R3: Earnings Callouts From a Diverse Group

02/25/10 10:29AM EST


February 25, 2010

Last night and this morning have brought a wide range of earnings reports ranging from SWY to TRLG. A couple of callouts from the diverse group caught our eye.



Headline earnings of $0.53 appear to be in-line with the Street, but below the surface continued topline weakness continues. Identical store-sales declined by 4.1%, meaningfully below the Street’s expectation for a 2.9% decrease. Bulls have been waiting for inflation to kick in at any time and so far signs of an inflation driven pick-up at retail remain elusive. We continue to believe the competitive environment will put a lid on opportunities to take prices higher, at least in the near-term. Also notable was the company’s decision to hold off on providing 2010 guidance until a March 3rd analyst meeting. We’re not sure what a few extra days will do at this point in helping to put forth an outlook for the coming year.

R3: Earnings Callouts From a Diverse Group  - SWY SIGMA


Reported EPS of $0.59, $0.03 ahead of the Street on a better than expected topline. The key here in the near-term centers around investment spend over the first three quarters of the year and the company’s decision to curtail its off-price business. On the investment side, the build out of an internal salesforce, the opening of a Hong Kong office, and incremental ad spend are all taxes on earnings for the year. The off-price business is expected to be cut 25% or by $10 million, which still leaves a fair amount of product to be sold through that channel and the company’s own outlets. All in, management suggested that the entire years earnings growth will be driven by 4Q, or beginning in 8 months! Perhaps most troubling is that SG&A and gross margins continue to move higher in tandem, clearly leaving little upside and leverage despite the hyper unit growth of the company’s retail stores. We continue to see risk here as the business model remains in the midst of major (and costly) changes.

R3: Earnings Callouts From a Diverse Group  - TRLG SIGMA


Clean beat here this morning with EPS coming in at $1.40, above the recently guided range of $1.36-$1.37. Guidance is slightly below the Street with management citing a belief that the environment will remain challenging and they are not baking a pick up into the forecast. In other words, they continue to be conservative. It looks like 2010 will be a year in the which the company will continue to focus on market share gains by using some gross margin/inventory management benefits to further reinvest in price (which in turn drives share). The balance here between longer-term results and reinvestment at the expense of printing higher EPS in the near-term is notable and something that is expected to continue. Further introductions of exclusive product should also be both a source of competitive advantage as well as a source of gross margin gains.

R3: Earnings Callouts From a Diverse Group  - KSS SIGMA

Eric Levine



  • Chico’s management indicated it has been using pop-up store locations for its Soma brand as a way to gage demand in a particular mall or trade area. The result of these tests has yielded about 8 or 9 longer-term lease signings, all of which are in freestanding mall locations. Soma stores will continue to be targeted primarily at A malls. 
  • For the first time in a year, Dollar Tree reported an increase in average ticket. While the company has been seeing positive traffic gains for some time, management believes that newer customers are returning to the store and buying more than they have on initial visits. The average ticket increased by 0.8%. 
  • In an effort to differentiate itself among other luxury retailers, Saks Fifth Avenue is seeking to secure exclusive lines with its designer partners. Exclusive product currently represents about 10% of sales, but is expected to double over the moderate term. 
  • TJX remains one of the few retailers looking to accelerate square footage growth over a multi-year period. The company grew square footage by 3% in 2009, and is planning on growing by 5% in 2010, and 5% in 2011. Based on current concepts and filling in existing markets, management believes the chain could expand from 2,700 to 4,200 locations over time. 
  • True Religion management indicated it is embarking on an effort to reduce the company’s sales to the off price channel. In 2009, the company sold approximately $40 million worth of product to off-price or about 13% of the company’s total sales. Given that this is a “luxury” denim brand that is still in growth mode, it’s interesting to see such a strong reliance on the discount channel as well as the brand’s own outlet stores. 


GGP in Deal for Bankruptcy Exit - General Growth Properties Inc. said Wednesday that it reached a deal to emerge from bankruptcy with a $2.63 billion investment from Brookfield Asset Management Inc. The agreement with the Canadian property management company would split General Growth into two separate divisions and give Brookfield a 30 percent stake in the number-two U.S. mall operator. The deal comes after General Growth last week rejected an unsolicited $10 billion bid from its chief rival, Simon Property Group Inc. It is subject to bankruptcy court approval, as well as better offers in a court auction. Simon did not immediately comment. The Chicago-based real estate investment trust said the commitment would help it recapitalize at $15 a share and give unsecured creditors par value and accrued interest on their claims. General Growth said the agreement is not subject to due diligence or any financing condition. Under the proposed terms, shareholders would receive one share of new General Growth Properties common stock at $10 a share, plus one share of a new entity, General Growth Opportunities, at $5 a share. General Growth Properties would retain the core mall assets and General Growth Opportunities would own certain noncore assets, which the mall operator said would include its “master planned communities and landmark developments like South Street Seaport” in lower Manhattan. <wwd.com>

Walmart Canada to Open More Supercenters - Plans are in the works to open 35 to 40 more Walmart Supercenters in Canada this year. The new locations will be 10 percent smaller than current stores and will include both general merchandise and full supermarkets. The project, which includes new stores, relocations and expansions, will see an addition of up to 6,500 jobs in retail and construction. Start dates and specific store locations have not yet been announced. The new supercenters will bring Walmart Canada's operating total to 124. The retailer also has 200 general merchandise stores in the country. <licensemag.com>

Nine West launches a Facebook shopping tab - Nine West launched today a shopping application on its Facebook fan page that allows the company’s Facebook followers to buy products from designer Fred Allard's accessories line, as well as offers Facebook-only promotions such as 15% off purchases. The app, which was developed by technology firm Fluid Inc., is only accessible by Nine West Facebook fans. Limiting the app to fans gives its Facebook-related offers an air of exclusivity and should bolster the company’s fan base, says Andy Lloyd, Fluid CEO. Nine West fans who click on a “shop lookbook” tab on Facebook can shop, as well as note whether they “like” or want to “share” a product using the Flash-enabled app. When a shopper clicks the “like” button, that information is shared with everyone connected to her on Facebook. When she adds an item to her shopping bag a separate tab opens with Nine West’s standard checkout. Checkout occurs outside Facebook because Fluid and Jones Apparel Group, which owns Nine West, were concerned consumers would be hesitant to complete a transaction on Facebook, says Lloyd. <internetretailer.com>

Barnes & Noble CEO stakes the company’s future to e-commerce - Barnes & Noble Inc. sees the future and it’s clearly e-commerce. In fact with a burgeoning online business and aggressive new business development in the e-book reader market, Barnes & Noble is transforming itself from a conventional books retailer into a major e-commerce franchise, CEO Steve Riggio told Wall Street analysts on the company’s third quarter earnings call. While it didn’t break out specific numbers for its new e-book reader, Barnes & Noble Inc. nonetheless credits sales of nook with providing a spark in web sales for the third quarter of fiscal 2010. <internetretailer.com>

Amazon and Microsoft agree to share access to each other’s patent portfolio - Amazon.com Inc. and Microsoft Corp. have agreed to provide each other access to their patent portfolio, including the technology behind Amazon’s Kindle e-book reader, Microsoft announced yesterday. The agreement covers a broad range of products and technology, including the open source and proprietary software components supporting the Kindle and Amazon’s use of Linux-based web servers, Microsoft says. Microsoft did not identify which parts of its patent portfolio will be accessible to Amazon, which will pay Microsoft “an undisclosed amount of money under the agreement,” the software company says. A spokesman for Microsoft said that more specific terms of the agreement remain confidential. Amazon did not immediately return a request for comment. <internetretailer.com>

Crocs Wins Appeal in Patent Claims Over Copycat Shoes - Crocs Inc., the maker of colorful plastic clogs with holes, won an appeals court ruling that revived patent-infringement claims over what it considers copycat footwear. A U.S. appeals court sent the case back to the U.S. International Trade Commission in Washington for further proceedings. Crocs, based in Niwot, Colorado, can seek an order to prevent imports of rival Holeys, Dawgs and Waldies shoes made in Asia and brought to the U.S. The company originally filed an ITC complaint in 2006 against 11 companies. The only ones remaining in the case are Double Diamond Distribution Ltd., a company based in Saskatoon, Saskatchewan, that owns the company making Dawgs shoes; Holeys Canada Inc. in Vancouver; and Effervescent Inc. of Fitchburg, Massachusetts, maker of Waldies Comfy Clogs. <businessweek.com>

Industry Sees Pros and Cons in Jobs Bill - Apparel and retail groups said the $15 billion jobs bill passed by the Senate Wednesday is a step in the right direction, but criticized the legislation for failing to meet the immediate needs of their member companies to create new jobs. The bill would give a package of tax breaks to businesses that hire new workers and invest in new equipment. Democrats were able to break through the partisan morass on Capitol Hill and secure votes from Republicans to pass bipartisan legislation they hope will create tens of thousands of jobs and help revive the weakened economy. The vote was 70 to 28. The centerpiece of the legislation is a $13 billion provision that would offer an exemption from Social Security taxes to companies this year that hire new workers that have been unemployed for at least 60 days. Companies also would receive a $1,000 tax credit for each new worker that is retained for a full year. Employers would receive the credit in their 2011 income tax returns. Another provision in the bill would allow small businesses to immediately write off equipment purchases up to $250,000 as business expenses, as opposed to depreciating those costs over time.  <wwd.com>

Web-only retailers took the center stage for revenue growth in 2009 - With 35% of Top 500 retailers now breaking out annual web sales, it’s clear that web-only merchants took business away from the rest of the retail market in 2009, according to analysis of data for Internet Retailer’s forthcoming 2010 Top 500 Guide. Combined revenue for the 175 merchants that have reported annual web sales so far increased 13.8% to $49.70 billion in 2009 from $43.69 billion in 2008. However, among the 99 web-only retailers who have reported sales thus far, sales increased 25.2% to $32.45 billion from $25.92 billion in 2008. Even excluding growth powerhouse Amazon which grew 27.9% to $24.51 billion from $19.17 billion in 2008, the remaining 98 web-only retailers grew 17.6% to $7.94 billion from $6.75 billion.

The analysis of 99 web-only retailers, 36 chain retailers, 32 catalog companies and eight consumer brand manufacturers reveals:

  • Even though only a few consumer brand manufacturers have released e-commerce figures thus far, that group grew collective annual web sales by 12.7% to $487.6 million from $432.5 million in 2008.
  • Chain retailers’ web sales declined 3.7% in 2009 to $12.94 billion from $13.44 billion.
  • Catalogers posted a 2.6% decline in online revenue to $3.8 billion from $3.9 billion.


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