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March 2, 2010

There was a small but notable change in the Warnaco’s stance toward investment in its brands articulated on the company’s conference call last night. It appears that management is taking the opportunity to increase its SG&A spend in 2010, with a substantial chunk coming in the form of incremental marketing.


In the past we’ve been critical of Warnaco’s business model, which largely consists of licensed properties (about 85% of revenues come from brands the company does not own). Our criticism stemmed from our belief that that the company had been starving itself of investment spend (in the brands) while predominantly focusing on its higher margin, non-US retail expansion (CK stores are still carrying 20% four wall margins).  Spending on the brands aside, we can’t argue that this retail strategy has been working and will continue to work in the near-term as the company maintains a 20+% square footage growth rate for CK store expansion.

With that said, there was a small but notable change in the company’s stance toward investment in its brands articulated on the company’s conference call last night. It appears that management is taking the opportunity to increase its SG&A spend in 2010, with a substantial chunk coming in the form of incremental marketing. WRC will invest an additional $20 million over the course of the year, primarily to support the growth of its crown jewel, Calvin Klein Underwear. The marketing investment will drive two full campaigns, one male and one female, split over the first and second half of the year. Notably, this marks the first time CK will run two separate campaigns for the brand over the course of a year. The step-up in investment will take advertising expense to 6% of sales, a level last observed in 2008. This puts WRC right in the middle of the range of spend for other global brands.

Interestingly, this spend comes at a time when management could choose to print higher EPS in the near-term, but instead is planting the seeds for intermediate-term sustainable growth. Maybe the company is looking to improve its bargaining position with its long-rumored potential merger candidate and largest licensing partner, PVH? Either way, we applaud the reinvestment in the company’s most valuable asset and believe this subtle change in stance on spending may portend further strength to come.

R3: WRC - Spending on CK Underwear - WRC SIGMA

Eric Levine


  • Dress Barn’s CEO noted that record snowfall did have an impact on business over the past five weeks. However, with a portfolio of 2,500 stores in off-mall and mall locations, the stores in the mall substantially outperformed the chain over the snowy Valentine’s Day weekend. Despite the weather impact, same store sales are trending up 6% over the past five weeks. 
  • President Obama is expected to announce his “Cash for Caulkers” stimulus package today which is an effort to promote energy efficiency for homes AND provide job opportunities for contractors. The rebates are expected to go up to $3,000 for consumers who choose to engage in energy-saving home renovation. Interestingly, retailers will be offering the rebates up front, and will then be reimbursed directly by the government. This program along with “Cash for Appliances” is shaping up to be yet another tailwind for HD and LOW. 
  • Adidas just released its World Cup uniforms for the 12 teams it is outfitting. While the “kits” are decidedly retro, they also include the latest technology called TECHFit PowerWEB. This textile technology is designed to ensure a proper fit, promote blood flow, and store the body’s kinetic energy. The designer of the technology is describing the World Cup outfits as “uniform as equipment”. Nike is taking a different approach with its recently launched “green” uniforms made from plastic bottles found in landfills. 


Rumors Swirl Around Hilfiger - Tommy Hilfiger Corp., which has been owned for nearly four years by private equity firm Apax Partners, could be in play. According to sources, Apax has been talking to companies to gauge their interest in acquiring Hilfiger, while at the same time continuing to explore an initial public offering for the American brand, which was postponed two years ago when global stock markets began to slide. At the moment, the lead candidate to acquire Hilfiger is said to be $2.4 billion Phillips-Van Heusen Corp., which has been openly on the prowl for acquisitions and proved with its 2002 purchase of Calvin Klein that it can successfully incorporate a large global brand into its business. Both Fred Gehring, chief executive officer of Hilfiger, and Christian Stahl, partner at Apax, had no comment. Michael Shaffer, executive vice president and chief financial officer at PVH, didn’t return a phone call seeking comment. A deal with Hilfiger would give PVH not only the name, but an international network of retail stores; multiple categories of women’s, men’s and children’s businesses; an exclusive deal with Macy’s, and a strong foothold in the European and Asian markets. PVH already makes Hilfiger’s dress shirts and neckwear under license. <wwd.com>

Coach, Target Seek to Add Li & Fung Unit to Suit - Coach Inc. and Target Corp. on Friday asked a judge for permission to add a unit of Li & Fung Ltd. as a defendant in their ongoing trademark dispute. In a joint motion filed in U.S. District Court in Manhattan, both the accessories firm and mass retailer requested that Rosetti Handbags and Accessories Ltd. be named as the defendant previously known only as “Doe 1” in the case. Coach filed an infringement complaint against Target in October, alleging the discount chain had sold unauthorized copies of Coach’s Patchwork and Ergo handbag designs. At the time, the accessories maker listed up to 10 other unknown defendants it said were in part responsible for the infringement. The company said the names of those parties would be added as it discovered them. LF USA, the U.S. subsidiary of Hong Kong-based sourcing giant Li & Fung, acquired Rosetti Handbags and Accessories in 2006 for $162 million. Target filed a counterclaim against Coach in November. In court documents, the retailer asserted there is “nothing inherently distinctive” about the handbag designs in question and asked the court to find Coach’s trade dresses invalid. A representative for Li & Fung couldn’t be reached for comment Monday. If approved, the joint motion would give Rosetti Handbags until March 22 to respond to the complaint in court. <wwd.com>

Puma Buys Stake in African Ecotourism Company - Puma acquired a 20.1% stake in Botswanan ecotourism company, Wilderness Safaris, as part of its sustainability program. Puma bought its stake in Wilderness Safaris via a private placement for about 186 million Botswana Pula, a prospectus for Wilderness Safaris' planned stock market listing said. This would currently convert into $27 million. The 26-year-old company Wilderness Safaris operates camps and safaris in Botswana, Namibia, Malawi, South Africa, Zambia, Zimbabwe and the Seychelles. <sportsonesource.com>

Badgley Mischka to Expand in China - The Iconix Brand Group Inc. said Monday that Iconix China Ltd., its joint partnership with Novel Fashion Brands Ltd., has teamed with Eve NY to develop the Badgley Mischka label throughout Greater China. As part of the deal, the Shanghai-based Eve NY will manufacture and distribute Badgley Mischka Couture, Badgley Mischka Collection (which was formerly known as Platinum) and Mark & James contemporary sportswear, as well as the designers’ various accessories and bridal collections. Pricing will be comparable to domestic pricing. There are also plans to open 170 freestanding Badgley Mischka stores and concept shops in Greater China within the next five years. A flagship will bow in Beijing or Shanghai in August. During an interview Monday, Mark Badgley and James Mischka said the Asian expansion plans were not triggered by the current economic situation in the U.S. International expansion has been a priority since they first spoke with Iconix about a deal in summer 2005. Novel Fashion Brands chairman Silas Chou has also been highly supportive of Badgley Mischka’s international expansion plans, Badgley said.  <wwd.com>

A GameStop executive is moving to Wal-Mart International - Catherine R. Smith, executive vice president and chief financial officer of video game and entertainment software retailer GameStop Corp., has resigned her position to accept an undisclosed position at Wal-Mart International. GameStop announced that Robert A. Lloyd, senior vice president and chief accounting officer has been named interim chief financial officer, effective immediately. <internetretailer.com>

Columbia Taps Gaylord as President of Mountain Hardwear - Columbia Sportswear Company has appointed Topher Gaylord as president of its wholly-owned subsidiary Mountain Hardwear, Inc. As president of Mountain Hardwear, Inc., Columbia said Gaylord will be responsible for product creation, global sales and marketing of Mountain Hardwear-brand apparel, accessories & equipment, and for global sales and marketing of Montrail-brand trail-running footwear.  He will report to Mick McCormick, Columbia Sportswear's executive VP of global sales and marketing, and will relocate to Mountain Hardwear's Richmond, CA headquarters, replacing Kirk Richardson, who has served as interim president since November 2009. Gaylord, 40, joined The North Face in 1993, rising to serve as managing director of the company's EMEA region from 2000 to 2005 and as president of VF Corporation's Outdoor & Action Sports International brands, including The North Face, Vans, Reef and Jansport, from 2006 through September 2008.  Gaylord has served as president of 7 For All Mankind. Gaylord has served as president of 7 For All Mankind within VF's Contemporary Brands coalition since October 2008.  <sportsonesource.com>

Boston Apparel Group’s parent company buys Casual Living USA - Private equity firm Monomoy Capital Partners, L.P., parent company of Boston Apparel Group, has acquired direct-to-consumer women’s apparel retailer Casual Living USA. 52% of Casual Living’s sales are through its direct-mail catalogs and 48% come from via its web site. Terms of the deal were not disclosed. Monomoy plans to move Casual Living’s fulfillment, marketing, merchandising, and sourcing operations into Boston Apparel’s existing infrastructure in Massachusetts. It will also move the company’s headquarters from Tampa, Fla. to West Bridgewater, Mass. The deal marks Boston Apparel’s first acquisition since Monomoy bought the company in 2008. <internetretailer.com>

LVMH Sues Hyundai Over Super Bowl Ad - LVMH Moët Hennessy Louis Vuitton filed a trademark lawsuit against Hyundai Motor Co. on Monday, accusing the carmaker of using its toile monogram in a television ad that ran during Super Bowl XLIv. The nBC broadcast reached a record 106 million viewers. In the 30-second spot, titled “Luxury,” a voiceover asks, “What if we made luxury available to everyone?” as the camera pans past a yacht parked between single-story homes and two police officers eating caviar in a patrol car. A similar setup shows a group of men playing playground basketball using a ball with a Vuitton-like pattern stamped on its leather. The suit, filed in U.S. District Court in Manhattan, accuses the South Korean auto company of trademark infringement and dilution. Attorneys for the luxury brand said that, in using the pattern, Hyundai sought to “benefit commercially from the fame and renown of the LVM marks by creating a false association between Louis Vuitton and its automobiles.” Representatives for Hyundai did not return calls for comment. LVMH is seeking an injunction, the destruction of all copies of the commercial, legal fees and unspecified damages, among other remedies. <wwd.com