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We See Inflation

In this morning's Early Look, I used a curling metaphor to describe the global macro markets news flow.  I'm not sure I can come up with a metaphor for the chart below, or that we need one.  Focus on the trend in PPI, which is used as a proxy for inflation.  As the comparisons get easier over the next couple of months, reported inflation is only going to accelerate.  As depicted in the chart below, inflation is already running well above the three year average at the 4.6% reported today.

 

He Who Sees No Bubbles or Inflation (Chairman Bernanke) has indicated recently that he will not keep interest rates or montary policy at emergency levels in perpetuity.  And that, thanks be to Volcker, is a prudent and rational thing.  The timing on when he takes action, of course, is the open ended question.  In contrast to the fair Chairman Bernanke, we look at the chart below and we see inflation. It is not interpretation, it is a fact.  What is also obvious is that inflation, on a reported basis, is only going to accelerate in the coming months.

 

A friend of the firm, who also happens to be the Treasurer of major resturant company, indicated to us a few months back that, "He didn't see a core inflation problem."  All I can say to that is to reiterate, we see inflation. And if you don't believe your friends at Hedgeye, believe the chart below.

 

 

Daryl G. Jones

Managing Director

 

We See Inflation - PPI

 

 

 

 

 

 

 


ANF: Denim, T’s, and Polarization

ANF: Denim, T’s, and Polarization

 

Over the years, Abercrombie has gone from loved to hated to loved and everywhere in between.  However, it’s hard to remember a time when investor interest and the company strategy have been more polarized.  The smoke has cleared after Tuesday’s EPS, expectations are reset, and the consensus EPS estimate is now $1.66 for 2010.

 

Over the years, Abercrombie has gone from loved to hated to loved and everywhere in between.  However, it’s hard to remember a time when investor interest and the company strategy have been more polarized. The smoke has cleared after Tuesday’s EPS, expectations are reset, and the consensus is now at $1.66 per share.  Aside from a slight beat vs. expectations, management provided some longer-term parameters or benchmarks for which they would like to Street to measure against.  First and foremost, the company set a goal to return to a 15% operating margin over the next three years.  Sounds reasonable when looking at the historical multi-year run of 19+% margins, but the company is now in the midst of more changes than we can remember.  If you’re a true optimist then you’re probably focused on CEO Mike Jeffries’ comments which suggested a return to 20% EBIT margins is also still within reach.

 

As analysts it’s our job to opine on the merits of such a goal and ultimately make a judgment on whether or not this seems reasonable, obtainable, and over what time frame can this realistically occur.  Unfortunately, the specifics of such a plan were not entirely quantified, although additional disclosure on underperforming stores (almost 25% of the entire base!) and the international operation was definitely a step in the right direction.  But, key questions in our view still remain.  Can domestic productivity rebound on store closures alone? Can gross margins return to peak levels while AUR’s continue to decline and macro headwinds (aka traffic) still exist?  Can management bring Gilly Hicks into the black while keeping the store base stable and relying on productivity gains? Can all this be accomplished while simultaneously doubling the international store base each year? Furthermore, is aggressive growth outside of the U.S really worth that much if the domestic business continues to shrink a measurable pace?

 

These questions are what makes Abercrombie so polarized, at least in our view.  Each of these factors is critical to realizing the 2012 margin goal of 15%+ ($3.30-$3.40 in EPS assuming flattish sales).  With margins finishing 2009 at 6.6%, a rebound of 840 bps is needed over the next 3 years to achieve this goal.  Keep in mind that management suggested trends may actually get worse in the near term. Gross margins are expected to remain under pressure as clearance activity and lower AUR’s persist.  Additionally, a back-half weighted store opening plan with a substantial international bias will also weigh on results as costs run through the P&L prior to opening.  Whether this is conservative positioning remains to be seen, but the reality is we’re now looking at holiday 2010 before we can make a reasonable judgment on the progress of the many initiatives underway.   For now, the bar has been set low, with little expected in the near-term as the company begins the three year journey towards a profitable recovery.  That keeps us smack of the middle of the debate for now.  On one hand it appears that management bought some time here, but on the other hand there are numerous unanswered questions that remain.  Before we can get on board and see through the polarization, we need to see more evidence that all these moving parts can in aggregate reverse a declining sales and profit trend that has been in place now for over two years.

 

Here are some more of our post-quarter thoughts.

 

 Domestic Productivity

 

  • There are 230 A&F, A&F Kids, and Hollister stores with a negative four-wall contribution in aggregate of $36 mm (about $0.27/share) in 2009. The negative contribution is skewed toward A&F and A&F Kids stores and is heavily concentrated in C malls. 95 of the 230 stores are more critically ill, which caused the company to take an impairment charge in the quarter.  Looking at the A&F store cannibalization, approximately 16% of the brand’s stores are located within a ½ mile distance from each other. 

 

ANF’s Plan: Cull the store base through natural lease expirations (half of the 230 stores have leases expiring before 2012), rent relief, and early closures where profitability is not achievable.  Additionally, management believes productivity (i.e. sales) improvements would boost some locations back to four-wall profitability, but the amount of such stores on the “cusp” is unknown

 

Hedgeye: Either way we look at it, almost 25% of the domestic store base is unprofitable and even with a same store sales rebound, total volume is likely to decrease as locations are shed.

 

  • Gross Margins have declined 280 bps since the 2007 peak of 67%, mostly due to increased promotional activity and higher markdown activity.  Headwinds will persist in 1H 2010 with lower AUR’s (still expected to be down 7-10%) in the Spring and an expected increase in freight costs.  Product costs in 2H 2010 have not been addressed, however many retailers and apparel companies are already planning for increases beyond mid-year.    

 

ANF’s Plan:  Management put gross margins first on the list of improvements needed to achieve the goal of 15% operating margin by 2012.  The intent to raise gross margins back to peak historical levels of 67% will likely be a difficult task in the near to intermediate term even as the higher-margin international business becomes a bigger part of the equation.  Clearly less clearance activity is both a function of better product and more customers walking over the lease line.  Both of which are still big unknowns.

 

Hedgeye: Management maintains that they are able to get back lost gross margins even with lower AUR’s (which have been offset by lower COGS) but this seems like a short sighted view based on a deflationary environment.  Additionally, lower volumes on a smaller store base does not suggest economies of scale are improving here.  Customer traffic, while barely mentioned on the call, remains a critical element to the “productivity” equation and a factor that will be dictated by the overall economy, merchandising improvements, and the price elasticity of lower prices.

 

  • The intimates concept Gilly Hicks, with 16 stores, remains unprofitable.  Management dispelled rumors that the brand would be shut down but noted that the store base will remain essentially unchanged until productivity is improved.   

 

ANF’s Plan: Management calls for Gilly Hicks to break-even or become profitable over the next few years through aggressive goals for increased productivity.  However, the steps needed to drive sales and ultimately profits were not articulated.  If a successful turnaround is made, the store base will ramp up in 2012.  In other words, management just bought three more years for the brand.

 

Hedgeye: While this is a smaller part of the story at the moment, it still represents the only potential domestic growth strategy for the company as of now. 

 

International Expansion

 

  • Flagships and international stores have considerably higher gross margins and sales volume than domestic stores, especially as the US store base finished the year with a mid-single digit operating margin.  The NYC 5th Ave. A&F flagship store contributes $100 mm in revenues a year while London, Milan, and newly opened Tokyo are expected to contribute $200 mm in aggregate to the topline in 2010.  Management suggests that close to 20% of the incremental sales added through international store openings will flow through to operating income, which is clearly the reason why store growth is ramping up overseas.  UK Hollister stores average 6x more volume than domestic stores, however newer stores are planned to be less productive on average than the malls they are currently in.  This sounds like the best locations were already opened. 

 

ANF Growth Plans: Copenhagen, Fukuoka (Japan), and NYC 5th Ave. Epic Hollister store are in the works for opening in Q3 and Q4 of 2010. Paris is in the works for 2011. The international store based will grow from 28 units to 60 with the addition of 30 new Hollister stores in Europe and 2 international A&F flagships.   As such capex is expected to grow by 40+% in 2010, to $250-$260 million.  That’s a big jump considering at least 100 stores will actually be closed over the same time frame.

 

Hedgeye:  There is no question that the best growth prospects for ANF at the moment are outside of the U.S and what better way to tap into this than opening highly visible, super productive flagship stores.  However, we wonder what happens when it comes time for these locations to finally comp against their initially high productivity.  Adding stores in a hub and spoke manner is also likely cannibalistic to the flagship, which can’t be good for leveraging high cost real estate. Over the next year or two however, we do believe that store closures can be somewhat offset by higher profile non-US growth. 

 

 

-Eric Levine & Zach Brown

 

ANF: Denim, T’s, and Polarization - 1

 

ANF: Denim, T’s, and Polarization - 2

 

 


MGM 4Q09 CONF CALL: "NOTES"

MGM 4Q09 CONF CALL: "NOTES"


"This has been a challenging but momentous year for MGM MIRAGE culminating with the opening of CityCenter in December. We generated significant cash flows and kept our buildings occupied at 90% even in a brutal economy because we are equipped with the highest quality resorts, the preeminent brands, and the finest employees in the industry. We have profoundly improved our cost structure and are actively building revenue to maximize operating leverage as the economy shifts into recovery mode. Our forward convention booking pace accelerated again in the fourth quarter with over 440,000 future room nights booked."

- Jim Murren, MGM MIRAGE Chairman and Chief Executive Officer

 

CONF CALL

  • There has been aggressive price discounting among our competitors, we haven't been doing it though ...
    • Well LVS wasn't either ... so who was?
  • Claims that airlines have added seats to flights, and auto traffic has grown as well.. expect visitation to be up this year... still feel very comfortable that 38MM people will visit Vegas in 2010
  • MGM is the biggest Baccarat player - especially in the high end
  • The 440k room nights they booked in 4Q09 excludes Aria but isn't all for 2010, and its double what they booked in the 4Q07, and half of the bookings are from new customers
  • Group bookings in 2010 - mix was 11.3% (convention mix as a % of total portfolio) was 16% in 2007.  Expect that they will be back in the mid teens by 2011... that mix shift allows them to occupy rooms with more profitable customers
    • They aren't aggressively pricing this business - rather at rates competitive with leisure rates
    • Prices that they are getting are close to 04/05' and what they are booking for 2011 is close to 2007
  • Down to 16% attrition compared to 12-13% historically
  • International marketing was very successful - driven by their Asian visitation
  • Synergy between Aria and other properties has been very profitable so far, since they are now getting customers that were going elsewhere... that's their plan for growth too
  • How is Aria doing?
    • Reviews have been "outrageously great"
    • Volumes are ramping up
    • Opportunity going forward is almost "unlimited"
  • Bellagio is up in almost every metric and luxury portfolio is doing well.. no cannibalization from Aria. All properties had Baccarat increase ex- Aria
  • YTD occupancy is up y-o-y and room rates have been improving (I assume that means less negative?) They are up y-o-y right now.. because of CNY
  • We know we've gained market share 
  • The environment remains challenging and likely will remain so for sometime, but we see light at the end of the tunnel
    • Fundamentals improving and so is the balance sheet
  • 4Q results were impacted by impairment charges resulting from their decision to write off the AC "City Center East" development. They also adjusted thier accrual for the CityCenter guarantee to $150MM from $68MM previously
    • I assume this means that condo sales may be worse or capex to complete is higher?
  • Why do they say that things improved when the declines got less bad due to easier comps? It's not the same thing.. Improve means increase... not slowing declines
  • MGM Detroit continues to garner almost 40% market share
  • MGM Macau was impact by lower hold (EBITDA was only $46MM... I'd like to see them continue to argue that they can do $300MM of EBITDA in 2010 when they only did $161MM this year)
  • Aria benefited from high hold
  • New R/C would have a 20-25% paydown to extending lenders, LIBOR +500bps with 2% LIBOR floor still in place
  • Have $1.1BN of availability under the R/C which reflects the payoff of $293MM of bonds this past week that just matured
  • 2010 1Q Guidance
    • Total Stock comp: 10MM
    • Corporate expense: 30-35MM including 4MM of stock comp (this q included some severance and bonus accrual and hence came in 10MM above guidance)
    • Pre-opening should be minimal compared to 4Q2009
    • D&A: 160-170MM
    • Gross Interest expense: 265-275MM with no capitalized interest
    • Capex for 2010 will be a little higher than 200MM
    • RevPAR is expected to be decline less than what they saw in 4Q09
  • City Center update
    • About 1,000 contracts need to be closed out now that everything is open
    • Dec occupancy was 62% with an ADR of $236 for Aria
    • Booking trends in transient and leisure improving each week
    • Elvis set to have it's official opening next week
    • On residential - 30% price adjustment and mortgage finance assistance. Received 400 applications to date as a result.  Mandarin closings began and will take about 6 months
    • Crystals is continued to build out - opened with 41% tenants, will be 56% occupied by 1Q2010 end and 85% by 2010 YE (looks like they had some slippage in occupancy since last call)

Q&A

  • Relaunching their marketing program next quarter- and expect it to be more effective than before and should help core properties and help them yield rooms more appropriately
  • Convention group used to be over 40% of its room mix historically, claim that the mix there is starting to improve
  • AC strategy
    • Already announced that they are looking to sell their 50% interest
  • Macau strategy 
    • Well we made "a lot of money" in January, and 4Q09 wasn't as good because of hold but volumes are improving (if they're so good why don't they disclose them?)
    • Luck was also on their side in January for more details see our January Macau note and the MGM IPO note. We estimate table win was $145MM in January
  • Contribution from Borgata was up slightly y-o-y but won't disclose the numbers
  • 100% of the rooms are open at Aria since about 5 weeks ago
  • $150-200MM reserve for City Center - what does that mean?
    • Yes there are roughly $150MM of cost over-runs
    • Entitled to use first $244MM towards construction - may have to put that out in 1Q2010
  • Gross casino receivables  - $261MM vs. $244MM in 4Q08 (predominantly LV)
  • Think that RevPAR will turn positive in the 3rd quarter, and should be no worse than flat if not up for the year.
    • I assume this includes Aria rooms which skews the number? Either way, with all the comps RevPAR is kind of meaningless since they can assign any rate they want to those rooms.  So bottom line will tell the story more so than "RevPAR"
    • Rates turn positive in April, and the rates they have on the books for 2011 are similar to 2008
  • What % of 2010 and 2011 books are net new to Las Vegas vs. stealing share from competitors or just rebooked cancelled conferences?
    • About 50% is new business to MGM Mirage in terms of convention business, of that maybe 50% of that is new to Las Vegas
    • Think that convention business will be low teens of their total business this year
  • How much secured debt basket they can issue?  $800-850MM range
  • Margins in MS & Detroit are better than competitors because these are market leading assets
    • One of the Detroit competitors has been aggressively buying business and they won't do that
    • Tunica is just doing great
    • They are cross marketing Detroit, Biloxi & Tunica more successfully than they have been able to do in the past
  • 2010 EBITDA expectations?
    • They don't give guidance but they expect cash flows to improve if RevPAR improves
  • Have 845 rooms at Vdara turned over to the hotel and the remaining are under contract.  In May, once the closing process is complete they can turn the remainder over to the hotel
  • Sources of liquidity over the next few years:
    • Cash flow from operations
    • Disposition of AC
    • IPO in Macau
    • Ramp up of CityCenter and as is underleveraged and as it matures they can recapitalize it
    • Opportunistic access to capital markets, right now more focused on secured because it's cheapest now
  • Who is City Center cannabilizing if its not them?
    • Won't know for a few months
    • Not Bellagio, it's benefited them, foot traffic at Bellagio has improved significantly and occupancy and ADR are up at Bellagio
  • Difference between transient and group rate?
    • Leisure and group differential is about $60

Early Look

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Dirty Deficit

Position: Short the UK via the etf EWU

 

We wrote a note yesterday titled “Exceptional Uncertainty” to discuss recent (lagging) macro data points that further confirm our bearish view on the UK economy. Today, we received the UK’s January Net Borrowing figure, which at 4.3 Billion Pounds is a notable bearish call-out as it is the first time since 1993 that Great Britain has recorded a deficit for the month of January. 

 

David Kern, Chief Economist at the British Chamber of Commerce, said: “The worst than expected January figures further emphasize the dangers facing Britain’s international credit rating. The public finances are always in surplus in January due to large seasonal tax revenue, but the deficit this year reinforces the need for credible and specific deficit-cutting measures in the next month’s budget.”

 

While we agree with Kern’s latter point that deficit-cutting measures are needed NOW, the heightened political environment between the Conservatives and Labour with an election to be called before June will include more talk than detailed action, which should only prolong the country’s economic underperformance.   

 

We shorted the UK via the etf EWU in our model portfolio yesterday. Below we’ve noted our TREND (3 months or more) level of resistance for EWU.

 

Matthew Hedrick
Analyst

 

Dirty Deficit - EWU

 


R3: WMT: Execution-Mart

R3: REQUIRED RETAIL READING

February 18, 2010

 

WMT’s  triangulation of sales, gross margins and inventory is as good as it’s been this cycle, and now we start to anniversary tougher numbers. Management’s tone shift towards execution could not come at a better time.

 

 

TODAY’S CALL OUT

 

Last week we took a look at Wal-Mart in some detail (see our note from 2/11) and walked away with the conclusion that shares are likely range bound.  Our viewpoint stemmed from the fact that Wal-Mart’s fundamental results are likely to remain incredibly consistent, but also contained to a narrow range of outcomes.  Today’s 4Q results further confirm to us that there is little opportunity for a major breakout on the horizon.  However, it is notable to point out that management’s tone is very upbeat on margins and expense control, while at the same time decidedly less upbeat on sales.   2010 appears to be setting up as an execution story, one in which results will not be entirely dependent on a consumer recovery or a meaningful topline acceleration.  Let’s look at the quarter:

 

WMT came in five cents above the high end of guidance ($1.17 vs. $1.08-$1.12, Street was at $1.12), driven primarily by solid expense control, gross margin expansion, and strong results from international.  F/X did benefit the quarter by approximately $0.02; however, the focus this morning will likely be on the divergence between domestic same-store sales performance and the solid EBIT expansion. Sales came in lighter than expected at -2% in the domestic stores vs. a flattish expectation.  Management attributes the weakness to deflation in grocery and electronics as well as a slight decrease in customer traffic.  This marks a sequential deceleration in traffic from prior quarters (recall that 3Q traffic was up 1.5%).  Management expects difficult comparisons in 1Q to continue to put pressure on the topline, a trend that is expected to improve gradually as 2010 progresses.   On a 2Yr basis same store sales momentum decelerated for the third quarter in a row. 

 

In a slight shift in tone, management focused on the operational improvements underway at Wal-Mart aimed at driving gross margins higher through better sourcing and efficiencies as well as to leverage expenses even with a sluggish domestic topline.  It is clear that the bar has been lowered for sales expectations in the near term.  Interestingly, the often used term “price leadership” was not nearly as prevalent on the 4Q call as it was going into the holiday.  Perhaps self-driven deflation has been partially to blame for the weakness in sales.  Certainly the law of large numbers creates tough hurdles for traffic growth.  Guidance for 1Q also implies a deceleration in same store sales on a 2-yr basis, a trend which has now been building for three quarters .  The real question now is how much upside can really be generated without a sales benefit.  Clearly 1Q and full year guidance, of $0.81-$0.85 vs. Street at $0.85 and $3.90-$4.00 vs. Street at $3.97 respectively, takes into consideration a topline that will remain muted at least over the next couple of quarters.  With the Street “warming up” to the name since the new year, sentiment may be tempered as customer traffic dipped into negative territory for the first time in while…

 

Look at WMT’s trajectory on our SIGMA chart. The triangulation of sales, gross margins and inventory is as good as its been this cycle, and now we start to anniversary tougher numbers. Management’s tone shift towards execution could not come at a better time.

 

R3: WMT: Execution-Mart - 1

 

 

LEVINE’S LOW DOWN

  • Whether the WAG/Duane Reade transaction ultimately works is still unknown, but the big win here is for the people of New York. With plans to continue remodeling stores (30 are complete and they are substantially better than the typical store) and to keep the brand name, customers should benefit from improved pricing, better systems (especially pharmacy), and hopefully improved service levels. Imagine if consumers actually didn’t dread going into a Duane Reade?
  • OfficeMax noted that for the first time in many quarters, revenue from new customers exceeded revenues lost from former customers. With that said, sales of lower margin consumables continue to adversely impact the product mix as discretionary sales are still under pressure.
  • With the wind at its back thanks to the Shape-Ups frenzy, SKX is taking several steps to offset challenging comps in the 2H including 10%+ store growth in 2010 and new licensing agreements that include a kid’s apparel line to launch this quarter.  As the company looks to sustain its growing top-line, management noted they expect to break ground for its new DC in the 1H and to become operational in 2011 – towards the back-end of prior expectations of 2H F10 to 1Q of F11. With backlogs up 40% heading into Q1 and new Shape-Up related product extensions rolling out over the next few quarters the timing of the DC transition is likely to become increasingly important as capacity tightens perhaps unsustainably towards the back half of 2010.

 

MORNING NEWS

 

Simon Urges General Growth to Accept Bid - Simon Property Group Inc. shot back Wednesday at General Growth Properties Inc.’s rebuff of Simon’s $10 billion takeover bid in a strongly worded letter that urged serious talks and warned the offer “is not open-ended.” The letter from chairman and chief executive officer David Simon addressed to General Growth ceo Adam Metz called on him to accept the unsolicited bid for Simon Property’s bankrupt rival as being in the best interests of General Growth’s shareholders and creditors. For the entire text of David Simon's letter, click here. “I want to reiterate that our offer is not open-ended, and we have a number of other opportunities under consideration,” Simon wrote. “We sincerely hope you will engage seriously with us without further delay.”  Simon emphasized the advantages of doing a deal with Simon now rather than going forward with the bankruptcy process. General Growth said Tuesday that Simon’s offer wasn’t sufficient “to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximize value for all the company’s shareholders.”  <wwd.com>

 

Whole Foods, Bed Bath & Beyond to Cut Suppliers Sourcing Fuel from Oil Sands - To cut their carbon footprints, retailers Whole Foods Market and Bed Bath & Beyond are dropping suppliers that source fuel from Canada’s oil sands (also known as the Alberta Tar Sands), reports the Financial Times. While Whole Foods Market has switched to suppliers sourcing U.S. crude oil, Bed Bath & Beyond instituted a new policy that encourages its transportation providers to avoid high impact fuels including those from refineries using Tar Sands. The decisions are not expected to impede the flow of Alberta oil to the U.S., which represents a fifth of all U.S. energy imports, but it does send a signal against synthetic crude oil from Alberta, reports the Toronto Star. Both companies are responding to ForestEthics’ campaign launched last year to urge U.S. corporate companies away from oil sands fuel, which has a higher carbon content than conventional crude oil, reports the Financial Times. ForestEthics is negotiating with more than 30 companies to adopt similar policies, according to the article. The oil sands represent the largest oil reserve outside Saudi Arabia and reduce Washington’s dependence on Middle Eastern fuel, reports the Financial Times. <environmentalleader.com>

 

True Religion Targets Online Counterfeit Operators - Counterfeits have been a problem for leading premium denim labels like True Religion and Seven For All Mankind. True Religion Brand Jeans is employing a new weapon in its fight against waves of counterfeiters that have taken their wares from the cold streets to the warmer environs of the Internet. The Vernon, Calif.-based premium denim label was among the first brands to enroll in tests of Site Staydown, a new service from online brand security firm MarkMonitor that promises not only to shut down Web sites hawking knockoffs, but also to keep them closed. MarkMonitor began a wider rollout of Site Staydown this week, noting the apparel and footwear brands involved in the pilot program were able to shut down more than 100 sites they identified as selling counterfeit or pirated goods. Deborah Greaves, True Religion’s general counsel, said the company noticed an increase in the number of counterfeits being sold online in the summer. While the brand had seen online counterfeiting before, Greaves said Web activity exploded in mid-2009 on sites with dubious domain names like discountbrandjeans.com and myluxuryjeans.com. Some cyber squatters had gone so far as to register domains that included the company’s name.  <wwd.com>

 

Bernard Chaus in Default on CIT Facility - Bernard Chaus Inc. has informed the Securities and Exchange Commission that it is in default on its credit agreement with The CIT Group, putting its ability to continue as a going concern at risk. The New York-based sportswear firm didn’t specify which of its financial covenants weren’t met and said CIT was continuing to provide it with financing following an agreement on revisions and amendments to an earlier pact reached on Sept. 10 and now set to expire on Sept. 18, 2011. Chaus is seeking further revisions but noted that its ability to go forward could be in peril should CIT opt to demand immediate payment or terminate the agreement. Obligations under the new agreement are secured by a “first priority lien on substantially all of the company’s assets, including accounts receivable, inventory, intangibles, equipment and trademarks and a pledge of the company’s interests in its subsidiaries.” The September agreement provides Chaus with a $30 million revolving line of credit, which includes a $12 million sublimit for letters of credit. Its covenants cover financial measures such as tangible net worth, minimum EBITDA and leverage ratios, according to the Form 10-Q filed with the SEC this week. <wwd.com>

 

Ace Hardware adds mobile site to its multichannel toolbox - Retailers going mobile have been making mobile sites, apps and texts a part of their multichannel strategies, especially in using m-commerce to help shoppers get to stores and find useful information while in stores. Ace Hardware Corp. is no exception. The merchant has launched a mobile site that does not complete purchases but instead gives shoppers a tool to use while out and about or in an Ace store. The home page makes the goal of the site clear with a bold headline: “Welcome to the Ace Hardware mobile site. Get in. Get help. Get on with your life.” The first function offered is a store locator, where shoppers can enter a Zip code and get a list of stores ordered by distance. <internetretailer.com>

 

Yue Yuen's Revenues Climb 14% in January - Hong Kong's Yue Yuen Industrial (Holdings) Ltd, the world's largest contract footwear manufacturer, announced that its operating revenue in January grew 14% to $502.45 million from $438.89 million in the same month of 2009. <sportsonesource.com>

 

McQueen Business to Continue Despite Founder’s Suicide - The Alexander McQueen business will go on despite the suicide last week of its founder and creative director, said Robert Polet, president and chief executive officer of Gucci Group. "We believe in the future of the brand," said Polet, speaking at PPR’s annual results presentation here. "Lee was very proud of the people working in his company, and so am I." He added that a McQueen collection would be presented during Paris Fashion Week. In 2000, Gucci Group, the luxury division of PPR, swept in and bought a 51 percent stake in McQueen’s company, bringing an end to the designer’s rocky stint as Givenchy’s couturier at rival luxury group LVMH Moët Hennessy Louis Vuitton. The acquisition set the stage for expansion via signature boutiques in the fashion capitals of London, New York and Milan; a secondary line called McQ licensed to Italy’s SINV; men’s wear and leather goods, and collaborations with the likes of Puma, Samsonite and the mass retailer Target.  <wwd.com>

 

New Credit Card Regulations Take Effect Monday -  Swiping that card at the check out counter will soon have a whole new meeting for some consumers. Beginning Monday, new credit card regulations will kick in some of which will benefit consumers. One of the biggest changes is that credit card companies must give the consumer 45 days notice before making any changes on the account; changes that include interest rate hikes. "If the consumer disagrees, they can close account and will be given 5 years to pay off the balance," Romero said. It doesn't stop there; with part of the new 'Credit Card Act' creditors won't be allowed to charge you over the limit fee instead, your card will be denied. However one regulation states that creditors will no longer allow anyone under the age of 21 to obtain a credit card without a co-signer and that got mixed reactions from consumers. <newswest9.com>


CLAIMS IMPROVEMENT TRAJECTORY HAS SLOWED OVER THE LAST 5 WEEKS

After last weeks impressive drop, claims took a step back this week, rising 31k to 473k from 442k the week prior (revised up 2k). This brings the 4-week rolling average down 1.3k to 467.5k from 468.8k last week.

 

The trend in claims, while still improving, is at the high end of the range depicted by our three standard deviation channel in the following chart. That is to say, the trajectory of improvement has slowed considerably over the past five weeks. We think it's still too soon to call a reversal of the trend in the recovery, but on the margin we think claims remain the best predictor of future credit trends. As such, this data represents a temporary overhang on our bull case for consumer finance companies like American Express.

 

Joshua Steiner, CFA

 

CLAIMS IMPROVEMENT TRAJECTORY HAS SLOWED OVER THE LAST 5 WEEKS - CLAIMS


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