R3: Sell It While You Can!

R3: REQUIRED RETAIL READING

May 3, 2010

 

 

TODAY’S CALL OUT

 

M&A and capital markets activity continues to pick up on the margin in retail. Whether it’s JNY rumored to be buying Stuart Weitzman (not surprisingly, at the exact time it needs to start printing real top line growth numbers) PVH completing its deal for Tommy, or Express coming public (why???), the activity is definitely there. In fact, Gordmans Stores, a 67-door off-pricer owned by Sun Capital Partners Inc., just laid out plans to raise as much as $75 mm in an IPO. I bet you were waiting all year hoping to get your hands on this one!!! (yes, that’s me being facetious).

 

I think one of the more notable items is that Sports Authority just bought Tommy Armour Golf from Hilco Consumer Capital. In the acquisition, the sporting goods retailer has been granted all Tommy Armour and Ram marks, as well as Zebra, 845, Silver Scot and TearDrop. Of note is that since September 2007, The Sports Authority sold Tommy Armour-branded products at more than 450 of its U.S. locations under a license agreement with HCC.  Now TSA can own what it already had premier access to in the first place. 

 

I’m not trying to bash this for the sake of being negative, but there are two primary points.

1)      All these squirrely little companies that were taken out by levered loans in the 2003-2007 time frame are finally coming out to party. Whether they SHOULD be public or acquired by larger companies is a different story. The fact that they COULD is causing the behavior.

2)      We’ve been saying it for three months, but get ready for TSA to come public. It’s going to pull a ‘Dollar General.’  They’re going to take a zero growth low-return concept, accelerate square footage by 8%, comp for the first time in years due to cyclical forces (Athletic is just starting on a multi-year burst of growth), and raise capital when the P&L and balance sheet are optically aligned to stand out in an otherwise challenging tape. I’m not saying this will be a bad deal, bc I do not know the price. But I can say that it will require the mother of all historical analytical context before drinking the cool aid.    

 

  

LEVINE’S LOW DOWN 

 

- After announcing in February that VFC was going to spend an incremental $50 million on marketing this year, management is increasing the budget again. Given strength in the overall topline and specifically in The North Face, Vans, and international, the company is allocating an additional $35 million towards marketing these three key areas over the next 3 quarters. Television advertising will be a key component of the stepped up spend, with emphasis placed on The North Face’s first TV campaign. Test spots are currently running in Boston with a broader launch expected in October.

 

- In the wake of the wake of the Peanuts acquisition by Iconix, it’s interesting and perhaps surprising to see that Charles Shulz never owned the brand. Scripps retained the ownership as a result of Shulz creating the characters/brand while working for the company. However, due to revenue sharing agreements it is estimated that Shulz himself earned over $1 billion dollars from his Peanuts characters. Shulz was paid $90 for his first month of work on the comic strip- a daily occurrence that he went on to author 17,897 times.

 

- Growth in viewership of online video continues, with 180 million U.S internet users watching 31.2 billion videos in March 2010. This compares favorably to the 28.1 billion viewed in February. Approximately 85% of all internet users in the U.S watches video online. Not surprisingly, YouTube has a tremendous lead on its competition in terms of market share, with 41.8% of all videos served from Google sites. Hulu comes in at a distant second with just 3.4% share.

 

 

HEDGEYE CALENDAR

 

 R3: Sell It While You Can! - Calendar

 

 

MORNING NEWS 

 

China Tops Value-Added Manufacturing - The International Yearbook of Industrial Statistics 2010, a study conducted by the UN Industrial Development Organization, showed China’s global share of value-added manufacturing - in both textiles and apparel - has soared in the last decade. In textiles, China increased its global share of value-added textile manufacturing in 2008 to 43.2%, up from 16.8% in 2000. Developed countries posted sharp declines: US saw its share slide in 2008 to 6.5% (down from 12.2% in 2000) and Italy posted a decline to 4.8% in 2008 from 9% in 2000. Some emerging economies, such as Brazil, Indonesia, Mexico, and Turkey, also experienced a loss in global share while India and Bangladesh posted gains, the study reveals. China has also managed to make similar inroads in its global share of value-added manufacturing (VAM) for apparel. In 2008 its market share reached 38.7%, leading the segment from a 11.2% share in 2000. Other gainers were Thailand, Vietnam, and Bangladesh. <fashionnetasia.com>

 

Real Estate Sees Flickers of Hope - Vacancy rates are down in several cities and fewer retailers are asking landlords for rent reductions. According to real estate research firm Reis Inc., the U.S. retail vacancy rate in the first quarter was 10.8%, up 20 bps from the prior period and 130 bps from a year ago. The vacancy rate at regional and super-regional malls rose 10 bps from Q4  to 8.9% in Q1, marking the sixth consecutive three-month period in which the mall vacancy rate hit a record high since Reis began tracking mall data in 2000. Asking rents at malls also have slid for six straight quarters. <wwd.com/business-news>

 

Luxottica Group SpA Kicks Off Year with Higher Profits - Leveraging growth in the U.S. and in emerging markets, the Italian eyewear company in the first quarter ended March 31 posted a 20.8% rise in net profits while sales gained 6%. Luxottica, which produces eyewear for brands such as Bulgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Prada, Salvatore Ferragamo, Tiffany and Versace, said its success was attributable to its integrated business model and “four key pillars”: its own Oakley brand (20% sales growth); both the U.S. and emerging markets, and its efficiency. Sales in the U.S. advanced 6.1%, thanks to the performance of retail chains LensCrafters and Sunglass Hut, where comps rose by 6.6% and 10.8%, respectively. Sales in emerging markets climbed more than 30%. <wwd.com/business-news>

 

Swatch Partner Says Sales May Grow 30% this Year on China Demand - Hengdeli Holdings Ltd., the retail partner of Swatch Group AG in China, said 2010 sales growth may be the fastest in three years as it expands market share and Chinese consumers splash out on luxury watches and jewelry.  <bloomberg.com/news/retail>

 

Johnson's Positive Outdoor Results Have Good Implications for DKS - Johnson Outdoors Inc.'s sales rose nearly 6% in the second quarter ended April 2, 2010, reflecting shipments for the peak retail selling season for kayaks, canoes, tents, fish finders and other outdoor gear.  <sportsonesource.com>

 

New Orders for Furniture Keep Rising - New retailer orders for residential furniture rose 13% in February 2010 compared with the same month last year, according to the latest Furniture Insights survey of residential furniture manufacturers and distributors from the High Point accounting and consulting firm Smith Leonard.  <hfbusiness.com/news>


Triple Crown Worth Half As Much - Two years ago, when Big Brown went into the Belmont with a chance to win the first Triple Crown in 30 years, his owners said a win would make him a $100 million horse, thanks to huge stud fees they'd be guaranteed. As discretionary income has diminished the horse racing industry has gotten clobbered. Sales are still down 40% to 50% and the stallion market, which ultimately drives the value of a Triple Crown horse, has been badly affected. So much so that that that 50% haircut would apply to the winner of a Triple Crown should it happen this year.  <cnbc.com>

 


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