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February 4, 2009

Let’s not overlook perhaps the most notable datapoint over the past day – which is from AmEx. Non discretionary spending is widening its gap versus discretionary. This plays into our view that even with ‘easy compares’ we need to look at share of wallet more than anything else, and that 2010 should be a difficult delta for discretionary categories.


While everyone is pouring over same store sales data this morning, let’s not overlook perhaps the most notable datapoint – which is from American Express. Note that spending is up year/year to no surprise, but non discretionary spending is widening its gap versus discretionary. This plays into our view that even with ‘easy compares’ we need to look at share of wallet more than anything else, and that 2010 should be a difficult delta for discretionary categories.

R3: Look at AmEx, not Just SSS - 1


  • With the American Living brand about to hit its two year anniversary, Ralph Lauren President Roger Farrah had some comments about the brand’s challenges and success so far. He noted that the launch of the brand came at a difficult time in the market overall, making it even more difficult to launch the premium priced line. The biggest learning was the delta between where the line was priced and what the customer was willing to pay for a brand with no history or heritage. The JC Penney customer was also not as receptive to the color palette of the line. Both pricing and colors have now been corrected for Spring and Fall ‘10. Granted, no CEO in this business ever says “we adjusted colors and pricing so that we still have it wrong in the upcoming season.”
  • Wolverine World Wide management expects product costs out of Asia (China) to remain favorable through the first half of 2010, with an uptick coming in the second half of the year. Management also noted that it is not entirely clear at this point how much costs will be up, but that in a few weeks after the Chinese New Year is complete the outlook will be much more clear. The company did not elaborate – but we think that this is a function of VAT and import/export duties, which are unlikely to change before the New Year.
  • It’s game on for American Eagle Outfitters and Hollister in Soho. It appears that AEO is moving its downtown flagship on Broadway in Soho, to a newer 20,000 square foot location just a few blocks north. Interestingly, the store will be situated directly across the street from ANF’s first Hollister flagship. Teen tourists are rejoicing all over at the prospect of one-stop shopping…

MORNING NEWS  (and Hedgeye Retail’s 2 Cents)

Karkus Exits Under Armour - Under Armour Inc. said Wednesday that Suzanne Karkus, senior vice president of apparel, has resigned to pursue other interests. The company has named Matthew Mirchin, senior vice president of sales for North America, interim head of its North American wholesale apparel unit while it searches for Karkus’ successor. In a regulatory filing with the Securities and Exchange Commission, the Baltimore-based performance apparel firm said that following Karkus’ departure on Feb. 16, she would be paid six months’ salary, or $200,000 based on her 2008 compensation, pursuant to the employment agreement inked when she joined the firm in January 2008. That contract called for her to receive a half year’s pay in the event her employment was terminated “under certain circumstances.” The company has yet to provide salary information for 2009. Karkus will also receive $120,000 “primarily to cover her transition and other expenses.” Prior to joining Under Armour, Karkus was president of Izod Womenswear for four years and, during a six-year tenure with Calvin Klein Jeanswear, advanced to president of its women’s division. While Under Armour has struggled with its fledgling investment in footwear, the apparel business has continued to flourish. In the fourth quarter ended Dec. 31, apparel revenues increased 26 percent to $192.1 million, 86.5 percent of the corporate total. By contrast, footwear revenues, while up 60.6 percent for the full year, fell 5.1 percent to $8.7 million in the quarter. Calls seeking comment from Under Armour weren’t returned. The firm’s stock dropped 3.4 percent to $25.88 in trading Wednesday. <wwd.com>

Hedgeye’s 2 Cents: When the SVP in charge of 90% of the P&L either resigns or is forced out, it’s never a great sign. Granted, when Raphael Peck – former head of footwear – resigned last year, it was a precursor to Kevin Plank bringing on Gene McCarthy, who we think was the best free agent in footwear. Our sense is that McCarthy and Karkus were not exactly the best of friends. We’d expect to see a high profile hire here quite soon.

Jones Buys Robert Rodriguez Collection - Jones Apparel Group Inc. is continuing to expand its portfolio in the contemporary category. After buying a 50 percent stake in Rachel Roy in 2008, the apparel conglomerate has acquired Moda Nicola International LLC, which owns the Robert Rodriguez Collection. Jones’ plan is to help the Los Angeles-based designer of women’s contemporary sportswear and eveningwear and his business partner and chief executive officer, Nicola Guarna, grow the label deeper in its existing 600 doors, which include Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, Nordstrom, Harrods and Holt Renfrew. According to Jones, the deal is valued at about $28 million, with Jones having made “initial cash payments to the selling members of MNI,” who are to receive future cash payments “upon achievement of certain financial targets set within the agreement.” Last year, MNI generated net revenues of about $17 million. <wwd.com>

Hedgeye’s 2 Cents: Is it me, or is JNY getting back to its old destructive roots a bit too quickly?

Wal-Mart Cutting 300 Headquarters Jobs - Wal-Mart Stores Inc. said Wednesday it will eliminate about 300 jobs at its Bentonville, Ark., corporate headquarters as part of a strategy to improve efficiency and cut costs. The latest move comes after the retailer last week said it will break up Wal-Mart U.S. into three geographical regions, create a new merchandising execution organization, change the way products are sourced globally, close 10 Sam’s Club stores in the U.S. and lay off 11,000 employees. The positions at Wal-Mart’s headquarters are primarily in corporate support areas, said Mike Duke, president and chief executive officer. In a memo to employees, Duke said asking the home office to make staff reductions was only fair in light of the push for operations to become leaner and more customer-focused.  <wwd.com>

Hedgeye’s 2 Cents: Non-event.

Adidas America Announces Restructuring - Adidas America Inc. on Wednesday said it laid off a small number of employees as part of a U.S. restructuring at its Portland headquarters but indicated that it still expects to see job growth in the U.S. this year. The company issued the following statement, "Today adidas America, Inc. announced a restructuring of its organization in support of the launch of a new US business plan. This action will result in a net increase to employee headcount at the company's Portland, Oregon headquarters. The purpose of this restructuring is to simplify the business, increase efficiency, prioritize resources and position the company for long-term growth and opportunity. While the company is ultimately creating more jobs, many of the new positions demand a different skill set and experience level, thereby requiring the company to release some employees and recruit new talent. Although these decisions are very difficult, the company is making the strategic moves necessary in order to not only maintain but increase market position." Adidas America spokeswoman Stephanie Von Allmen, speaking to Oregonlive.com, declined to divulge the specific number of job cuts, but said it would be fewer than the 60 jobs that will be added during the course of 2010. She said the company would release further details of the restructuring at a later date. The company employs 800 at its U.S. headquarters in North Portland. <sportsonesource.com>

Hedgeye’s 2 Cents: I think I’m pretty good at math, know this industry quite well, and have a decent enough memory. But if you were to ask me how many times the North America ops at Adidas has been restructured, I’d need to research it a solid half hour before giving an accurate answer.

CAA Among Investors That Buy J Brand Firm - Fashion’s Hollywood connection just got a little bit closer. J Brand’s rapid rise to prominence in the premium denim segment is getting an additional boost from a new private equity owner that includes an unlikely partner: none other than the powerhouse Creative Artists Agency. Star Avenue Capital LLC has acquired a majority interest in Los Angeles-based J Brand in a deal said to be valued in excess of $50 million. Star Avenue was established in early 2009 as a three-way partnership between Star’s management, private equity firm Irving Place Capital — a key investor in operations such as Aéropostale, Seven For All Mankind, Stuart Weitzman and The Vitamin Shoppe — and CAA to target emerging brands and concepts for investment. It’s the first major investment for Star Avenue. As part of the deal, J Brand will welcome as chairman former Jones Apparel Group Inc. chief executive officer Peter Boneparth, who joined Irving Place Capital in March as a senior adviser focusing on the retail and apparel sectors. “Premium denim was a category that we targeted early on as one that would be an obvious deal given our experience from Irving Place, and given how these brands respond so well to media activation,” Mark Genender, managing director of Star Avenue, told WWD exclusively. <wwd.com>

Hedgeye’s 2 Cents: Banker Bonanza redux.

Cutter & Buck gets new CEO - Seattle sportswear company Cutter & Buck has named Jens Petersson chief executive officer, replacing Ernie Johnson. Seattle sportswear company Cutter & Buck has named Jens Petersson chief executive officer. He replaces Ernie Johnson, who took the helm in 2006, a year before Cutter & Buck signed a deal to be bought by European apparel distributor New Wave Group. Johnson, a former banker, now is chairman of Cutter & Buck's board of directors. Petersson, 46, who previously was deputy CEO of New Wave, said he plans to step up Cutter & Buck's marketing efforts and better communicate with customers on the Internet. Social-networking Web sites such as Facebook are "very much on my agenda," he said, citing the U.S. economy as another top concern. "We hope we've seen the bottom and a recovery is coming as soon as possible." Something else he hopes will blow over soon: the Tiger Woods sex scandal. Cutter & Buck specializes in golf apparel, and Woods' absence from the game "obviously is not a positive," Petersson said. "What's best for all of us in the industry is he comes back and plays." <seattletimes.nwsource.com>

Hedgeye’s 2 Cents: An often overlooked gem in golf apparel – seriously.

Esprit Plans China Online Sales as Retailer Expands - Esprit Holdings Ltd., the biggest Hong Kong-listed clothier, may set up an online sales network in China as it pushes expansion in the world’s most populous nation, where it says margins are similar to those in Europe. Chinese spending on casual clothing is growing and Esprit is likely to see a “stronger influence from China” in future fashion collections, Chief Executive Officer Ronald van der Vis, who took over in November, said in an interview.   <bloomberg.com>

Hedgeye’s 2 Cents: Important move. US investors don’t know Esprit, but they should.

Burberry Promotes Janowski - Burberry has named Andy Janowski to the newly created post of chief operations officer, reflecting the brand’s increased focus on its supply chain. Janowski joined Burberry in 2006 as senior vice president, supply chain, and created a global team that transformed purchasing, manufacturing, sourcing and shipping, resulting in cost savings and reduced environmental impact and distribution processes, Burberry said. Burberry’s wholesale sales in the third quarter grew 10.5 percent, due partly to earlier, more streamlined shipments and an ongoing strategy to deliver new ranges more frequently to customers. “In his three-and-a-half years with the company, Andy has strategically built, modernized and shaped a leading, world-class supply chain team,” said chief executive officer Angela Ahrendts. <wwd.com>

Hedgeye’s 2 Cents: “Increased focus on supply chain”? That was the buzzword catchphrase a few years ago (like 10). A bit late to the party boys.