March 9, 2010

The P&L and balance sheet are telling us that we need to start to believe in revaluing this as a growth story. Unfortunately for DKS, the market already is. In another quarter this story won’t look as pretty.


Yeah, DKS beat by a penny – but still only posted 2% EPS growth year/year. There is a little bit for both the bulls and the bears to chew on. But one thing strikes me as being particularly noteworthy. Specifically, we’re seeing the spread between inventory/sales erode at the same time capex is creeping back up. That’s on top of the highest free cash flow margin in DKS’ history. What does DKS have in its favor? Yes, the cycle in athletic is looking positive, but DKS is far less exposed to the key factors therein relative to FL, FINL, or HIBB. DKS has one more quarter of easy comps on the top line and GM line, but then we have to start to value this once again as a growth story. At nearly 20x earnings I’d argue that the market already is.

More to come after the conference call.

R3: DKS: The Key Issue  - DKS FCFMargin 3 10

R3: DKS: The Key Issue  - DKS SIGMA 3 10


  • Let the marketing begin! Now that Zappos has been under the Amazon umbrella for a few months, the company is launching its first integrated marketing campaign. The ads, which will run across TV, print and online feature Muppet-style puppets modeled after actual customer service employees. The campaign also plays off of the extremely high level of customer service embedded in the Zappos culture. 
  • In effort to promote Gap’s loyalty program test in Vancouver, the company turned its entire store upside down (literally, including logos and cars parked out front). The program called Sprize, utilizes the tagline “Shopping turned on its head”. No word on when the test may be expanded stateside, but for now it’s underway at 10 stores in Vancouver. 
  • According to research from Nielsen, Millenials spend the most when making a shopping trip, but also engage in the fewest amount of trips. The average basket spend of a Millenial is about $53, edging out the Gen Xers by $1. Boomers average $45 per trip and those born prior to 1946 average $38 per trip. The study was based on trips to grocery stores, supercenters, mass merchants, and drug stores. 
  • A little good weather goes a long way to draw out the shoppers. While purely anecdotal, a visit to SOHO in New York over the weekend yielded some interesting observations. One may have thought the holiday shopping season was in full force. Old Navy, UNIQLO, and Levi’s all had long lines of customers waiting to pay on what appeared to be a very busy Saturday. 


Payless Launches Champion Toning Footwear Collection - Payless ShoeSource announced the launch of Champion Fitness, a line of toning shoes for women ranging in price from $25 to $40. "Our Champion Fitness shoes feature the latest technology at an affordable price to democratize this new idea in the athletic shoe arena, giving greater access so more people can enjoy the benefits of these innovative shoes," said LuAnn Via, CEO of Payless.  "Champion Fitness shoes help make fitness walks and other walking activities more beneficial to the health and wellness of the overall body.  We are thrilled to celebrate this new idea in footwear and to deliver leading technology at a great price to our shoppers." The Champion Stride features the Cradle Toning bottom, a patent-pending technology with two curved pods that create slight instability -- both laterally and back-to-front --  while walking to encourage muscle toning benefits. This shoe also includes special Air Traverse cushioning that transfers air between the heel and forefoot on impact for added comfort and support while walking. The shoe also has a Dual Density EVA midsole with exceptional cushioning and shock absorption benefits and features a tight-hold midfoot overlay design for maximum stability and to enhance a good fit. Payless said it expects to expand the Champion  Fitness line with future styles for women and men by the end of the year. The Champion brand is licensed to Payless from HBI Branded Apparel Enterprises LLC.  <sportsonesource.com>

J.C. Penney reshuffles its e-commerce leadership - J.C. Penney Co. Inc. has named Nancy Love, vice president for planning and allocation for the retailer’s men’s division, as its JCP.com senior vice president. She reports to Mike Boylson, chief marketing officer. John Tighe, who previously held the position, was promoted to senior vice president and general merchandise manager of the retailer’s home division. J.C. Penney says that Tighe will serve on the company’s executive board. He also will oversee web content for the home division, says a company spokeswoman. J.C. Penney hired Tighe in 2002. Most recently, he had overseen strategy and business planning for the retailer’s web site.

For two years web sales have remained flat for J.C. Penney. The retailer said results for the fourth quarter of 2009 showed a 4.3% year-over-year increase in web sales, but J.C. Penney did not release specific numbers. <internetretailer.com>

Cabela’s continues its executive structural changes - Cabela’s Inc. has named Doug Means executive vice president and chief supply chain officer. Means will report to Cabela’s CEO Tommy Millner. The move is the latest in a number of changes Millner has made in Cabela’s executive ranks as the company implements its stated strategy of growing the its direct-to-consumer channel and improving its overall multichannel operations. “In January, we announced several changes and promotions in our top leadership roles, better aligning Cabela’s executive management team with our strategic initiatives,” says Millner. “I am excited to welcome Doug to our executive team and look forward to his valuable contributions to our supply chain operations.” Means previously worked as executive vice president of production for Jones Apparel Group Inc.’s Better Sportswear line. Prior to joining Jones Apparel, Means was a consultant for advisory firm Kurt Salmon Associates, where he specialized in improving retailers’ operations, developing strategic distribution and logistics plans, and building logistics optimization models. <internetretailer.com>

Stage Stores casts an executive to lead its entry into web selling - Retail chain Stage Stores, which operates 758 stores in 39 states, is finally getting into e-commerce, and it has tasked its chief information officer to lead the charge. Along with the assignment, Steven Hunter has gained a promotion from senior vice president to executive vice president while retaining the title of CIO. The company aims to roll out its e-commerce site by 2011. “This is an exciting opportunity for us to make our merchandise more accessible to consumers in small towns across the nation,” says Andy Hall, president and CEO of the chain, which focuses on small and mid-sized communities. “Given Steven’s impressive track record and leadership abilities, I know we are in good hands on this very important initiative.” Prior to joining Stage Stores in June 2008, Hunter had been senior vice president of information technology for regional department store chain Belk Inc. He previously held positions at consumer electronics retail chain Best Buy Co. and at Kmart, now part of Sears Holdings Corp. <internetretailer.com>

Target Announces Debut of Shaun White Shoes - Target announced the launch of Shaun White Shoes, an exclusive collection, which will debut nationwide in early fall 2010.  An expansion of Target's strong relationship with Shaun White, the line will feature skate-inspired shoes for boys and young men. The collection of shoes will be designed by White in collaboration with his brother, Jesse, and will feature styles influenced by the professional skateboarder's lifestyle.  "It's been a lot of fun working with Target for the past few years on my clothing line," said White.  "I'm excited to have the opportunity to bring some authentic skate shoes into the mix." Starting this fall, Target guests can find Shaun White Shoes alongside Shaun's clothing and the exclusive version of his video game, Shaun White Snowboarding, at Target.  <sportsonesource.com>

Marvel, Reebok to Launch Kids' Footwear at Finish Line - A line of Reebok children's sneakers, featuring Marvel Entertainment's Spider-Man, will hit Finish Line stores nationwide this spring. The new footwear range is an expansion of Marvel's relationship with Reebok, which began in spring 2008 with the launch of Iron Man and The Incredible Hulk children's sneakers. "The co-branded partnership with Reebok and retail support at Finish Line enables Marvel to further maximize the exposure of the brand and expand our presence in key distribution channels," says Paul Gitter, president of consumer products for North America, Marvel Entertainment. "Based on the consumer reaction to our previous collections with Reebok, we are sure the new Spider-Man sneakers will be a hit with kids and parents alike." Marvel Entertainment is a wholly owned subsidiary of The Walt Disney Company. <licensemag.com>

Columbia to Open Chicago Store - Columbia Sportswear Co. has scheduled the opening of its fifth U.S. Columbia branded store Friday, March 12 on Chicago's Magnificent Mile. Located at 830 N. Michigan Ave., the new 11,000-square-foot store will feature Columbia's innovative and high-performance outdoor apparel, footwear, accessories and equipment, as well as stylish Sorel brand footwear merchandised throughout two stories of glass, reclaimed wood and locally sourced stone. "We are thrilled to showcase our innovative outdoor products to Chicago residents and the millions of visitors for whom the Magnificent Mile is a must-shop destination," said Tim Boyle, president and chief executive officer, Columbia Sportswear Company. "The Midwest is a great place to hike, bike, ski, fish, hunt, golf or simply enjoy the beauty of the Greater Outdoors, and Columbia offers locals and visitors alike the outdoor products and technologies they need to enjoy all their activities in comfort, rain or shine."  <sportsonesource.com/>

$1.1M Shoe Mania Settlement Sought - New York footwear chain Shoe Mania could pay $1.1 million to former and current employees to settle several outstanding wage-and-hour lawsuits. Attorneys for both the shoe retailer and the suits’ plaintiffs asked a federal judge to approve a proposed settlement in a joint motion filed Friday in U.S. District Court in Manhattan. The agreement would give class status to Shoe Mania employees who worked as retail sales persons, stock persons, security guards, cashiers, managers, assistant managers and office personnel between October 2002 and the date of a signed order. An attorney for the plaintiffs declined to comment on the number of people in such a class on Monday. Neil Greenberg, an attorney for Shoe Mania, said the company looked forward to “putting this matter behind it and working with the employees to ensure the continued prosperity of the business in these difficult economic times.” The proposed agreement stipulates the company continues to deny any liability or wrongdoing in the cases. If approved, the settlement would end four lawsuits brought by employees between 2008 and 2009. Among other allegations, the complaints accused Shoe Mania of failing to properly pay minimum wage and overtime.  <wwd.com>

Bergdorf Woos Jason Wu - The designer, who recently moved into a vast 9,000-square-foot showroom on 35th Street in Manhattan, has teamed up with Bergdorf Goodman to launch a limited edition capsule collection, to be sold exclusively at the store and on the company’s Web site starting May 14. The lineup ranges from chiffon day pieces to more structured sheaths, inspired by what Wu calls classic American style: defined waists and hues like lemon yellow, red and navy are focal points. While emphasizing shape, Wu also wanted to create pieces with ease and versatility, as with a checkered cotton and silk dress with three-quarter-length sleeves. Other key pieces include a black eyelash silk metallic dress and, on the more formal end, a red faille cocktail dress with French knot and crystal embroidery detailing. <wwd.com>

Brazil Targets U.S. Goods for Harsh Sanctions - Brazil told the World Trade Organization in December that it was considering sanctions against the U.S. for failing to end two cotton subsidy programs. Brazil argued the programs have allowed the U.S. to maintain its spot as the world’s second-largest cotton supplier, behind China, and violate international trading rules. The WTO authorized Brazil to target U.S. goods in an arbitration panel ruling in September. According to the list of sanctions, tariffs on U.S. raw cotton would increase to 100 percent from 6 percent. Woven fabric tariffs would rise to 100 percent from 26 percent. Tariffs for men’s and boys’ cotton pants and shorts and women’s and girls’ cotton pants and shorts would climb to 100 percent from 35 percent. Some jewelry and beauty care categories were also included in the list. The tariffs go into effect in 30 days, unless the two governments can broker a fix for the problem. In all, retaliatory tariffs for more than 100 U.S.-produced goods were on the list, which also includes shampoo, soap, deodorant, fresh fruit, cars, carpets, curtains, refrigerators and other industrial products. The list of sanctioned goods is valued at $591 million, according to Brazil. The remainder of the retaliation that Brazil was authorized, $238 million, will be applied to U.S. patents, trademarks and services later this month.  <wwd.com>

Retail Stocks Reach New Highs - A year after the market bottomed out, investors are ready to believe in a retail rebound. Shares in the industry are still rushing ahead. The S&P Retail Index inched up 0.4 percent Monday to 436.89 — a level not seen since December 2007 — and Abercrombie & Fitch Co., J. Crew Group Inc., Macy’s Inc., Limited Brands Inc. and Nordstrom Inc., to name but a few, all reached 52-week highs. Retail shares hit their recession low of 207.49 in November 2008, while the Dow Jones Industrial Average marks a year since its nadir today. But unlike last year, when cash preservation and cost cuts drove stocks, investors appear to be betting stronger-than-expected February sales and employment data are pointing to better times and fewer roadblocks ahead — a real, rather than a relative, rebound. Retail stocks have traditionally led markets out of recessions since merchants are among the first to feel a turn in consumer spending. That rationale seems to be holding sway even though the economic recovery has been slow to take hold and high unemployment and general caution have restrained spending.  <wwd.com>

Online Apparel Sales Predicted to Reach $45B - Apparel appears poised to establish a commanding e-commerce lead. Online sales of apparel, accessories and footwear are expected to continue to grow at double-digit levels for the next five years, allowing them to pull well ahead of computer hardware, software and peripherals, according to a forecast released Monday by Forrester Research Inc. The two broad categories led all others in U.S. online retail sales with $27.3 billion last year as apparel gained 17 percent and computer-related merchandise picked up 7 percent, a rate expected to drop further in the next half-decade. So, while apparel and related products are expected to hit $44.6 billion in online sales by 2014, revenues of computer products by that time are projected at $36.3 billion, a low-single-digit growth rate. Online sales accounted for 6 percent of total retail sales in the U.S. last year, a figure expected to rise to 7 percent this year and 8 percent beginning in 2013, according to Forrester. The e-commerce portion of apparel sales, 9 percent last year, is seen hitting 10 percent this year, 11 percent in 2011 and making its way to 12 percent in 2013. By contrast, online sales accounted for 52 percent of computer-related purchasing last year and are expected to hit 55 percent by 2011, offering less room for increased penetration.  <wwd.com>

West Coast Ports Fight to Stay on Top - Political ineffectiveness, legal confrontation, tension between port interests and mounting competition are chipping away at the dominance of the twin ports of Los Angeles and Long Beach, said speakers at the Trans-Pacific Maritime Conference here. Despite signs the ports’ economic fortunes are on the upswing, John McLaurin, president of the Pacific Merchant Shipping Association, said he sees considerable challenges this year. During an address on the second day of the conference, which took place March 1 and 2 at the Long Beach Convention Center, McLaurin blamed the California legislature’s intractability and massive budget shortfalls for crippling West Coast port projects. California’s deficit stands at $20 billion, and Los Angeles’ is $212 million. The Clean Truck program took effect in October 2008 with the aim of reducing truck-related emissions by 80 percent by 2012 by eliminating some 16,000 trucks not compliant with 2007 environmental standards. Already, about 6,000 low emission trucks have been introduced and emissions have decreased 60 percent. <wwd.com