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R3: REQUIRED RETAIL READING

March 26, 2010

After highlighting 15% comp growth thus far in March, FINL added fuel to the fire that is beginning to roar in the athletic footwear industry.

TODAY’S CALL OUT

In looking at FINL’s results after the market close yesterday, one could argue the industry indeed saved the best for last. Just take a look at the industry SIGMA chart below, FINL is in a league of its own. Top-line growth of 8% was good, but relative to +1%, +11%, and +13% for FL, DKS, and HIBB respectively it wasn’t the driver of relative outperformance in the chart below – a 20% reduction in inventory was. Now to be fair a significant portion of this is due to the removal of its perennially money-losing Man Alive business in Q2 of last year. With that drag offloaded, the company is poised to exceed recent peak high margins of 8.3% after posting 6.2% in 2009. The other notable highlight in last night’s release is the March comps – up 15.5% quarter to date! That’s compared to a down 1.2% over the same period.  Interestingly, 1Q09 comps were down 3.9% which implies that the comparisons ahead are actually getting easier for the balance of the quarter. As the comp chart reflects below, FINL’s +10% comp was the strongest in the industry with HIBB a close second. Interestingly FINL’s March comp preview suggests HIBB’s guidance of -2%-+2% comps in Q1 could be on the conservative side.

The bottom-line here is that the latest industry data point is in and it’s very positive. We expect performance across the industry to only accelerate into the 1H.

R3: FINL: Ahead of The Pack - SG SIGMA 3 10

R3: FINL: Ahead of The Pack - SGComp Table 3 10

R3: FINL: Ahead of The Pack - SG CompChart 3 10

LEVINE’S LOW DOWN 

  • Lululemon noted that its exceptional sales growth in the quarter has left the company chasing inventory, a process that is expected to continue through the Summer. As a result, there are key out of stocks in core items and sizes online and in stores. Additionally, the company eliminated its annual warehouse sale in Canada this January because there was no inventory to support the event.
  • Best Buy pointed out that its online sales grow by 20% in 2009 to $2 billion in sales. Interestingly, 40% of sales for the ecommerce channel were picked up in store by customers. Due to investments in technology and customer service, the company was simultaneously able to reduce customer complaints by 19% vs. the prior year. A key component of the improved service has been the company’s Twitter efforts, which allow consumers to Tweet questions to Best Buy employees and receive solutions in near real-time.
  • Fred’s management noted that is now seeing relative stability from a competitive standpoint in the marketplace, from dollar stores, Wal-Mart, and traditional grocers. However, management went on to note that they believe there is reason to believe there may be an intensification on the promotional front coming soon, and as such they will alter their plans accordingly. In other words, the environment will dictate how promotional they will become to remain competitive.

MORNING NEWS 

UK High Street Forecasts Damp Easter - The crucial Easter trading weekend is in danger of turning into a washout, according to high street retailers that have been disappointed with the slow start to March. <drapersonline.com>

China Cotton Imports Surge - As the export market of Chinese textiles has been recovering, China imported 221,000 tons of cotton in February, surged by 137.6% compared to the same period a year ago, according to the National Development and Reform Commission. In January this year, the country's cotton imports surged 286% year on year to 301,359 tons. China's yarn output rose 10.1% year on year to 1.63 million tons in February, while its exports of garments and textile products soared 89.3% from a year ago to US$12.64 billion in the month. <fashionnetasia.com>

EU Footwear Body Sues Over Duty Extension - The Federation of European Sporting Goods Industry (FESI) expressed in a statement the European Commission's decision to extend duties on imported Chinese and Vietnamese leather footwear was based on a misguided investigation and analysis. Leading sports footwear labels including Adidas, Puma, Nike, Lacoste and Asics are members of FESI, claiming that the extended duties has cost the industry almost 1 bn euros since 2006. "We have taken this case to court not only because we firmly believe that these duties are unjustified but also because it is clear to us that the European Commission is ignoring the basic economic realities of the footwear business," FESI president Horst Widmann said in a statement. The legal action has been filed with the EU's General Court, the bloc's court of first instance. The European Commission is the executive arm of the European Union. <fashionnetasia.com>

Thailand: Apparel makers shift to service-oriented model - To fend off competition from Asian countries, Thai apparel manufacturers are shifting their focus towards service to lure global buyers to set up their regional headquarters in the country. "Thai manufacturers should explore investment opportunities both in Asia and outside the region, offering competitive costs and other facilities to pave the way for the establishment of Bangkok offices that focus only on trading," said Dej Pathanasethpong, president of the Thai Garment Manufacturers Association. "Malaysia and Singapore have moved ahead of Thailand by focusing on a service-provider strategy for the past 15 years. If Thailand does nothing, we will step backward and those two countries will seize lucrative market when the Asean Economic Community is completely formed by 2015," said Dej. He also warned that Thailand would face serious labour shortages in the next five years, as the region gears up to become a single market by 2015. The government should plan to develop more technicians, experts and designers. Dej said manufacturers should gear operations to cater to growth in major manufacturing and consumer nations like China, India and Japan. <fashionnetasia.com>

WWW Calls Up Some Designs From the Past - Wolverine World Wide is looking to the past for design inspiration with the launch of 1883. Targeting a male audience, collection is named for the year the company launched. The series of work, casual and outdoor styles is based on the brand’s heritage looks updated with a modern twist. Included in the offering are speed-laced hikers and classic 6-inch work boots. Retailing from $135 to $235, the line is aimed at specialty stores. Delivery is slated for August.. Hush Puppies, also under the Wolverine World Wide umbrella, is in a retro mood too with the debut of Nineteen Fifty-Eight, a collection of men’s and women’s looks based on styles from the brand’s launch in 1958. The collection, based on patterns in the Hush Puppies design vault, include suede oxfords for men such as the Yesteryear, inspired by the label’s legendary Wayne style; and the Attic for women, a peep-toe wedge. Set to retail for $90 to $100 for women’s and $110 to $120 for men’s, Nineteen Fifty-Eight is aimed at independents and premium apparel and department stores. Delivery is slated for June/July. <wwd.com/footwear-news>

Sportswear Company Ventures into Footwear - Men’s ready-to-wear line Copy, a sportswear collection with a street vibe, is venturing into footwear for fall with a collection of athletic-inspired looks. Part vintage, part futuristic, the line includes the Studio, a low-top design; and the Elevate, a high-top sneaker. Color and material are a big part of the story, with suedes and patents in black and white playing against a palette of purple, slate blue and yellow. The line will be distributed in department and specialty stores including American Rag and Urban Outfitters. Delivery is set for July, priced at $75 to $150 retail. <wwd.com/footwear-news>

Weyco Brand Nunn Bush Pushes Rugged Trend - Nunn Bush, part of Weyco Group, is heading for the great outdoors with its All-Terrain Comfort collection for men. The series of rugged-inspired casuals are engineered for light hiking and trail walking and include slip-ons, lace-ups and boots built on a flexible strobel construction and feature gel in the heels for enhanced cushioning. For protection against the elements, the shoes have a Scotchgard finish. The collection is targeted to outdoor specialty and comfort stores, at $80 to $90 retail. Delivery is set for August. <wwd.com/footwear-news>

Women's Footwear Trend: Fringe Embellishments - Women’s brands have turned to fringe embellishments on boots, moccasins and sandals for fall ’10. An added fringe benefit: Several brands have opted to offer the look under the $100 mark. <wwd.com/footwear-news>

R3: FINL: Ahead of The Pack - Shoe Trend Image

WTO Examining India's Export Subsidy Qualification - An evaluation by the World Trade Organization, following a request by the U.S., has determined that some Indian textile and apparel products may no longer qualify for export subsidies because they meet competitiveness criteria. While most government export subsidies are prohibited under WTO rules, there are exceptions that allow the world’s poorest nations and some developing countries, including India, to use such financial supports if they meet certain conditions. But the same criteria stipulate that developing nations such as India can no longer benefit from the exemption from the subsidy prohibition if they have reached export competitiveness in a product. This would occur if exports of a product have reached a 3.25% share of world trade for two consecutive years and would subsequently require India to gradually phase out any export subsidies on such products over a period of eight years. Products found to have met the threshold include woven cotton fabrics, woven fabric of synthetic yarn, men’s and boys’ knitted or crocheted shirts, women’s and girls’ blouses and shirts, T-shirts and vests, and women’s and girls suits, ensembles, jackets, blazers, dresses, skirts, panties, slips, petticoats, briefs, nightdresses and bathrobes. <wwd.com/business-news>

Avon Acquires Liz Earle Beauty Co. - Avon Products Inc. has acquired Liz Earle Beauty Co., which manufactures the Liz Earle Naturally Active Skincare brand. The acquisition moves the Avon company into more channels, including television shopping and a limited network of retail stores. The purchase of Liz Earle might not have a large financial impact for the $10 billion direct-selling giant, but it has significant implications. Avon is opening its mind to other avenues, including new geographies and pricing. The company named acquisitions as its first priority over the existing share repurchasing program. The last brand Avon acquired was Discovery Toys in 1997, which it later sold. <wwd.com/business-news>

SHOO Stock Split - Steven Madden Ltd. said Thursday its board has declared a three-for-two stock split, in the form of a dividend. The split will give all shareholders as of April 20 one additional share of Steven Madden common stock for every two shares held. The additional shares are expected to be distributed by April 30. As a result, the firm will have 27.5 million shares outstanding, versus 18.3 million before the split. The firm last purchased 2.6 mm shares of its stock, or nearly 13% of shares outstanding at the time, for $44.2 million, or $17 each, in March 2008. <wwd.com/footwear-news>

Hat World Rebranding - Hat World, Inc., a subsidiary of Genesco Inc., plans a re-branding campaign designed to leverage its LIDS retail brand across the three major divisions of its business. The move includes renaming its Sports Fan-Attic and Impact Sports businesses. <sportsonesource.com>

Sports Logo Apparel Market - Adult Americans spent more than $8 bn on sports logo apparel in 2009, according to a new study being released by the National Sporting Goods Association (NSGA). “Sports Logo Apparel Market 2010,” based on a consumer study of 20,000 U.S. households, counts Americans 16 years of age and older as adults. Men were bigger spenders than women. Of the $8.02 bn spent, males accounted for 60.9% of all purchases. Females accounted for the balance, 39.1%.

“Sports logo apparel has been an important part of the product mix for full-line and specialty sports retailers for more than two decades,” NSGA Vice President of Information and Research Thomas B. Doyle said. Regionally, for the 14 sports activities, sports fans in the South accounted for the highest percentage of dollar purchases, 34.9%. <sportsonesource.com>

Saks High-Yield Bonds Soar as Consumers Revive Spending on Luxury Products - Saks Inc. and Neiman Marcus Group Inc.’s high-yield, high-risk debt is soaring as demand for luxury goods in the U.S. returns following the worst economic recession since the 1930s. <bloomberg.com/news>

Zale U.S. Jewelry Chain's List of Bidders Said to Include TPG, Sun Capital - TPG, the private-equity firm run by David Bonderman and James Coulter, and Sun Capital Partners Inc. are among a smaller pool of bidders for a stake in Zale Corp., three people familiar with the negotiations said. <bloomberg.com/news>

Petco boosts average order values with segmented e-mail campaigns - After switching to an e-mail marketing program that supports segmented newsletters based on customers’ interests, the multichannel pet supplies retailer boosted online average order values by 30%, e-mail marketing manager Margaux Abaya says. <internetretailer.com>

Company Reported in Last 24 Hours: LULU, GIII, APP, WTSLA, FINL, BKRS 

R3: FINL: Ahead of The Pack - 1

R3: FINL: Ahead of The Pack - 2

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