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FL: Camping Out at the Mall

We attended Foot Locker’s analyst meeting and came away with essentially the same view we walked in with.  There is still a great opportunity ahead for the company and the shares.  On the flip side, it was clear that management, including CEO Hicks, is not going to offer up every possible detail, strategy, and plan on a silver platter.  After all, there is a process here that is unfolding in front of us.  One in which management has to earn the Street’s attention through results, not lip service.  And one in which expectations are being set with a goal to exceed them.

 

What we heard was a broad based plan that was largely in-line with every bit of research we’ve put out over the past few months leading up to this strategic “unveiling”.  There is no need to rehash the finer or broader points of the company’s publicly available PowerPoint slides.  The broad objectives that we set out to examine in detail are the same objectives management is focused on.  These include: improving assortments and differentiating the company sub-brands, developing and growing a meaningful apparel business, improving the in-store and online shopping experience, focusing on growth where it makes sense, increasing productivity (both sales and inventory), and building a team to drive results. 

 

None of this is surprising or for that matter overly complex.  Executing each of these points after years of risk aversion and lack of change is really what matters.  For more details, take a look at our recently published Black Book or listen to a replay of our recent conference call on the subject (call or email us if you need details).  To be fair, not everything we heard was already known or predicted before today’s meeting.  A couple of details emerged that were in fact incremental:

 

  • Management indicated that while apparel is a small percentage of the company’s overall product mix, its poor performance resulted in 50% of the overall decline in revenues over the past few years.  Now that’s just bad.  On the flip side, this also accentuates the opportunity to upgrade apparel.  The benefits of a positive mix shift driven by an improved apparel offering are key to both productivity gains and gross margins.
  • Management acknowledged that the company’s image as a basketball dominated retailer needs to change.  This will come in the form of two initiatives.  First, eliminate unproductive basketball SKU’s and fill the product vacancies with other highly productive footwear (i.e running). Second, actually step up development of House of Hoops, but in a targeted manner.  This puts an emphasis on basketball in markets that warrant it, not just in a wholesale, homogenous manner.
  • Marketing is likely to become a bigger part of the equation.  Management will look to become more efficient with existing marketing spend, but will also step-up incremental spending as well.  This is likely more of a 2011 event, but should it should be noted that management is focused on making marketing investments to drive sales and productivity.  While not specifically addressed, we still believe there is substantial savings coming from the company’s catalog costs alone.  Importantly, any increase in marketing will not occur until noticeable product adjustments have been made.
  • Capex is also trickling higher over the next few years, likely towards a $140 million run-rate (currently $110 million).  This will drive an improved in-store experience (i.e. remodels, refixturing) but also 60 new stores per year, primarily in Europe.  Importantly, the company’s dividend remains fully intact and share repurchase is also on the table to put excess cash to work.
  • While no formal commitment was made to a near-term timetable, it sounded like there will be noticeable product enhancements in place for back-to-school.  Footwear is likely to see more meaningful brand additions and editing, while apparel may only be moderately impacted.  From a sub-brand perspective, Lady Foot Locker is ahead of the overall chain in its efforts to upgrade its apparel to a more performance oriented presentation.  Nike was highlighted as an important part of Foot Locker’s model, but no specifics were given on any near term product/marketing partnerships.  We continue to believe these two are working closely together to potentially use a portion of the store base as a Nike only platform, as well as to develop exclusive programs for each sub-brand.

 

Overall we liked what we heard.  Yes, there is always an appetite for more details and specifics.   An effort to monitor real changes will require frequent visits to each of the company’s retail brands over the next several months.  As the process to differentiate and upgrade product within the organization unfolds, it should become very clear that the company is making strides towards no longer competing with itself.  Unfortunately, this will not take place overnight.  The biggest risk in the near-term in our view is not if comps remain positive mid single digits, but rather how much hype is building.  In our view, the five year plan is one that it is likely achieved in three years or less.  It’s just less clear what is realistic to expect over the next few months.  For this, we’ll just have to camp out at the mall and report back on the efforts underway.

 

Eric Levine

Director


FINANCIALS: POLITICS MOVING BACK TO THE FRONT BURNER

The Following note was published by Joshua Steiner Head of Financials at Hedgeye Risk Management.

 

 

With Healthcare reform taking up all the oxygen in the District, we thought it worthwhile to point out that there is significant progress being made behind the scenes on Financial reform. After weeks of delay, the Financial Times reports that Senate Banking Committee Chairman Dodd (D-CT) and Senator Corker (R-TN) seem to be winding down their backroom horsetrading, and a financial reform bill may be introduced later this week. The latest iteration holds that the Federal Reserve will cede regulatory oversight of all but the top 23 bank holding companies (those with >$100B assets) to a new agency to be born out of a merger of the OCC and OTS. This will affect some 4,950 banks. Separately, the Fed will also cede oversight of all state chartered banks to the FDIC (a further 874 banks). Our take? The Office of Thrift Supervision (OTS) is known in the industry for being a weaker regulator than the Fed. From a systemic risk management standpoint, we think this move is incongruent with the goal of imposing stronger industry regulatory oversight. In other words, in the long run this is a bad idea. That said, the Office of the Comptroller of the Currency (OCC) is a strong regulator, so it's unclear what this new, merged super-regulator will look like. While Fed Chairman Bernanke cannot be pleased about losing such a significant portion of his organization's mandate, he must be breathing a sigh of relief that he gets to keep the too-big-to-fail banks under his purview - a clear compromise by Chairman Dodd. Conclusion: this represents no change for the big banks, and a potential positive for the rest of the sector (softer regulator).

 

Regarding the so-called Volcker rule, Senator Dodd has been a staunch roadblock to its inclusion in any legislation coming out of his committee. He's acquiesced to include some vague language around proprietary trading that will give regulators some theoretical power to curb banks proprietary trading activities on the margin, but we think it amounts to little real change on this front. Conclusion: a positive as this is unlikely to inhibit proprietary activities by any banks.

 

The Consumer Financial Protection Agency, arguably the single most important element of the reform legislation has been reduced from being a standalone agency to being the Bureau of Financial of Protection within either the Fed or Treasury. Clearly the banks would prefer if it were housed within the Fed. Chairman Dodd, as recently as last week, had indicated a willingness to house the division within the Fed, however pushback from House Financial Services Committee Chairman Barney Frank (D-MA) may result in a compromise whereby the division is housed within the Treasury - not as good for banks as if it were at the Fed, but not nearly as bad as if it were a standalone agency. For reference, Senator Shelby (R-AL) would like to see consumer protection manifest as a watchdog agency within the FDIC. Conclusion: a modest negative for the banks, but relative to expectations a neutral to positive development.

 

Separately, we think it's also worth pointing out that republicans have been quietly gaining steam in the polls ahead of the midterm elections this November. While it's still more likely than not that Democrats retain majorities in both the House and Senate, we think the following charts capture the changing momentum pretty well. The first chart shows the Intrade contract on Democrats maintaining a majority of the House of Representatives, while the second chart shows the contract for Democrats maintaining a majority of the Senate. For the House, odds that Democrats will remain in the majority after this Fall have fallen from 85% to 55% since early last year. For the Senate, odds of Democrats maintaining a majority have fallen from 95% to 65% in just the last few months.

 

FINANCIALS: POLITICS MOVING BACK TO THE FRONT BURNER - fin1

FINANCIALS: POLITICS MOVING BACK TO THE FRONT BURNER - fin2

 

While we're not yet calling for a change in control of Congress this Fall, the probability of it happening is clearly rising. With that in mind, here's a look at how Financials performed (and the market more generally) on the heels of the last time Republicans took control of both Houses of Congress while a Democrat was President.

 

FINANCIALS: POLITICS MOVING BACK TO THE FRONT BURNER - fin3

 

Joshua Steiner, CFA


JACK – REAL TIME NOTES FROM PRESENTATION

Most of management’s commentary was a repeat of what we heard on the company’s fiscal 1Q10 earnings call about three weeks ago.  Management did say that it is still comfortable with its 2Q10 same-store sales guidance of -8% to -10% at Jack in the Box.  In response to a question about the competitive landscape, CEO Linda Lang stated that she thinks the industry will see some immediate relief on the discounting front when BKC removes the dollar double cheeseburger from its menu in mid-April.

 

Similar to the company’s earnings call, management spent at least the first five minutes of the presentation (and more time later) outlining all of the macro issues that are facing the company rather than talking about any company-specific issues.

 

Notes from the presentation:

 

One of the key aspects is unemployment

  • Especially at breakfast
  • Food prices dropping at grocers
  • 2009 was weakest year commercial food service industry has experienced in 30 years
  • Discounting has increased sharply

 Cost structure being improved

  • G&A initiatives

 Regional concentration is exacerbating effects of unemployment on JACK

  • Texas, California both terrible markets

 Demographics also unfavorable

  • Young males, Hispanics are struggling

 Customer base skews 1/3 more Hispanic than competitors

 

Sales:

 

  • Texas has caused slowing of sales from Q4 to Q1
  • California has stabilized (rate of decline has stabilized)
  • Guidance unchanged

 Discounting among big players

  • Bar and Grill has begun to encroach on price point for premium QSR products and may be creating a trade up effect
  • Prices for food at home are experiencing deflation

 Advertising

  • Adjusted marketing plans to better respond to market conditions
  • Reallocation of media spend to reach multiple consumer markets…hmmm
  • New products and platforms

 Qdoba

  • Rolling out new menu, “Craft two”
  • Mix and match menu and compelling price point
  • Also more for kids
  • Trends improved through quarter although down for the quarter as a whole

 Refranchising strategy

  • Number of restaurants being refranchised was 194 in 2009
  • Franchise ownership is at 46%, going to 70-80% for FYE 2013
  • Expecting to pass 50% mark in 2010
  • Proceeds were 116.5m and gains were 78.6m in 2009
  • Q1 gains so far were 408k per restaurant

 Geography

  • 42% of system units in California
  • 28% of system units in Texas
  • 26% of company units in California
  • 30% of company units in Texas

 Capital expenditures

  • Refranchising strategy and completion of reimaging should bring capex down to 110m per year from 2013 onwards

 G&A excl advertising

  • G&A as % of system sales has been decreasing
  • 2006 to 2009 decline was 120 bps
  • In 2014, fully franchised, should be at 3.5% (5.2% in 2009).
  • Most of peer group are in 3-4% range

 Share repurchases

  • 750m returned to shareholders over last 5 years
  • 40m in Q12010

 Debt repayment schedule is expected to be light

 

Conclusion

  • Movement from company owned to franchise model
  • Continued expansion for Jack in the Box beyond 18 states
  • Growth of high ROI Qdoba
  • Growing FCF

Q&A:

Q: Are you seeing any change in consumer spending/behavior?

A:  We are seeing a lot of stabilization in California. Believe our sales have hit a bottom in California.  Rate of decline has stabilized…ambiguous…higher end retailers are seeing improvement, hopefully that trickles down. Our consumer base will be the last to go back to jobs and come back

Q: Market share in CA?

A: We don’t believe that we have lost share but it has been a shrinking pie.

 

Q: Macro environment implies that JACK’s customer is typical for QSR, over-indexed to Hispanics perhaps, but brand has been positioned up.  Is premium positioning working against you in the near term?

A: Promotional offerings are there.  We’ve had to run concurrent premium and value products whereas beforehand we did not need to do that. We’ve had to bring down price point of premium products through recipe-ing and portion sizing (making margin-friendly products at compelling prices)

 

Q: Capex degradation seems understated given the level of refranchising?

A: A good portion of the capex is related to planned new store openings and a resumption of spending on Qdoba.

 

Q: You’ve had a strategy of opening new markets with the intent to franchise them. How many markets are you “seeding”?

A: New contiguous markets are our target.  AUV’s in these markets outperform new stores in existing markets. Denver could be an example. In Corpus Christi we had an opportunity to show that AUV’s were attractive there and then sell the location to a franchisee.

 

We do have new markets that are franchise developed. Colorado Springs, Albuquerque…

 

More challenging to get financing so seeding strategy helps

 

Q: Health of franchisee system?

A: Very, very good. Growing franchisees. Average franchisee now has 10 units vs. 4/5 units a few years ago. Focus on taking costs out of the business has helped franchisees.

 

We sold 194 restaurants last year when people didn’t think we could sell 150. The aim for this year is 150-170.

 

Q: What about franchisee in Texas?

A: We sold restaurants in Texas last year and continue to do so this year. It’s a 20 year deal, not just looking at this year.  These restaurants are projected to provide attractive cash flow over the next 20 years.

 

Weather has impacted sales in Texas, also lapping reconstruction-post-hurricane sales figures.  Operators in Texas remain positive.

 

Q: Where will operating income and cash flow go with refranchising?

A: Bringing down G&A cost. Much less maintenance capital going forward. EBIT margins will improve and we’ll give guidance on that in the not too distant future.

 

Q: If you were 100% franchised, you’d get 5% royalty less 3/4% of G&A, ex rent?

A: Yes but we’d have less G&A.

 

Q: Level of discounting seems to be moderated in FSR. Any indication of this following suit in QSR?

A: BKC going off dollar double cheeseburger will bring improvement in April

 

Q: What did you finance last year in terms of the 194 stores and has that changed in the last 7/8 months in conversations with franchisees?

A: 22 million worth of financing support last year.  A “good portion” of that is repaid. 1Q has seen $12m range of support for existing franchisees.  Less requests for assistance as we’ve moved through 2009 and into 2010

 

Q: Qdoba, how it fits in company.

A: we were looking for a concept with strong consumer appeal. Not geographically concentrated, strong management team.  Fast growing segment.  May look to divest at some point. 

 

Q: Capex..

A: When we get to 110 figure, we will continue to invest in new restaurants and expect a return on that cash. 

 

Q:  What will you do with excess FCF?

A: funding new restaurant growth of perhaps another Qdoba-esque acquisition at some point and of course returning cash to shareholders.

 


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REAL TIME NOTES FROM MCD PRESENTATION

Management commentary on business performance and prospect

 

MCD has advantages in its scale, brand, and family fun elements.

 

In 2010, three areas to focus on

  • Menu
  • Service
  • Reimaging

Service

  • Expanding demand in beverages and desserts
  • Value at all price tiers
  • Extended hours and better service
  • Service times are better since rolling out McCafe, aided by POS

Global up-to-date brand on the move

  • Updating interiors and exteriors of the restaurants
  • Of 2.4bn capex plan, 50% is reimaging (reimaging 2,000 restaurants in 2010)
  • New restaurants  - 1,000 in 2010

U.S.

 

U.S. was 45% of consolidated sales in 2009

  • 2009 comp sales up 2.6%
  • Operating income increased 6%
  • QSR market share of 14.5%
  • In January launched McSnack wrap – snack version of Big Mac. Fits well into growing snack daypart.
  • Breakfast dollar menu, voted in by franchisees, gives MCD a national voice on breakfast

McCafe coffee has worked well

  • Coffee sales increased 25% in 2009
  • 3m cups per day
    • More than 5% of total U.S. restaurant sales
  • Rolling out frappes and fruit smoothies
  • Frappes rolling out nationwide this spring
  • Smoothies nationwide in the summer

Tech

  • Free WiFi makes MCD the largest venue for free WiFi in the country
  • POS cash registers
  • Drive thru displays

Reimaging is key

  • 50% of U.S. base have interior remodeled image
  • Even fewer have exteriors that are enhanced
  • 2010, more than 400-500 reimages in the U.S., 150 new sites
  • Sales increases for remodels in U.S. have been 6-7% higher than for those that were not remodeled

Europe

 

Europe was 38% of consolidated operating income in 2009

  • 5.2% comp store sales
  • 8% operating income
  • 4.3% in Jan, 5.4% in Feb
  • 2009 informal eating out category market share grew
    • 3 tier menu platform
    • Low price
    • Core
    • Premium
    • Value at every level
  • Enhancing fourth tier
  • Expanded “p’tit plaisirs” in France and fourth tier in UK
  • Snack Deluxe lineup in Germany
  • In Germany, expanded breakfast lineup and it is yielding solid results
  • Media support in UK helped highest breakfast sales ever
  • Espressos are very important in European markets
    • All 1,600 restaurants in Europe have premium coffee available
    • Either via counter or McCafe
    • McCafe has been expanded across Europe
    • 1300 McCafe’s in Europe by end 2010
  • 260 new restaurant openings in Europe in 2010

Reimaging program is critical

  • By end of 2011, more than 85% of European interiors will be reimaged
  • Major remodels increase sales 6%

APMEA


APMEA was 14% of 2009 consolidated operating income

  • Comparable store sales up 3.4%
  • Operating income up 23%
  • Given economic climate, working to make sure menu and value initiatives are compelling
  • Australia seeing much success with Angus burger
    • Jan comp sales +4.3%, Feb 10.5% in Australia
  • MCD breakfast available in 19 countries in APMEA
    • 13% of sales in restaurants where breakfast is offered
    • Breakfast is 25% of restaurant sales in U.S.
  • Closing 430 lower performing restaurants in Japan
  • Australia has reimaged nearly all free standing restaurants

Conclusion:

 

MCD continues to keep the brand compelling to customers.  Companies combined operating margin grew 900 bps since 2005. U.S. and Europe grew by 500 bps over the same period.

  • Goal is to continue to improve operating margin
  • Track record of comp sales growth (82 consecutive quarters)
  • G&A control, disciplined operations, supply chain efficiencies
  • Strong owner operator and franchisee base
    • Locally relevant brand
  • Last few years saw more than 1,000 refranchised
  • Worldwide system is 81% franchised

2009 consolidated Return on Invested Capital stood at 20.9%

  • U.S. 24.6%
  • Europe 20.7%
  • APMEA 21.3%

Predictable cash flow and strong balance sheet allow a strong return of cash to shareholders

 

16.6bn returned to shareholders from 2007-2009 through repurchases and dividends.

  • $2.20 per share annualized dividend is more than triple the 2005 amount
  • First priority is to reinvest in the business. Above that, MCD will continue to repurchase and pay dividends

Important Q&A points:

 

Q: Average Check?

A: Average check for 2010 YTD has been stable compared to prior year.  Dollar menu hit a little but then we expect that average check comes back

 

Q: Can you explain the discrepancy between operating margins in developed markets – U.S. vs Europe?

A: Operating costs in Europe are higher. Rent, occupancy, labor are the main differences

 

Q: U.S. Comps ex weather have picked up? change in consumer behavior in US?

A: not really, more breakfast activity but nothing significant in terms of rate of growth

 

Q: How much of beverage guidance is smoothies and frappes?

A: Haven’t broken down the guidance of 125 by product. Expect them both to be big drivers. Dollar menu breakfast was about regaining traction and bringing customers in (TC’s).

 

Q: How important is couponing?

A: In some markets customers are conditioned to use coupons but we find that every day predictable value is a more successful tactic but in markets where it is prevalent we will do it

 

Q: What % of total revenue is drive thru?

A: 66% of sales in US. Only 66% of restaurants in Europe have drive through, and of those that have it, 45% of those restaurants’ sales are drive-thru. There is an opportunity to expand drive through in Europe and APMEA.

 

Q: Where do you expect an upturn in consumer spending?

A: Hoping it’s everywhere. Asia is where we’re seeing consumer confidence at lower levels (China and Japan). In Europe, Germany is the most price sensitive consumer, confidence levels really affect traffic.

 

Q: Competitive environment, race to bottom, in 2010?

A: We put the dollar menu up back in 2003. Didn’t have to react to deteriorating economy because we had an every-day affordability strategy. Did evolve it to bring breakfast in. Virtually all of the restaurants had breakfast value strategies in place but we needed a unified voice at breakfast.

Don’t see dollar menu dramatically expanding or shrinking.

 

Q: Taking price in 2010?

A: commodity costs in 2010 are going to be pretty benign. Consumer prices are holding fairly well. Don’t see a tremendous opportunity to take price. Typical year of 2/3%, this year will be something less than that. In this cost environment that won’t hurt us. We’ll be ready to take price when the opportunity arises.

 

 

Howard Penney

Managing Director


R3: Cotton’s Ugly Head

R3: REQUIRED RETAIL READING

March 10, 2010

 

In 2H US retail needs to bank on a stronger consumer – we all know that. But now the ‘Cotton Factor’ is rearing its ugly head. Prices over $0.80/lb today impact margins 9+ months out. Mind your modeling assumptions. Not all companies are created equal.

 

 

TODAY’S CALL OUT

 

2H US retail needs to bank on a stronger consumer – we all know that. But now the ‘Cotton Factor’ is rearing its ugly head. Prices over $0.80/lb today impact margins 9+ months out. Mind your modeling assumptions. Not all companies are created equal. 

 

Many retailers and manufacturers are expecting sourcing costs to rise over the second half of the year due to a confluence of factors.  While tougher comparisons against last year’s substantial cost declines is one reason, below the surface there are additional factors looming.  On the obvious side of things, fuel and subsequent freight costs are up.  On the less obvious side of things are material cost inflation.  Take a look at the recent spike in cotton since the new year:

 

Global production remains stressed and at historically low levels with the U.S. cotton crop estimated at 12.0mm bales (3% below 2008 levels) and India’s output under pressure because of drought conditions.  Furthermore, the big move last week came after China stated its 2009 crop fell by 14.6% last year. With U.S. stockpiles low and China (world’s largest consumer) continuing to run a substantial deficit, prices continue to head higher as exports increase.  A recent statement from India’s textile ministry highlighted that exporters have sought permits to ship 3x more cotton in February compared to the same time last year.  Additionally, concerns over supply shortages beyond April are also contributing to further tightening in the global market.

 

As cotton prices test the prior highs of early 2008, current factors suggest that we are likely to see demand continue to outstrip supply in the near-term and prices may still be moving higher from here.

 

This is when you need to give credit to those companies that have defendable positioning in the supply chain (NKE, RL, UA, WMT, etc…), and questioning 9-12 month modeling assumptions for those who lack any semblance of pricing power (JNY, GIL, HBI, VFC, GIII, etc…).

 

R3: Cotton’s Ugly Head - Cotton Futures Chart

 

 

LEVINE’S LOW DOWN  

  • Dick’s Sporting Goods management noted that it expects to see product costs increase over the second half of 2010, but that it hasn’t been able to fully quantify the impact at this point. On its private label and direct sourced product, management expects to pass on higher costs leaving gross margins unaffected. 
  • Kroger management believes the promotional environment remains very aggressive, but it is no longer getting more aggressive. As a result, management believes the environment is now a little more predictable. 
  • Despite a recent pick up in same store sales at Neiman Marcus, management is not planning any meaningful store growth in the near to intermediate term. With the exception of one new store opening in Spring 2012, the pipeline is essentially empty at this time. 
  • Collective Brands management noted that the J. Crew/Sperry relationship has been a win-win for both parties. As a result, management believes the opportunity for its Keds/Gap partnership this Spring and Summer is also promising. If successful, this could be the beginning of a long awaited turnaround for the Keds brand. 
  • American Eagle is clearly bullish on denim. Management attributes the 8% increase in inventory at cost per foot to the increased penetration of denim in its product mix. It is also noted the “strong demand” for AE denim is the main reason for the inventory investment. This represents one of the more noticeable inventory investments across the specialty landscape. 

 

MORNING NEWS

 

Foot Locker to Increase Apparel Emphasis, Expand Globally - Apparel — both private label and branded — will be a primary focus for Foot Locker Inc. over the next five years as it strives to significantly increase sales and profitability. Calling it his “coming-out party,” chief executive officer Ken Hicks, who joined the company from J.C. Penney Co. Inc. in August, laid out Foot Locker’s plan to become “the leading global retailer of athletically inspired shoes and apparel” at an analysts’ meeting at the firm’s headquarters on 34th Street in New York on Tuesday morning. The goal, executives said, is to increase sales to $6 billion from $4.9 billion in 2009; raise sales per square foot on average to $400 from $333; increase the earnings before interest and taxes profit rate to 8 percent of sales from 2.6 percent; elevate the net income margin to 5 percent of sales from 1.8 percent, and boost inventory turnover to 3 times from 2.2 times last year. Gross margins are projected to increase to between 30 percent and 31 percent of sales from 27.7 percent, while sales, general and administrative expenses are expected to fall to 20 percent to 21 percent of sales from 22.6 percent. The main drivers of these improvements are creating differentiation among the company’s divisions, which include 3,500 stores under the Foot Locker, Lady Foot Locker, Kids Foot Locker, Footaction, Champs Sports and Eastbay names; enhancing the apparel and footwear assortments, and aggressively pursuing growth opportunities both domestically and overseas.  <wwd.com>

 

Madonna, Iconix Form Fashion Joint Venture MG Icon LLC - Madonna and Iconix Brand Group Inc. are ready to cause a commotion and dress you up at retail. The pop icon and the brand management firm will today reveal the formation of a joint venture called MG Icon LLC, which will bring multiple fashion-related projects to retail racks across America and around the world. The first initiatives under the agreement are a juniors’ line called Material Girl, which will launch exclusively at Macy’s in August. MG Icon is also close to announcing a collaboration with a designer label for a co-branded eyewear collection. “Joining forces with Iconix to bring my fashion ideas to consumers is very exciting for me,” said Madonna. WWD first reported on Feb. 16 that Madonna was in talks to launch the Material Girl collection with Iconix and Macy’s. MG Icon will be 50 percent owned by Iconix and 50 percent by Madonna and Guy Oseary, her longtime manager and the “G” in the joint venture’s name. MG Icon will develop a range of fashion-related business projects, including the creation of new brands, the acquisition of existing labels and the exploration of opportunities within the portfolio of 21 brands that Iconix and its other joint ventures already own, said Neil Cole, chairman and chief executive officer of Iconix. <wwd.com>

 

Target Gets Set for Liberty - The Target + Liberty of London collection will be in full bloom Sunday in most Target stores. But first, the 300-item line with Liberty’s microflorals and explosive blossom prints splashed over apparel for women, men, girls and infants, as well as home products, bedding, garden tools, stationery, candles and bicycles, will be unveiled at a 5,285-square-foot pop-up shop here. The Target + Liberty of London Experience at 1095 Sixth Avenue near Bryant Park, features an indoor garden with 12,500 live flowers, green foliage covering the cash wrap and digital projections of 12 Liberty prints onto larger than life size products such as a giant tea cup and enormous umbrella, create a sensory experience. The pop-up shop is open today from 11 a.m. to 8 p.m., and Thursday through Saturday, 9 a.m. to 8 p.m.  <wwd.com>

 

L.L. Bean will launch its new line and web site next week - Outdoor apparel and gear retailer L.L. Bean on Monday will launch L.L. Bean Signature, a contemporary apparel and accessories line along with a dedicated e-commerce site www.llbeansignature.com and catalog. L.L. Bean already has launched a dedicated Facebook fan page for the brand. The page, which offers fans a preview of the line’s spring collection, had 883 fans as of 1 p.m. EST. The retailer began making limited quantities of seven items from the line available on the L.L. Bean Signature web site on Jan. 19. All the items sold out within three days. <internetretailer.com>

 

Container Imports to Grow 17% in First Half - Import cargo volume at the nation’s major retail container ports is expected to rise 13% this month compared with the same month a year ago, and double-digit increases are expected to continue through the summer as the U.S. economy begins in improve, according to the monthly Global Port Tracker report released today by the National Retail Federation and Hackett Associates. “These numbers show that retailers continue to anticipate improvements in the U.S. economy,” NRF VP for supply chain and customs policy Jonathan Gold said. “This is very different from the past two years when merchants were continually cutting their imports in an effort to manage inventory.” U.S. ports handled 1.08 million Twenty-foot Equivalent Units (TEU) in January, the latest month for which actual numbers are available. That was down just under 1% from December as imports wound down after the holiday season, but up 2% from January 2009. It was also the second month in a row to show a year-over-year improvement after December broke a 28-month streak of year-over-year monthly declines. One TEU is one 20-foot cargo container or its equivalent. <sportsonesource.com


TALES OF THE TAPE

“A rising tide lifts all boats…”

 

SONC was the best performing stock on big volume yesterday only because the “group” was rallying (SONC has significantly underperformed the QSR group over the last 6 months).  Or maybe someone knew an analyst upgrade was coming this morning.    

 

Today, we learned that SONC guides Q2 system-wide same-store sales to a decline of 12-14%.  SONC attributed the decline to “unusually cold winter weather conditions combined with a decline in consumer spending in Sonic's core markets.”  Same-store sales at partner drive-ins declined approximately 15% for the same period.  There is no mention that management tried to gauge the consumer with aggressive pricing a few years ago and trends have never fully recovered since, particularly at partner drive-ins.  Time for a management change?

 

BKC missed by a wide margin yesterday and it moved higher too.  

 

Yesterday, YUM got a “vision” upgrade and a better multiple applied, in part to its US business.  The issues that BKC and SONC are seeing are not limited to those concepts.  YUM’s US business is one of the worst positioned of the large cap restaurant companies.  Taco Bell is ok, but KFC and Pizza Hut are in secular decline. 

 

On the full-service side, RT moved higher on better sales trends despite the weather.  Although a nearly 10% move seems extreme, short covering was likely a significant factor.  At 7.3x NTM EV/EBITDA, there does not appear to be much upside from these levels for RT. 

 

 

Howard Penney

Managing Director

 

 

TALES OF THE TAPE - BKC


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