• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here


    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.


March 3, 2010

When you cut costs out of your business for three years it’s like cutting off 2 legs of a 4-leg barstool. You can balance for a little while, and may even have some luck being propped up by the dude next to you. But ultimately you’re gonna fall.


Adidas’ results today were lacking any and all inspiration for the company – but I’d caution that this is not a read through for the space. Aside from the revenue and EPS miss, we’re looking at Adidas once again cutting back on its disclosure on business segments to the Street. First they stopped reporting futures (once they got bad) back in Q4 08. Now we’re not getting specific brand detail, but rather channel detail (no more Adidas, Reebok vs. TMaG – now we get Wholesale, Retail, and Other). In addition, the company cut its dividend and issued uninspiring revenue guidance despite this being a World Cup year. Perhaps they’re sandbagging, but I suspect that they’re not. When you cut costs out of your business for three years it’s like cutting off 2 legs of a 4-leg barstool. You can balance for a little while, and may even have some luck being propped up by the dude next to you. But ultimately you’re gonna fall.

The SIGMA below for Adidas v. Puma v. Nike speaks volumes. It might be a bit confusing , but there are two major callouts for me.

  1. Look at the sheer variability in the line for Adidas vs. Nike. That means that Adidas’ inventories are much more volatile relative to sales, and the company’s margins are literally 3x more volatile than Nike’s.
  2. Check out the 4-quarter run for Adidas. They’ve done a fine job in cutting inventories, but after 4 quarters, they can’t cut inventories to the same magnitude, and in order to maintain such a favorable spread they need real organic consumer demand. Yes, they actually need to sell stuff.

The bottom line is that we’re looking at peak free cash flow margins, and the widest gap in FCF margin and EBIT margins in over 5 years. If you’re the kind of investor that actually cares about cash flow, you might want to stay away.

R3: Adidas – Two-Legged Barstool - ADI PUMA NIKE SIGMA


  • With both PVH and WRC trading essentially flat on the day, it appears that the WWD story suggesting PVH could be a buyer of Tommy Hilfiger is being shrugged off. Clearly a Hilfiger deal would put a wrinkle in the longstanding courtship between PVH and WRC, although this is Banker Bonanza time. Anything is possible, although in this case the market is clearly sending a signal on current odds. 
  • Staples management continues to be cautious on economic recovery, despite delivering its first positive comp in North America retail in 10 quarters and it’s first positive sales growth in 6 quarters for Business Delivery. With modest topline expectations in 2010, management is banking on expense leverage and operational improvements. For example, its European warehouse network is undergoing consolidation, down from 37 facilities to about half as many. 
  • Despite a general belief that winter weather and perpetual snowstorms are good for sales of seasonal sporting goods, Big Five noted that difficult comparisons in most of its markets made for tough sales results. As such, sales of apparel were down mid single digits in 4Q. Since the quarter ended however, same store sales have picked up notably, led by improved sales of core winter product. The weather aided sales are now tracking up mid single digit, after a flat performance in 4Q. Footwear and hard goods were standouts over the holiday period. 


Target Testing In-House New Payment Card Strategy - Target has decided that its in-house payment cards are a priority, so it's trialing a program in Kansas City that offers customers who use the card "5 percent off on every item, every transaction, everyday," Target CFO Doug Scovanner told analysts in a Tuesday (Feb. 23) conference call discussing the chain's earnings. The card incentive is one of two payment trials Target is running, Scovanner said, adding that the tests "could shape the future of this business segment. In one test, we're exploring the idea of returning to issuing cards solely for use in our stores. In another, we're testing a totally different reward structure in two markets, offering guests who use our card in Kansas City, for example, 5 percent off on every item, every transaction, everyday." The results thus far? "Sharply higher penetration" and "sharply higher credit quality of the guests asking for cards, sharply higher pace of guests asking for the cards. The whole question in Kansas City is whether all of those benefits are sufficient to (justify) the incremental markdowns." There's nothing surprising in those results. We're talking about an installed base, so these are already customers you've won. They're already in the store, and they have chosen products based on the prices marked on the shelf. At this point, why not use the store card? Incentives like a one-time $50 store credit deliver a very short-term boost and then the numbers on those cards plummet.   <cbsnews.com>

Simon Objects to GGP's Bid for Extension - The clash of the real estate investment trust titans continues. Simon Property Group Inc. Tuesday filed documents in Manhattan bankruptcy court in support of the unsecured creditors’ committee’s objection to General Growth Properties Inc.’s request for an extension to its period of exclusivity to file a plan of reorganization. A hearing on the request is expected to be held in Manhattan today. An extension would be the second granted by the judge and would give GGP more time to file its own plan of reorganization and obtain the requisite votes from the various creditor classes. GGP filed for bankruptcy protection in April. Simon on Feb. 8 made a bid for GGP valued at $10 billion. GGP, which Simon said in court papers had rebuffed attempts at negotiation dating back to August, fired back with its own announcement on Feb. 24 that it and Brookfield Asset Management had agreed to a recapitalization of GGP that would split the troubled mall operator into two parts. Simon said in court documents that the GGP proposal with Brookfield is “markedly inferior” to its plan. One bone of contention is that Simon’s offer is “firm and fully financed,” whereas the GGP plan has a contingency requiring that up to $5.8 billion be raised on top of the $2.63 billion contributed by Brookfield, among other differences.  <wwd.com>

Wal-Mart to Pay $12M in Gender Suit Settlement - Wal-Mart Stores Inc. will pay close to $12 million to settle a lawsuit that accused it of systematically denying jobs to women at a Kentucky distribution center. The Equal Employment Opportunity Commission filed the class action suit in 2001 in U.S. District Court in London, Ky. The federal agency alleged that between 1998 and 2005, the retailer hired male applicants for entry-level jobs at its warehouse there while ignoring equally qualified female candidates. According to the EEOC, Wal-Mart officials told interviewees that such order-filling positions were not suitable for women, a violation of the 1964 Civil Rights Act. Wal-Mart signed off on an order settling the case on Monday. Under the settlement, the company will pay $11.7 million in back wages and compensatory damages. The retailer also agreed to place female class members in its first 50 available order-filler jobs, place a female class member in every second job for the subsequent 50 openings and then hire one class member for every third open position. The company will also put up $250,000 toward the cost of a claims administrator who will oversee the settlement.  <wwd.com>

Columbia Sportswear Launches m-Commerce Site - Columbia Sportswear Company said it launched Columbia.com/Mobile, a new mobile portal to Columbia.com designed to help consumers learn about Columbia's outdoor products, experience the brand, or shop -- using a mobile device. "The launch of Columbia's mobile portal is another way Columbia is bringing innovation to outdoor consumers," said Paul Zaengle, senior director, Ecommerce, Columbia Sportswear Company. "The use of mobile devices to access the Internet is growing dramatically and branded websites are the No. 1 way that consumers research products. We are thrilled to offer a rich, mobile experience for consumers to access our brand, whether they're shopping at one of our retail partner's stores, at our company-owned stores, at home or on the go." The mobile portal -- accessible at www.columbia.com/mobile -- is a small-screen version of the Columbia.com site that works on nearly all web-enabled phones and includes the following features:

  •  Store locator - find a store near you that carries Columbia
  • Product assortment - a wide assortment of Columbia product, searchable  and categorized for easy navigation
  • Product ratings & reviews - hear what the community has to say about Columbia products
  • Shopping - browse and buy Columbia product from anywhere, anytime


Footwear Etc. boosts sales by using site search data to personalize e-mails - Consumers today receive myriad marketing messages in their e-mail inboxes, which poses a challenge for e-retailers: how to stand out in the crowd. The key, marketing experts say, is relevance. Make an e-mail message as relevant to the individual consumer as possible and he is more likely to click through to the e-commerce site. In the quest for relevance, some merchants are trying innovative new techniques. A major area of innovation is tying e-mail to other systems, such as site search and order management, to make e-mails more personalized and valuable for the customer. For instance, many retailers send e-mails promoting popular products. But Footwear Etc. has found a way to select products that are almost certainly of interest to the individual consumer receiving the e-mail. The retailer’s site search vendor, SLI Systems Inc., created an automated system that populates e-mails with items that the individual consumer recently searched for as well as related items, such as shoes from the same brand or style. <internetretailer.com>

H&M Board Proposes 2:1 Stock Split - The board of Hennes & Mauritz AB will propose a two-for-one stock split at its annual general meeting on April 29, whereby each of its existing shares will be divided into two new shares in a move designed to make it more appealing to investors. Stock splits traditionally occur when a company’s share price has been steadily rising. Shares in H&M are up 41 percent since the beginning of the year on the Swedish stock exchange, and were up 0.3 percent at 440.20 Swedish krona, or $61.18 at current exchange rates, in morning trading. The move would increase the number of A-shares in the company from   97,200,000 to 194,400,000 A-shares, and the number of B-shares from 730,336,000 to 1,460,672,000, the company said in a statement. The board said that pending approval from the general meeting, the split would take effect between May 20 and June 18. <wwd.com>

Uniqlo's Feb. Comps Advance 1.8% - Fast Retailing Co. Ltd. said Tuesday that Uniqlo’s same-store sale rose 1.8 percent in February. The Japanese retailer said the successful launch of spring items buoyed sales growth. Uniqlo's same-store sales slid 7.2 percent in January on depleted stocks of popular fall and winter items. The monthly sales data excludes Uniqlo’s international operations. Uniqlo currently operates a network of 773 stores across Japan, plus an increasing number of international outlets in locations such as New York, London, Paris and Singapore.  <wwd.com>

EU and Vietnam to Enter Free Trade Talks - The European Union and Vietnam will launch bilateral talks for a free trade pact. The European Commission Directorate General for Trade said Tuesday the countries will initiate formal negotiations and establish a framework for the talks, a move that “reflects the deepening trade relations between the EU and Vietnam.” Bilateral trade between the EU and Vietnam was almost 12 billion euros, or $16.3 billion, in 2008, according to the European Commission. Trade between the EU and Vietnam increased 12 percent annually between 2004 and 2008. Vietnam is the EU’s fifth-largest trading partner. Vietnam was the first stop of new EU Trade Commissioner Karel De Gucht on a trip to Asia this week. Next he will visit Singapore and India. The EU previously said it also will be launching negotiations for a free trade agreement with Singapore. The Obama administration has identified Asia-Pacific as a high-priority area in its trade agenda and is set to begin formal negotiations to join the Trans-Pacific Partnership, which would include both Vietnam and Singapore, later this month. The U.S. has a free trade agreement with Singapore. <wwd.com>

Study: Tax Refund Spending Stays Practical - Taxpayers receiving refunds will focus on using the money to pay down debt or save, a National Retail Federation survey disclosed Tuesday. There will be a slight increase in those who plan to use the cash to make major purchases. But the public’s spending mood is likely to remain restrained after the government checks are spent, said Phil Rist, executive vice president of strategic initiatives at BIGresearch, which polled 8,560 consumers, Feb. 2 to 9, for NRF’s 2010 Tax Returns Consumer Intentions and Actions report. “We’re not back at the impulse buying stage yet,” Rist said. “People will still be approaching spending with practicality. That practicality is going to be with us for a while.” Among those polled about their tax refunds, 40 percent will save them; 29 percent will devote them to everyday expenses, and 44 percent will pay down debt. Last year, 48 percent looked to pay down debt with their refunds. In addition, 12.5 percent will treat themselves to a major purchase, up from 11 percent last year. Some people may plan multiple uses for the found money, like paying down debt and saving a part of it.  <wwd.com