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R3: REQUIRED RETAIL READING

March 4, 2010

This morning’s same-store sales results confirm the positive commentary that has been trickling out of earnings calls over the past couple of weeks.  February was a strong month.  Yes, compares were easy, but the results stand out especially in light of record snowfall-induced disruptions for most retailers.  

TODAY’S CALL OUT

This morning’s same-store sales results confirm the positive commentary that has been trickling out of earnings calls over the past couple of weeks.  February was a strong month.  Yes, compares were easy, but the results stand out especially in light of record snowfall-induced disruptions for most retailers.  On an overall group basis, monthly performance improved across the 1, 2, and 3 year time frames.  For the first time in over a year, the 2 and 3 year stacked trends turned positive.  While this is certainly a better than expected start to the fiscal year for almost every retailer, its important to note what lies ahead.  Momentum will continue to improve sequentially based on continued easy comparisons and the Easter calendar shift, which will give March an added boost.  The question now is not if sales momentum will remain, but rather where already high expectations are heading.  To support an improving trend, we do believe we’ll begin to see inventory commitments creep up. Otherwise  we are getting closer and closer to a point where topline opportunities may begin to be missed in a more meaningful way.

February Recap:

Upside to expectations: COST, ANF, DDS, LTD, ZUMZ, BJ, JWN, M, GPS, AEO, ARO, ROST, TJX, TGT, JCP, BKE, DDS, FDO, FRED, WTSLA

In-line: KSS

Slight downside to expectations: SKS, BONT

R3: Happy New Fiscal Year!  - SSS 1 year total

R3: Happy New Fiscal Year!  - SSS 2 year Feb

Eric Levine

LEVINE’S LOW DOWN 

  • BJ’s Wholesale management indicated that severe deflation in perishables resulted in the category reporting its lowest comparable store sales of the year. Despite the severe inflation, unit comps increased more than offset pricing, which led to a 3% increase for the quarter. While deflation overall put pressure on the topline, management believes at it cycles last year’s price declines in 2Q, the topline will begin to improve. Overall, the company estimates deflation had a 250-300bps impact on fourth quarter sales. 
  • Keep an eye out for the latest YouTube/ viral social media trend to hit the world of retailing. Dubbed “haul videos”, these short videos are on-camera recaps of shopping trips. In other words, a young women goes to the mall, comes home, sets up her camera or webcam, and reports on her shopping trip and what she came home with. And to demonstrate the power of YouTube, the most popular “haul video” has now recorded 580,000 hits! With that many views, this a trend that is likely here stay for at least a little while… 
  • Costco noted that closings of Sam’s Club locations that are in the same trade areas as their own stores should positively impact 7 or 8 units. Interestingly, the positive impact is likely to come in the form of better margins. The elimination of Sam’s as a direct competitor within a specific trade area allows Costco be slightly less aggressive on pricing, especially on highly visible and price sensitive items. 

MORNING NEWS

Kohl's to Add Nine New Stores, 1,500 Jobs - This spring, Kohl's plans to open nine new stores in five states, creating more than 1,500 jobs. The retailer expects to open a total of approximately 30 stores by the end of the year. Kohl's nine new stores will be located in Maryland, New York, Oregon and Pennsylvania. In addition, the retailer plans to remodel 85 stores this year. "We continue to bring customers new stores where they can enjoy Kohl's great brands and tremendous values and invest in our existing store base—remodeling 85 stores, 66 percent more stores than last year—to keep the customer experience fresh and exciting," says Kevin Mansell, Kohl's chairman, president and chief executive officer. Kohl's currently operates 1,067 stores in 49 states. Licensed product lines found at the retailer include Simply Vera Vera Wang, Food Network, LC Lauren Conrad and Avril Lavigne's Abbey Dawn. <licensemag.com>

Macy's Prepares Exclusive Brand Launches for Spring - Four new fashion brands and two home line expansions will roll out this month and April exclusively at Macy's. The new fashion brands include Ellen Tracy for women's better sportswear, Kouture by Kimora for young trendsetter apparel, Threads & Heirs for men's casualwear and mstylelab for jewelry and hair accessories for young contemporary consumers. The home line expansions include multiple mattress styles for the Martha Stewart Collection and casual Latin-inspired dinnerware for Vida for España by Eva Mendes. In other Macy's news, the latest Kenneth Cole Reaction men's sportswear line will be available exclusively this fall at stores within the U.S. and its territories. The men's collection will include denim, graphic tees and woven shirts—all targeting a young, casual and price-conscious demographic. The sportswear will initially hit 150 Macy's stores and online at www.macys.com in September. The in-store rollout will see the apparel in Reaction-themed, shop-within-a-shop concepts. A further 550 store launch will follow. The sportswear range builds upon Macy's current Kenneth Cole Reaction offerings such as footwear, outerwear, tailored clothing, dress shirts and ties, pants, bags and luggage, small leather goods, belts, men's jewelry, sunglasses and fragrance. <licensemag.com>

Heelys Fills Positions to Support 2010 Business Plan - Heelys announced several staff changes to support their 2010 business plan, which includes revitaling its brand, making new products a priority and improving partnerships with retailers, marketers, licensers and the media. Ryan Wills has been promoted to Director of Innovation. His primary responsibilities will be driving new product design and development. He will also work across the board with the marketing group to create packaging, in-store merchandising materials and communications programs for these new products. Chris Harper has been promoted to Vice President of Sales and Retail Relationships. In this role Harper will build on his previous retail responsibilities and will work directly with retailers to build specific sales programs as well as product and promotional concepts to drive sales in their particular stores. In doing so he will work closely with Heelys' outside sales representatives, customer service, marketing and product development to ensure that retailers have what they need to succeed with the Heelys brand. <sportsonesource.com>

Congress Grills Kirk on Exports - Senators voiced bipartisan skepticism about President Obama’s initiative to double exports in five years, pressing U.S. Trade Representative Ron Kirk at a hearing Wednesday for details on how the administration could achieve such an ambitious goal. Kirk was questioned as House Ways & Means chairman Charles Rangel (D., N.Y.), a champion of trade benefits for developing countries, said he was temporarily stepping down from his powerful post. Rangel’s decision came after the House ethics committee admonished him for taking corporate-sponsored trips to a Caribbean conference. He is also the focus of a broader ethics investigation. Initiatives to overhaul U.S. trade preference programs and a bill to renew tariff breaks on imported products that expired last year, with an adverse impact on apparel and textile companies, face new uncertainty without Rangel’s muscle to push them through the committee, which controls legislation on taxes and trade. It was unclear whether Rangel, who kept his seat on the committee, will be able to regain the chairmanship or who would replace him in the interim. The most senior Democrat on the committee is Rep. Fortney “Pete” Stark of California.  <wwd.com>


Fed Report Shows Slow Retail Pickup - The retail outlook in most parts of the U.S. improved mildly in late January and throughout February despite the impact of heavy snowstorms and continued economic pressure from high unemployment rates, according to the Federal Reserve Board’s Beige Book, released Wednesday. Several districts in the Fed’s report said the severe snowstorms in early February “held back” some sales, but retailers were still able to meet expectations for the month. The anecdotal report from the Fed said retailers in most of the 12 districts tracked for the Beige Book noted that sales were strongest for lower-priced items and that sales of luxury items were still sluggish as the economy slowly climbs out of a deep recession. A major snowstorm blanketed regions in the U.S. in the first weeks of February. Retailers in New York attributed slowdowns for some chains to wintry weather, noting sales in areas with less inclement conditions were stronger than expected. Philadelphia retailers reported that the weather in February offset a mild trend of increased sales for the month. Some regions reported sales rebounds after the storms, as consumers succumbed to “cabin fever” and ventured out to go shopping when roads were clear, but retailers in Richmond noted the occurrence of back-to-back storms in that region on consecutive weekends made it hard to recover all the sales that were lost.  <wwd.com

Underemployment 19.8% in February, on Par With January - Gallup Daily tracking finds that 19.8% of the U.S. workforce was underemployed in February, on par with January's 19.9% reading.

 R3: Happy New Fiscal Year!  - G1

"Hope for finding a job remained flat in February: 40% of the underemployed were hopeful that they would find a job in the next four weeks, compared to 39% in January." These results are based on February interviews with more than 19,000 adults in the U.S. workforce, aged 18 and older. Gallup classifiesrespondents as "employed" if they are employed full time or are employed part time but do not want to work full time. Gallup classifies respondents as "underemployed" if they are employed part time but want to work full time or are unemployed. Unemployed respondents are not employed, looking for work, and available for work. February's 19.8% underemployed estimate includes 10.6% who are unemployed and 9.2% who are working part time but wanting full-time employment (neither estimate is seasonally adjusted, and both are based on adults 18 and older). Both figures are similar to January's estimates.

 R3: Happy New Fiscal Year!  - G2

Although Gallup's data trend closely with figures put out by the U.S. government's Bureau of Labor Statistics, there are important methodological differences between how Gallup calculates and how the government calculates its estimates. For example, the Bureau of Labor Statistics reports a seasonally adjusted unemployment rate for the U.S. workforce aged 16 and older. Gallup data are not seasonally adjusted and are based on respondents aged 18 and older. <gallup.com>