R3: Sell It While You Can!


February 16, 2010


One of our key themes headed into 2010 was ‘sell it while you can,’ meaning that credit spreads, cash flow visibility, and the rebound in equities has created a brief window for bankers and P/E shops to get paid by bringing dogs to market. DG was first. Toys R Us is the poster child.





One of our key themes headed into 2010 was ‘sell it while you can,’ meaning that credit spreads, cash flow visibility, and the rebound in equities has created a brief window for bankers and P/E shops to get paid by bringing dogs to market. DG was first. Toys R Us is the poster child. We still think Sports Authority will be this year. Consider the following flow from this weekend…


1. According to the NY Post (they have the ‘exclusive’ based on their super duper secret sources), Bain Capital, Vornado, and KKR are currently interviewing investment banks to prepare an IPO for none other than Toys R Us.  Recall that the company went private for $6.6 billion about five years ago.  Timing on the deal is rumored to be this Summer.


2. Sports Authority is hitting the PR wagon about store openings and remodels. This smells like validation of our call that it will come public in a Dollar General-esque way. Short/Intermediate term, it is good for the space. Channel fill due to an inevitable (and untimely) but necessary store growth program in a concept that should not grow (or exist) takes the burden off vendors to pressure retailers for margin. On the margin, a negative for DKS. Net neutral for FL.


3. At least we’re getting some balance, as New Look, the UK based fashion chain, scrapped its IPO which was slated to take place next month.  Management cited “considerable volatility in the equity markets” as the reason for cancelling.  New Look was taken private in 2004 by sponsors Apax and Permira.


Why is this window dangerous? Aside from bringing businesses that should not exist back into the public’s hands and perpetuating a supply/demand imbalance at retail, it increases risk of being short business that should (and ultimately will) go away. Once the window starts to close on the margin, however, fundamentals will take on increasing importance. You listening JNY? WRC?



MORNING NEWS  (and Hedgeye Retail’s 2 Cents)


Fast Retailing & H&M Looking to Acquire - Fast Retailing Co. Chairman and Chief Executive Tadashi Yanai said the operator of Japanese retailer Uniqlo is on the hunt for acquisitions and plans to spend as much as $11 billion to strengthen its global presence. Mr. Yanai, who founded the purveyor of cheap-and-chic clothes in 1984, has made no secret of his ambitions to transform Uniqlo into the world's leading global apparel retailer, leapfrogging the likes of Gap Inc. and H&M operator Hennes & Mauritz AB. He said in an interview Thursday that acquisitions would be necessary, particularly in the U.S. and Europe, to reach that goal. <wsj.com>

Hedgeye’s 2 Cents: A Japanese retailer – with a cost of borrowing near zero – is on the hunt for up to $11bn worth of deals. If that is not supportive of the point noted above as it relates to M&A, then I don’t know what is.


Payless ShoeSource Democratizes Runway Style for the Fall Season With the Unveiling of Designer Collections at New York Fashion Week - Unique Shoe and Handbag Designs Inspired by 1960s Parisian Women and Lunar and Earth Landscapes Hit the Runway at Designers' Shows -- Christian Siriano and Lela Rose. Fashion fans will be keeping a sharp eye on the runways this New York Fashion Week as the hottest upcoming looks for fall '10 are unveiled under the tents at Bryant Park, including the latest footwear trends from Payless designer labels: Christian Siriano for Payless and Lela Rose for Payless. Payless designer collections are among the most widely distributed designer footwear labels in America today.  The Payless fall '10 designer footwear and handbag collections will be available in stores in September with average price points under $40 an item.  In the meantime, shoppers can refresh their spring wardrobes with the spring '10 Payless designer lines including Lela Rose for Payless, alice + olivia for Payless, and Christian Siriano for Payless all available now in select Payless stores nationwide and Payless.com.  <prnewswire.com>

Hedgeye’s 2 Cents: Whether you’d buy PSS designer product or not, the fact is that they finally have the speed to market and consumer insight to actually TRY this. I like it.


According to Comscore's annual digital year in review, Ecommerce sales were down for the first time in history after posting a 2% decline in 2009.  Sales for the year totaled $209.6 billion, with pure retail sales (ex-travel) coming in flat at $129.8 billion.  Travel declined by about 5% for the year, which was the key driver of the overall decline.  Despite a slow start to the year, holiday sales increased by 3% in November and 5% in December.

Hedgeye’s 2 Cents: I can’t bless the numbers, but directionally it is notable. Makes sense to me that travel dragged it down. Am I ready to throw in the towel and say that e-commerce is down w the big ramp. No. But it makes sense for the category/channel to revert to a growth rate of 2-3x total industry retail sales.


Report Finds E-Commerce an M&A Target - E-commerce proved the exception to the rule of contracting merger and acquisition activity in specialty retailing during the second half of 2009, according to a report from investment bank Tully & Holland. Improving economic conditions and continued tightness in the credit markets held off private equity-backed leveraged buyouts, leading to a temporary contraction in M&A activity, the report said. Nineteen transactions occurred in the second half of 2009, compared with 29 for the same period in 2008. “Retailers receiving funding generally operated in one of three segments — discount/value/off-price; health and wellness, or Internet retailing, all believed to have superior growth prospects,” the investment banking firm said. “Meanwhile, a still tepid mergers and acquisitions market saw multiple retailers, primarily in the multichannel and Internet segments, acquired by strategic buyers. <wwd.com>

Hedgeye’s 2 Cents: Not new or surprising.


Wolverine World Wide, Inc. Announces $200 Million Share Repurchase Program - Wolverine World Wide, Inc. announced that its Board of Directors approved a new share repurchase program at its regularly scheduled meeting February 11, 2010, authorizing up to $200 million in share repurchases. The share repurchases are to be made over a four-year period at times and amounts deemed appropriate by the Company, based on a variety of factors including price and market conditions. Over the last 10 years, the Company has returned over $450 million to its shareholders through previously approved repurchase programs.  <marketwatch.com>

Hedgeye’s 2 Cents: This is such a good little company. But not actionable today.


J. Crew to Open Fourth Men's Store - J. Crew is stepping on the accelerator to grow its men’s business. The retailer has signed a lease for its fourth men’s-only store in the New York area, WWD has learned, and is aggressively seeking locations for additional units outside Manhattan. “Someone needed to step in and give men clothes they could wear, love and collect,” said Millard “Mickey” Drexler, chief executive officer of J. Crew Group Inc. Saying the company is “becoming ambitious and opportunistic in our men’s business,” Drexler confirmed J. Crew will open a 3,400 square foot men’s store at 1040 Madison Avenue at 79th Street, across from a women’s store at 1035 Madison. The unit is expected to open in August or September. The store will join three others devoted exclusively to men’s product: a unit on West Broadway in TriBeCa, known as the Liquor Store because of its location in a former bar; one at 484 Broadway in SoHo, and the only mall location, at Garden State Plaza in Paramus, N.J.  <wwd.com>

Hedgeye’s 2 Cents: Grow Mickey, grow! This could be a nice little tailwind, until he inevitably stuffs the channel again.


Eco-Summit to be Held at Nike Headquarters - Executives from Nike, Starbucks and other companies will join Oregon Representative Garett Brennan and labor leaders at Nike's headquarters on February 16 to advocate national climate and energy policies to create new jobs, restore America's competitiveness and provide for our economic and national security. Those attending included:

    * Sarah Severn, Director of Stakeholder Mobilization for NIKE, Inc.

    * Jim Hanna, Director, Environmental Impact, Starbucks Coffee Company

    * Mark Edlen, Managing Principal, Gerding Edlen

    * Chandra Brown, President, United Streetcar

    * Joe Esmonde, Renewable Energy Liaison, IBEW Local 48

    * Garett Brennan, Executive Director, Focus the Nation

    * Congressman Earl Blumenauer

The interactive panel discussion will be followed by a 20-minute tour of Nike's state-of-the-art green building, the C. Vivian Stringer Center, which embodies many of the carbon-cutting features on Nike's energy efficient campus. <sportsonesource.com>

Hedgeye’s 2 Cents: Think about how far this company has come. In the 90s it was the poster child for sweat shops (real or perceived). Now it is hosting eco summits, leading with Green footwear, and has consolidated largely into labor-friendly factories. Wall Street might not care, but this ultimately makes its way into the younger consumer’s mindset (and top line).

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