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R3: REQUIRED RETAIL READING

December 29, 2009

TODAY’S CALL OUT

We quantified yesterday why the ‘group call’ will matter in 2010 far less than it did in 2009. In that vein, as the year draws to a close, let’s keep a keen eye on incremental changes in sentiment on specific names in retail. The chart below triangulates sentiment on the sell side (ratings), buy side (short interest), and inside (management buy/sell activity).  Here are some notable callouts…

  1. SHLD: No major changes, but how can I not mention 32% of the float short with not a single sell-sider on the Buy bandwagon. I’m firmly in the ‘why does this business need to exist?’ camp, but let’s not ignore these factors.
  2. BKS is a close second with 30% of the short float, a 6% increase from a month ago.
  3. UA sentiment is still overwhelmingly negative, but its 5 buy ratings is markedly higher than the lone Buy rating we had earlier this year. It’s still hated with 19 other ratings that are NOT Buy, but the short interest failed to move meaningfully higher over the past month, which is also notable. All-in, this is worth calling out, and it tells me that the direction on the top line is gaining in importance here.
  4. TRLG: Sell side loves it, Buy side hates it. Fundamentally this margin structure is almost as sustainable as Timmy Geithner as our Treasury Secretary.
  5. There’s no shortage of big, liquid names with low short interest that are universally loved by the sell side: M, KSS, JCP, TJX, ROST, COH, MWT, TGT, VFC   

    R3: GETTING SENTIMENTAL - R3 12 29 09 Sentiment Chart

    LEVINE’S LOW DOWN 

    • With the holiday shopping season now behind us, retailers are now in clearance mode as reflected in ‘Final Sales’ on popular on-line luxury discount sites Ruelala and Gilt.  While discounts over 50% are more rule than exception this season, of particular interest is how retailers with e-commerce site are balancing clearance activity. Some popular retailers like J. Crew are actually discounting more significantly in-store compared to on-line perhaps as a tactic to drive traffic. There are a few notable exceptions, however, such as Patagonia where I did not see one single sale tag.
    • In an aggressive move to turn inventory, private furniture retailer Raymour & Flanigan is now offering a deal for no money down and no interest until 2014! While an alternative to further discounting, the likelihood for rates to move higher over the next 4 years may result in retailers wishing they had taken the pain upfront in hindsight.

     

    MORNING NEWS 

    Stay Union-Free’ Pushed by Target, Michaels as Obama Law Looms  - Target Corp. retooled a training video to warn workers against a bill that would make union organizing easier. Michaels Stores Inc. told investors “our businesses could be impacted” by the measure. Enrollment in Jackson Lewis LLP’s “How to Stay Union-Free” seminars tripled. Companies are rallying to fend off a so-called card-check law sought by labor leaders and backed by President Barack Obama. While the bill stalled in Congress this year as health- care legislation dominated debate, anti-union groups say they expect the president and Democrats to deliver next year on a compromise version of the legislation. “As we approach the 2010 elections, the unions are really going to want their pound of flesh,” said Randy Johnson, who handles labor issues for the U.S. Chamber of Commerce, the nation’s largest business lobbying group. “Even if we defeat the card-check bill, it’s entirely possible that other changes to the National Labor Relations Act will come up, and some of those will likely make it easier to organize the workplace.”  <bloomberg.com>

    Electronic books outsell paper volumes at Amazon for the first time - Many consumers who found new Kindle e-book readers under the tree Christmas Day rushed to fill up those devices with e-books the same day. The result: for the first time ever, Amazon.com Inc. says it sold more e-books for the Kindle on Christmas than paper books. Amazon, which has featured the Kindle prominently on its home page since introducing the device in November 2007, says more shoppers bought the Kindle as a gift this holiday season than any other item on Amazon. "We are grateful to our customers for making Kindle the most gifted item ever in our history," says Jeff Bezos, founder and CEO of Amazon.com. "On behalf of Amazon.com employees around the world, we wish everyone happy holidays and happy reading!" <internetretailer.com>

    Claire's to go for European expansion drive in 2010 - Accessories retailer Claire’s intends to open significantly more stores during 2010 than this year. Keny Wilson, the US-based retailer’s European president unveiled plans to maximise the label’s European presence by concentrating on stores openings in Spain and Germany, which he believes are well-placed for expansion. Noting that Claire’s opened 25 stores in Europe during the last year, Wilson said: “We’re going to open significantly more in the next year.” In order to expedite this, Wilson also plans to beef up the company’s executive base and will be looking for management with “pan-European expertise.” Currently, Europe, has 953 Claire’s stores, the bulk of which are in the UK and France, against over 2,000 in the US. The European business accounts for close to a third of the retailer’s annual sales. It is owned by private equity firm Apollo Management, which acquired it for $3.1bn in 2007.  <drapersonline.com>

    JD takes over Australian and New Zealand Canterbury distributors - The sports retail group has acquired stakes in the Australian and New Zealand distribution companies for rugby brand Canterbury. The move is a futher step by JD to increase its stake in the rugby clothing brand as well as to consolidate control of its global distribution. The retailer has taken 100% of the issued share capital of Canterbury International Australia and 51% of Canterbury New Zealand. Both companies were previously subsidiaries of New Zealand-based company Herald Island. Ross Munro, who has control of Herald Island will hold the remaining 49% stake in the New Zealand organisation, along with CCC Nominees, and has agreed to become the CEO of CNZ. In a statement to the London Stock Exchange, JD said that it did not expect the acquisitions to be “materially earnings enhancing in the short terrm”, but that they would add to the group’s control of the Canterbury brand and its global marketing properties. <drapersonline.com>

    Fast-Fashion Retailers Eye New Concepts - Despite surviving the economic downturn better than luxury brands, fast-fashion retailers aren’t resting on their laurels. As customers’ spending patterns become unpredictable despite the receding recession, fast-fashion giants are turning to concepts that until now had been untapped or were considered marginal to their main businesses. Despite the recession, Inditex SA, H&M and Japan’s Fast Retailing Co. Ltd. managed to grow total sales in 2009, helped by new store openings, particularly in emerging markets in Asia. But the rise of competition, especially from low-cost and online retailers, combined with fickle consumer confidence, has persuaded fast-fashion retailers to sharpen their product offerings.  Fast Retailing’s flagship chain Uniqlo — with the stated goal of becoming the world’s largest fashion retailer by 2020 — is both shifting upscale with its premium Jil Sander-designed collection, +J, and expanding into thrifty apparel retailing with the low-cost g.u. chain in Japan. H&M has expanded its successful one-off designer collaborations beyond apparel, with a footwear collection by red-carpet shoemaker Jimmy Choo and a lingerie collaboration with Parisian designer Sonia Rykiel. And Inditex is finally catching up with competitors by bringing its main label, Zara, online for the first time.  <wwd.com>

    Dept. Store Sites Score Big Increases - While broadline retailers struggled to top their November 2008 sales figures last month in their brick-and-mortar stores, many of their e-commerce sites enjoyed tidings of comfort and joy as the holiday season began in earnest. Department store e-commerce sites scored the fifth largest increase in unique visitors in November compared with October, rising 29.9 percent to 80.9 million from 62.2 million the prior month, according to a report released Monday by comScore Inc., which specializes in the measurement of digital traffic and purchasing. Overall in e-commerce, there was a 1.5 percent increase in “uniques” to 201.14 billion from 198.22 billion in October. E-commerce sites offering jewelry, accessories and luxury goods had the ninth largest increase, up 15.2 percent to 17.7 million visitors. <wwd.com>

    Online retail was the holiday season’s big winner, MasterCard says - Online retailers were the big winners this holiday season, as their sales grew significantly faster than those at stores, according to the MasterCard Advisors SpendingPulse report released today. E-commerce sales were up 15.5% over last year for the period Nov. 1-Dec. 24, and 18% since the Friday after Thanksgiving, says the report from MasterCard Advisors, the consulting arm of MasterCard Inc. Overall, retail sales increased 3.6% during the period, a substantial improvement from a 2.3% drop-off during the 2008 holiday season, MasterCard says. The e-retail segment registered double-digit growth in all but one week during this holiday season, MasterCard says. Several major winter storms that kept shoppers from bricks-and-mortar stores seem to have boosted online sales, says Michael McNamara, vice president of research and analysis for SpendingPulse. <internetretailer.com>

    Retailers Shoot for Top-line Growth in 2010 - It hasn’t been a cakewalk, yet after the final big shopping weekend of the year and the onset of steeper markdowns, retailers are easing out of holiday selling into clearance mode feeling OK about business and ready to bring on spring. The verdict is a preliminary one, of course, with December sales not being reported until Jan. 7, and about five weeks remaining in the fourth quarter that ends Jan. 31. Not to mention double-digit unemployment and difficulties for consumers getting credit. However, there’s been a discernible shift in the tone among retail executives in the last few weeks. Many predict improved margins and profits for the fourth quarter even with flattish sales, a consequence of lower inventories and demand. Beyond that, some suggest real and long-awaited top-line growth occurring in 2010, most likely in the second half. <wwd.com>

    Online Vintage Stores Bucking the Economy - Britain’s high street clothing stores might be struggling, but Internet business is brisk for a new clutch of vintage stores. The Web sites are proving popular among those who love the idea of wearing important pieces of 20th-century fashion, but who don’t have the time or energy to trawl through shops or markets. The sites are also doubling as vintage clothing libraries, offering video clips, editorial comments and research on the pieces they carry. Many are creating a real world presence by staging exhibitions and salon events, as well as permanent and pop-up stores.  <wwd.com>

    Study: Women to Spend Less on Cosmetics in '10 - 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 percent next year, greater than the 7.5 percent decline expected for prepared food and prepackaged meals or the 3.4 percent 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. <wwd.com>