R3: REQUIRED RETAIL READING
March 1, 2010
We saw the general sentiment for apparel and retail companies improve throughout 2H ’09. Not surprisingly as earnings beats became the norm, the sell-side got incrementally positive on almost every company and short interest receded. With all of this in the rear-view mirror, we are beginning to see the bifurcation trade developing in 2010.
TODAY’S CALL OUT
We saw the general sentiment for apparel and retail companies improve throughout 2H ’09. Not surprisingly as earnings beats became the norm, the sell-side got incrementally positive on almost every company and short interest receded. With all of this in the rear-view mirror, we are beginning to see the bifurcation trade developing in 2010. Our sentiment charts, which triangulate sell-side sentiment (ratings), buy-side (short interest), and insider (management buy/sell activity), illustrate a landscape that from a sentiment perspective is decidedly more mixed. Some notable callouts…
- SHLD: A major decline in short interest since Jan 1 stands out as one of the most notable changes in the whole universe. Clearly it helps to beat earnings handily when the Street remains fixated on sales that are still struggling and market share that is walking out of the door. With that said, the sell-side appears to still be sitting on the sideline, unwilling to endorse financial engineering at the expense of having to capitulate on the fundamentals.
- LIZ: Short-interest here has barely budged, although the recent share price performance suggests there is definitely a pain trade underway. There’s been a slight improvement here in sell-side sentiment, although there is still plenty of room to convince the naysayers. We still like the name, and believe the company’s additional disclosure and recent introduction of the Mexx CEO to the Street are making it tougher to keep debate going on whether or not the company will survive.
- FL: We’re no longer the only ones warming up to the story, as evidenced by an increase in positive ratings on the name. With that said, it’s great to see the sell-side endorsing the story more and more, but the earnings revision opportunity is far greater than those starting to “do the work” on the name.
- UA: The short interest here has moved higher (presumably on those betting against footwear), but surprisingly the Street is now more positive than it has been in a long-time. The chart reads this as a “slightly better than neutral” rating, but the move from a slightly negative consensus view is still noteworthy.
High Short Interest: SKS, LIZ, PETS, TRLG, BKS
Negative Sentiment: SHLD, ZLC, KSWS, ZQK, BONT
Positive Sentiment: WMT, TGT, KSS DLTR, URBN, KR, COH, WRC, AEO, VFC
Better: FL, PSS, LTD, JWN, DDS, TLB, LIZ, UA, WRC, GIII, COLM, SKX, MFB, BOOT, RCKY
Worse: GPS, M, TJX, CRI, HOTT, GIL, RL, TRLG
Noteworthy Insider Activity:
BKS and BBI are in the negative territory and have insider selling.
SHLD is the least loved stock and it has insider buying.
GME, LOW, DLTR, TGT, KR, VFC, and WMT all had insider selling while they sit at the positive sentiment and short interest side of the spectrum.
Eric Levine & Zach Brown
LEVINE’S LOW DOWN
- In an effort to test the waters on international expansion and appeal, J Crew will be selling some women’s product through online luxury retailer Net-a-Porter. The website will begin selling select women’s product in May, and will allow the brand to be distributed to 170 countries. Given management’s risk aversion to over expansion and high risk real estate deals, we see this is a creative way to build the brand globally with very little capital or risk.
- Nielsen recently released some viewing statistics for the Olympics and the results are interestingly skewed towards females and older viewership. Females make up 56% of viewership. Viewing by those over the age of 55 are 82% above the national average. Teenagers appear to be much less interested in the Olympics, with their viewership registering 57% below the national average. On a separate note, only 55% of households are HD capable for the games. Looks like there is still plenty of opportunity ahead for those selling flat screens…
- With the possibility of a dangerous Tsunami reaching the shores of Hawaii on Saturday, many of the state’s retailers were among the many precautionary closures. Most notable was one of the world’s most productive malls, the Ala Moana Center, which was shut down for half a day on Saturday morning until the all-clear signals were made.
- In one of the more aggressive promotions we’ve seen in a while from the drugstore industry, Rite Aid ran a BOGO over the weekend on all Rite Aid Brand products. The promo was buy one, get on 50% off and included all private label goods without any restrictions. Talk about an opportunity to stock up…
Gap plans to expand web sales abroad in 2010, after a solid 2009 - Having finished 2009 with decent growth online, Gap Inc. is making 2010 the year for international e-commerce expansion.
For the year ended Jan. 30, 2009, Gap reported:
- An increase of 8.7% in web sales to $1.12 billion from $1.03 billion in 2008.
- Total revenue declined 2.3% to $14.20 billion from $14.53 billion.
- The web accounted for 7.9% of total sales compared with 7.1% in 2008.
- Comparable-store sales decreased 3.0%.
- Net income rose year over year 13.8% to $1.1 billion from $967 million.
In October, Gap announced plans to open new web stores in 2010 for its Gap, Old Navy and Banana Republic brands in Canada and e-commerce sites for Gap and Banana Republic in the United Kingdom. The retailer plans to begin filling orders by fall. Gap will pursue its international web expansion in markets where there are many fashion-conscious consumers, such as Canada, the U.K. and Italy, CEO Glenn Murphy told analysts on the chain retailer’s year-end earnings call Thursday. <internetretailer.com>
Simon Undergoing FTC Inquiry in its bid for Prime Outlets - Gap Inc. was contacted by the Federal Trade Commission about Simon Property Group Inc.’s proposed acquisition of Prime Outlets Acquisition Co. “We are aware of the FTC’s inquiry into the proposed Simon acquisition of Prime Outlets and we are responding to its inquiries,” Louise Callagy, a spokeswoman for the San Francisco-based clothing retailer, said in a telephone interview yesterday. Gap has stores at outlets owned by both Simon and Prime. Simon agreed in December to buy Prime Outlets from Lightstone Group for $2.33 billion including debt. The deal would the largest U.S. mall owner an additional 22 retail outlet centers, increasing its total to more than 60. Simon also is trying to buy bankrupt General Growth Properties Inc., its biggest rival. General Growth rejected Simon’s unsolicited bid Feb. 16, saying the $10 billion offer was too low. Simon’s bid to buy General Growth out of Chapter 11 bankruptcy may also face regulatory hurdles, David Fick, an analyst with Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. <bloomberg.com>
Wal-Mart to “Massively” CutGreenhouse Gas Emissions - Retail heavyweight Wal-Mart said on Thursday that it plans to massively cut greenhouse gas emissions from the life cycle of its products by the end of 2015, describing it as "an effort equivalent to taking more than 3.8 million cars off the road for a year". Wal-Mart plans to reach the goal by having its suppliers reduce "emissions involved in the sourcing, manufacturing, transportation, and disposal of the thousands of products it sells in its stores". The retail giant, which announced previously, that it would rely solely onrenewable energy to run all its operations, completed three solar installations in Southern California, last month. "We have the capacity to do more", Chief Executive Mike Duke said. "It's a very sizable goal, as we often do at Wal-Mart". "We do plan and want to continue to build stores. We want to add square footage. That's the reality of our business. Yet we know we need to get ready for a world in which energy will only be more expensive, and that there will only be a greater need to operate with less carbon in the supply chain", he added. <topnews.us>
VFG Said Shopping Proenza Schouler Stake, Possibly Valentino - After three years in the designer business, European private equity firm Permira is looking at cashing in on its investment in Proenza Schouler, and possibly Valentino, too, WWD has learned. Permira has started to put out feelers, and several investment funds are said to have looked at the two fashion properties. “Proenza Schouler is cool, and it would make sense to sell it while it’s so cool,” said one Milan source, cautioning, however, that it “may not be advantageous to sell Valentino now because of the economy and such a sluggish market.” Another well-placed source here said Permira is “definitely” interested in parting with Proenza Schouler, but that “it is all very agreeable, as they are trying to find a way out and working on a possible deal together with the designers [Jack McCollough and Lazaro Hernandez].” In addition, the source said the fund “is not really trying to make a gain from the sale. On the other hand, I believe the problem is that the brand is absorbing too much cash: It’s still a small business that requires a lot of investment to grow.” <wwd.com>
Labelux Seaching for Acquisitions - The new chief executive officer of Labelux Group said the Vienna-based holding company was looking to snap up brands to add to its burgeoning luxury stable. Reinhard Mieck, who took his post in January, said the group’s first priority was to grow its existing labels — Bally, Derek Lam, Solange Azagury-Partridge and Zagliani — following a tough year for the luxury sector. “Apart from this, we are also clearly looking around for further candidates to join the portfolio,” Mieck told WWD on the sidelines of a Labelux presentation during Milan Fashion Week. “We are looking at companies here and there once in a while,” said Mieck. “If we find something that fits, we might do it this year or next year.” The executive said the acquisition could be in the apparel or accessories fields. Mieck said sales for the group’s four brands had improved in the last four months, though it was still too early to call a recovery. At Derek Lam, sales fell 30 percent last year as a whole, though 2009 also marked the opening of the brand’s first store, located in New York City, and the launch of its first advertising campaign, ceo Jan-Hendrik Schlottmann said. <wwd.com>
Spending on social media increases, but companies struggle with ROI - Even though 81% of companies say they plan to increase spending on social media over the next year, most of those companies are still struggling to figure out how to measure their return on investment, according to a new study from web marketing consultants E-consultancy. 61% of companies say their organizations are either poor or very poor at measuring ROI from social media, according to “The Value of Social Media Report.” The report, which based its findings on a survey of 400 U.S. companies and agencies (19% of them retailers) in December and January, found that among the reasons companies are pursuing social media are to:
- Drive traffic to the company’s web site, 74%
- Raise brand recognition, 64%
- Improve the brand’s reputation, 62%
- Increase sales, 56%
- Improve customer retention, 51%
- Bolster customer satisfaction scores, such as NetPromoter, 52%
Despite the difficulty of finding a direct relationship between the social media efforts and those goals, companies are growing their social media efforts, in part, because those efforts are relatively inexpensive, says the report. 32% of companies do not spend anything on their efforts (aside from their employees’ time), 36% spend less than $5,000 and 12% spend $10,000 or less. Facebook is the most commonly used social media site, with 85% of companies using it, followed by Twitter (77%), LinkedIn (58%) and YouTube (49%). <internetretailer.com>
Scanbuy app enables shoppers to scan bar codes and retrieve data - Typical smartphone cameras are too dumb to read conventional, one-dimensional bar codes—they just can’t quite take a sharp enough image for a bar code information system to decipher. Smartphones at the head of their class, though, have auto-focus features that enable much crisper images—and consequently the ability to read bar codes. Scanbuy Inc., a mobile marketing technology provider, is leveraging the auto-focus feature on select Android, BlackBerry and iPhone smartphones to break down the barrier between mobile bar code scanning and conventional bar codes, enabling users of these devices to use its ScanLife mobile app to snap pictures of the codes and, in return, instantly receive product and pricing information. M-commerce studies across the board show that the most common task conducted by mobile shoppers today is comparison shopping. Enabling consumers to read 1-D bar codes, the most common codes in the U.S. by far, will make mobile comparison shopping a snap, says Scanbuy CEO Jonathan Bulkeley. Scanbuy has for some time enabled consumers to read less common two-dimensional bar codes, which provide data both horizontally and vertically; but most checkout counter scanners don’t read 2-D bar codes, and thus they are not generally used on consumer goods. <internetretailer.com>
A Tough Time Seen Ahead for Europe - Despite tentative signs of a turnaround at the beginning of the year, European retailers are bracing for a see-saw recovery at best, and at worst a double-dip recession. Fears that Greece could default on its public debt have roiled financial markets in recent weeks, raising the specter that European economies, which borrowed heavily to sustain spending during the recession, could now raise taxes on their wealthiest citizens to help foot the bill. “We are not out of the woods yet,” summed up Guy-Noël Chatelin, a partner at OC&C Strategy in Paris. Indeed, luxury firms are maintaining a cautious stance, despite the fact many reported an improvement in the fourth quarter of 2009 — although admittedly against very weak year-ago levels. Ralph Toledano, chairman and chief executive officer at Chloé, said business started to pick up from September, with stronger sell-throughs prompting even Russian buyers, which had retreated during the economic crisis, to return to the showrooms. He noted, however, that Italian specialty stores now seem to be suffering. <wwd.com>