immediate term overbought at 2273

6.       The VIX (volatility index) is immediate term oversold at 19.13

7.       The US Financials Sector ETF (XLF) was down again yesterday and has broken it’s intermediate term TREND line of $14.69/share

8.       Most Asian stock markets have either broken their immediate term TRADE or intermediate term TREND lines in the last 3 weeks

9.       Oil, copper, and gold continue to make a series of lower-highs


Yesterday, I focused on Sovereign Debt defaults being a TAIL risk that is developing as opposed to abating. The Ukraine was denied an emergency loan this morning. The IMF apparently didn’t see the need to buck up into year-end.


For now, I’ll keep my suddenly reflating US Dollars in my pocket for the holiday season. I’m not targeting a return. I am targeting risk.


Enjoy the holiday break with your families and best of luck out there today,





VXX - iPath S&P500 Volatility
For a TRADE we bought some protection at the market's YTD highs by buying volatility on 12/14.

EWZ - iShares Brazil As Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil's commodity complex and believe the country's management of its interest rate policy has promoted stimulus.

GLD - SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

CYB - WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP - iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

RSX – Market Vectors Russia
We shorted Russia on 12/18 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish.  

EWJ - iShares JapanWhile a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

XLI - SPDR IndustrialsWe shorted Industrials again on 11/9 on the up move as the US market made a lower-high.  This is the best way for us to be short the hope of a V-shaped recovery.   

XLY - SPDR Consumer DiscretionaryWe shorted Howard Penney's view on Consumer Discretionary stocks on 10/30 and 12/2.

SHY - iShares 1-3 Year Treasury Bonds If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.


The path of least resistance continues to be higher. 


Yesterday, the S&P 500 finished higher (+0.2%) for a fourth consecutive day.  The MACRO calendar provided some headwinds to the market, while technology earnings continue to surprise to the up side. 


November new home sales declined 11% from last month to an annualized 355,000.  This was well below the 438,000 consensus and was the lowest level seen since April.  As a result, inventory now stands at 7.9 months versus 7.2 last month.  Also on the MACRO calendar, the November income data showed that income increased less than expected last month while the final U. of Michigan consumer confidence survey came in at 72.5 versus the 73.8 consensus. 


Materials, Energy and Consumer Discretionary were the best performing sectors yesterday.  Continuing the trend from yesterday, small cap stocks outperformed, with the Russell 2000 improving 1.2%.  The VIX moved slightly higher on the day and the dollar index declined 0.45%. 


Within the Technology sector, RHT and TIBX both announced better than expected earnings yesterday.  Continuing with our theme that some sectors of the economy are doing better than others, revenues trends seem surprisingly strong for this pre announcement season. 


Underperforming the market were Consumer staples, Healthcare and Financials. 


From a risk management standpoint, the ranges for the S&P 500, the Dollar Index and the VIX are seen in the charts below.  The range for the S&P 500 is 15 points or 0.5% upside and 1.0% downside.  At the time of writing, the major market futures are slightly higher.


The CRB improved by 1.5% yesterday; grains, energy metal and industrials all traded higher on the day.


Crude oil is unchanged after a larger-than-expected decline in U.S. stockpiles.  The Research Edge Quant models have the following levels for OIL – buy Trade (75.52) and Sell Trade (77.16).


Gold improved by 1.3%to $1,101.98 an ounce in Singapore.  The Research Edge Quant models have the following levels for GOLD – buy Trade ($1,071) and Sell Trade ($1,151). 


Copper climbed to the highest price in almost three weeks in London as the dollar declined.  The Research Edge Quant models have the following levels for COPPER – buy Trade (3.16) and Sell Trade (3.26).










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FINL: Insights From a Strengthening #2

We recently posted our Footlocker wishlist and believe the latest results from Finish Line offer some insights into what’s working and what’s not in the world of mall-based athletic footwear retailing.  While the ultimate success of Footlocker’s efforts will be determined by its own merchandising and turnaround strategy, there are interesting takeaways from FINL that should give Footlocker some things to think about it.  Finish Line has always been successful when it is selling product that consumers want (yes I know that is an obvious statement, but it’s true) and as a result, are more likely  to pay full price.  This is in contrast to Footlocker, which has historically been very promotional (BOGO’s were at one point the norm).  The key conclusion here is that product, not price, will be the most important factor in driving healthy margin expansion and sales growth in the space.  Finish Line is onto these trends and early results appear to be promising.


Some of the takeaways on product, pricing, and e-commerce from the Finish Line quarterly call:


  • Sales patterns within the quarter remained volatile, with underlying demand still not improving at a steady and predictable pace.  Customers showed up for Black Friday and other promotional events, but sustained momentum is still elusive.
  • Focus on innovative product has been successful in driving full priced sales, especially in performance dominated categories.  Running, a category where FINL has worked with vendors on developing exclusive product, invested in in-store presentation, and increased training for its associates had strong results in the quarter.  Same store sales in the running category increased in the mid-teens, with strength in both men’s and women’s.  Nike and Puma were leading running brands in the quarter.  Both are focused on lightweight shoes as part of their innovation message.  Overall, ASP’s increased 4.8%, reflecting the strength in full priced sell-throughs of performance product.
  • The toning category was again mentioned as a key highlight from a product standpoint.  As inventories in the product category began to improve towards the end of 3Q, management noted that toning became a “contributor” to 3Q results.  Both Shape-Ups and Easy Tones are driving strength in this young category.  Management expects toning to be a “meaningful” contributor to the fourth quarter.
  • The powerful combination of e-commerce and physical retailing continues to show benefits.  FINL noted that sales under the company’s “We’ve Got It” program are up 50% year to date.  This effort substantially increases conversion because it gives the customer the option of having an out-of-stock item shipped directly to their home rather than walking away completely without a sale.  We continue to hear more and more from retailers that are effectively leverage a fully integrated multi-channel strategy.
  • Weaker categories in the quarter included basketball (comped down and expected to remain under pressure) and casual athletic (i.e non-performance).
  • Kids performed above average, driven by strength in Brand Jordan, Puma, and Under Armour.
  • Apparel posted its first positive comp in 15 quarters, increasing by 5%!  The repositioning of the product offering towards a more premium product is beginning to show results.  Brand Jordan, The North Face, and Under Armour were key drivers in the quarter.


This was the headline from yesterday - “Sales of existing U.S. homes in November rose to the highest level in almost three years as first-time buyers rushed to take advantage of a government tax credit and lower prices.”


This is what we are hearing today - “U.S. new-home sales in south fall to lowest level since 1991”


I suspect that the difference in the performance in existing home sales and new home sales has to do with pricing.  The homebuilders still need to make a margin on the sale of a home versus a consumer wanting out of his/her house.


Last night after the close, the ABC consumer confidence index improved to -42 from -45 last week.    Today, the U. of Michigan consumer confidence final reading for December improved for the first time in three months.  The Reuters/University of Michigan final index of consumer sentiment rose to 72.5, from 67.4 in November. The figure was lower than the preliminary 73.4 reading in early December. 


While most consumers have little confidence in the job market and more than 7 million consumers are unemployed versus this time last year the 23% YTD move in the S&P 500 is benefiting consumer confidence – to a degree. 


The U. of Michigan December reading suggests a lower-high from the 73.5 reading in September 2009.


As I said yesterday, there are a number of sectors in the economy that are bouncing along the bottom and housing is one of them.  Importantly, without Government tax incentives, the housing market would likely still be in a decline.


The river card on this week’s MACRO calendar will be tomorrow’s weekly jobless claims report.  Although the consensus estimate suggests that the number will fall by 10,000 to 470,000, I suspect more Americans than anticipated will have filed first-time claims for unemployment benefits last week.  Last week we were reminded that the labor market will take time to strengthen and that there are parts of the economy that are still struggling.


Howard Penney

Managing Director







December 23, 2009


Today is the day where the penned-up demand of Firms that were on the Dollar General deal can finally unleash their Analytical hounds to let the world know how great of a deal this really was. While FDO is still the better short here, DG’s day will come. Perhaps sooner than later.





Today is the day where the penned-up demand of Firms that were on the Dollar General deal can finally unleash their Analytical hounds to let the world know how great of a deal this really was. Seven brokers launched coverage this morning, five of them with Buy ratings, and none with Sells. The average price target for the bulls is $29. Yes, that’s 32% above where it is today. Not bad for a deal that was priced at the lower-end of the $21-$23 range. Hats off to JP Morgan, the only broker on the deal to not pump its tires.


Does DG still qualify as the type of company that can learn pretty much anything it wants to for a couple of quarters? Although it hardly proved that theory in the latest quarter, the answer is probably yes. But the fact remains that this was arguably the best period to take a dollar store public (again) in the past ten years. In 2010 is gets a lot harder. Yes, the company is helped by a better maturation curve for its stores. But it no longer benefits from the incremental consumer trade-down, shift towards consumables, and increased private label. Margins are peaky, debt is massive, and the company is signing new lease obligations like they’re going out of style. This smells so bad in so many ways.


For now, we like Family Dollar as the better short. But DG’s day will come – perhaps sooner than later.


R3: HAPPY DOLLAR GENERAL DAY - 12 23 2009 8 18 10 AM





  • As the “private sale” trend continues to grow, keep an eye on Zulily. The online private sale site is set to launch in early 2010 with a merchandise focus centered on mom, babies, and kids. The site is partially funded by Mark Vadon, founder of Blue Nile.


  • With Barnes & Noble’s Nook e-reader gaining considerable attention over the past few months as a formidable competitor to Amazon’s Kindle, it’s too bad the product will barely be brought to market in time for the holidays. While the troubles with meeting pre-order demand have been well documented, BKS recently indicated it will now be offering a Nook gift certificate and a $100 gift card to those that are no longer going to get their device before December 25th. Many customers are now up in arms, as the company has delayed shipping dates several times along the way only now admitting that the product will not make it in time for the holiday.


  • Call it cost cutting or an employee morale boost? Crocs has closed its offices for the holidays over the final two weeks of the year. Maybe it’s just a reward for the company’s ability to clear through 12 million pairs of excess inventory over the past 12 months!





Iconix Lauches European Division - Iconix Brand Group Inc. said Tuesday it has partnered with The Licensing Company to launch a European unit to pursue expansion in the region. A group of investors led by The Licensing Company and Albion Equity Partners acquired a 50 percent stake in the new division, Iconix Europe, for $4 million, Iconix said. As part of the deal, Iconix retained its own 50 percent interest in the venture and the rights to its first $6 million of distributions. Iconix said it currently has 11 existing licensing agreements in Europe. The company said it expects to record a pre-tax gain of between $5 million and $7 million related to the transaction. <>


Brazilian Fitness Brand Track & Field Plans U.S. Push - Track & Field, a high-end fitness and lifestyle apparel brand with 36 stores in Brazil, wants to tap into the $30 billion U.S. fitness industry. The company, which uses innovative fabrics such as material that stays dry and fabric that stretches comfortably, will launch an 850-square-foot store next month at 977 Madison Avenue and 77th Street in Manhattan. “When I look at the U.S. market, most companies investing in [innovative] fabrics are very big, like Nike,” founding partner Frederico Wagner said. “It’s hard to think of these companies as being very exclusive.” Wagner said Brazil, which will host the 2016 Summer Olympic Games in Rio de Janeiro, ultimately could support a chain of 70 units, but he sees the potential in the U.S. for as many as 300 to 350 stores. Track & Field sells athleticwear for indoor and outdoor sports, and casualwear that can be worn anytime. There are also collections for cross-training, triathlons, yoga, running, swimming, biking and winter and summer sports. Prices range from $40 to $180 with the average price point at $75. <>


Billabong to Acquire Stake in Surfstitch - Billabong International Ltd entered into a conditional agreement to acquire an interest in Australian online board sports retailer, Surfstitch. The agreement will allow Billabong acquire a minority equity interest in Surfstitch, with options to acquire 100 percent of the business. Billabong said the purchase price was not material and was subject to a confidentiality agreement.   <>


Chinese Retailer PCD Enjoys the Boom - While department stores in the U.S. face tough competition from online retailers and big-box giants, the department store chain PCD in China is booming, reports Business Week. PCD has grown rapidly since opening its first store in 1998. PCD operates 16 department stores and one outlet mall. Earlier this month, it made its Hong Kong trading debut with shares soaring 30 percent, putting the little-known PCD in the industry's big leagues. The company now has a market capitalization of $1.3 billion, larger than some of the top names in the business. As the Chinese economy rebounds, shoppers are returning to the country's stores and investors are driving up the stock prices of Chinese department store chains. <>


Cavalli Renews Global Eyewear License With Marcolin - Roberto Cavalli and Italian eyewear maker Marcolin SpA said Monday they have renewed the license to globally produce and distribute sunglass and prescription frames branded Roberto Cavalli and Just Cavalli until Dec. 31, 2015. The license was set to expire at the end of December 2010. The partnership between the two firms dates to 1999 for the signature branded collection, and to 2005 for the Just Cavalli label. The companies said that the license renewal marks the designer’s 40th anniversary next year. To celebrate the milestone, Marcolin and Cavalli said they are “working at an ambitious development seize new and further growth opportunities.”  <>


Decline in Swiss Watch Exports Ebbs - Swiss watch exports, still feeling the impact of the economic crisis, nevertheless showed a marked improvement in November as their monthly decline was the most moderate for the year. Exports of Swiss timepieces fell 10.6 percent to 1.4 billion Swiss francs, or $1.38 billion at average exchange rates, last month, compared with a 22.7 percent drop reported in October, according to the Federation of the Swiss Watch Industry. In the January-to-November period, the decline in exports was 23.7 percent. <>


Shrinking Credit Threatens Almost $9 Billion in Holiday Sales - Target Corp. and U.S. retailers may lose almost $9 billion in holiday sales as banks rein in lending to cash-strapped consumers before a new credit-card law takes effect. Sales in November and December may fall 1.2 percent to $436.7 billion from the same period in 2008, said Britt Beemer, chairman of consumer polling firm America’s Research Group. If lenders weren’t cutting customer spending limits and rejecting more credit-card applicants, sales would gain about 0.8 percent to $445.5 billion, he said in a Dec. 21 interview. Target Chief Financial Officer Douglas Scovanner says the credit-card legislation is exacerbating a spending slump just as consumers begin to consider more discretionary purchases they would usually buy with credit. Items such as clothing, jewelry and home goods suffered steeper declines during the recession and are among the most profitable sales for retailers.  <>


Fed, FTC to Require Notices for Credit Decisions - The Federal Reserve Board and the Federal Trade Commission announced rules giving U.S. consumers more information when they’re lent money at higher rates because of their credit report.  Consumers given less-favorable terms will be given a notice and the opportunity to get a free report, the Fed and the FTC said in a statement today. Lenders can also comply by giving customers a free credit score, which is usually available for a fee from credit-reporting companies. Currently, lenders don’t have to explain why a borrower is getting particular terms. The rules will apply to all forms of consumer credit, including credit cards, auto loans, mortgages and student loans. The rules apply to banks and lenders such as auto dealers and financing firms. Congress has tightened regulations for lenders this year. President Barack Obama signed a credit-card law May 22 that limits rate increases, among other changes. A new Consumer Financial Protection Agency is under consideration by legislators as part of a broad regulatory overhaul.  <>


Brazil Eyes Sanctions for U.S. Cotton - Brazil told a World Trade Organization forum Monday it could impose punitive sanctions of about $829.3 million because of the U.S.’ failure to scrap cotton subsidy programs found in breach of global rules. A preliminary list published in Brazil’s official daily in November cited more than 200 products that could be targeted for high tariffs, including cotton yarn, cotton fabrics, denim fabrics with more than 85 percent cotton, men’s and boys’ trousers, knitted or crocheted fabrics of cotton and woven fabrics of nylon. Other products on the provisional list include agricultural products, machinery and equipment; pharmaceuticals, and chemical products.  <>


EU Prolongs Duties on Chinese, Vietnamese Footwear - The European Union on Tuesday extended punitive taxes on imports of Chinese and Vietnamese shoes. Ministers from the 27 EU nations "today adopted a regulation extending, by a further period of 15 months, the anti-dumping duty on imports into the EU of footwear with leather uppers originating in China and Vietnam," a statement from the bloc's presidency said. The move is designed to help southern EU producers compete against lower-cost footwear imported by companies such as Nike Inc., Puma and Adidas. The extension of the duties on leather shoes is a compromise because a U.K.-led group of northern European nations opposed re-imposing the levies for the usual five-year period, according to Bloomberg. The anti-dumping measures in the EU carry import duties of 16.5%levied on Chinese shoes with leather uppers and 10% on the same kind of shoes from Vietnam. The duties aim to counter below-cost imports from China and Vietnam. <>


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