R3: Adibok for Real?

R3: REQUIRED RETAIL READING

May 4, 2010

 

 

TODAY’S CALL OUT

 

With Adidas’ reporting of 1Q results this morning, there is further confirmation of a resurgence in the athletic apparel and footwear marketplace. Importantly, we still maintain that this is not a zero sum game where Adi’s success is coming at the expense of Nike or Under Armour. In fact, we expect to hear a very positive stance from Nike tomorrow at the company’s analyst day and remain confident that this pick up and athletic apparel and footwear is sustainable.

 

While the headlines are largely in-line with Adidas’ recent positive pre-announcement, the details are worth noting. Interestingly, though not surprising, is the company’s change in “tone” and positioning of the Reebok Brand. The company is clearly focusing on and investing in the growth of the toning platform and is seeing early success as noted by most retail partners. To support continued growth Reebok will continue to benefit from incremental marketing spend. It is clear from this morning’s release that Reebok has quickly become a key driver of Adi’s North American business and will remain a key focus along with the World Cup over the remainder of the year. Our meeting with Hibbett Sporting Goods’ management last week also confirmed that the Reebok’s toning strategy goes well beyond a single shoe launch. A women’s fitness platform built around “muscle toning and conditioning” is very much in development.

 

Other key highlights from Adidas:

 

- All regions were positive in Q1, with the exception of China and other Asian markets. North America, up 14.3%, and Latin America, up 18%, were standouts for the quarter. Western Europe was positive, but lagged with an increase of 3.7%. Retail outperformed, posting an increase of 16.2% vs. a 1% increase for Wholesale. Reebok mentioned several times as a positive and a key driver of North American strength. Overall Reebok Brand sales were slightly positive, up 1.5%.

 

- Golf showing some signs of life with Taylor Made increasing by 15.9% in the quarter. 

 

- Inventories extremely well controlled and clean. Management noted improved sales and a substantial reduction in year over year clearance activity helped to control inventories and the results are solid. Inventories declined 20% on a total topline increase of 4%. Looking at it another way, the company added about €100mm of sales while taking €400mm out of inventory. This clearly bodes well for future company gross margins as well as for the overall health of the channel.

 

- Reaffirmed recently raised guidance, primarily driven by a stronger topline forecast and improved gross margins. Guidance calls for EPS of €2.05 to €2.30 vs. the Street at €2.26.

 

R3: Adibok for Real? - ADI SIGMA

 

 

LEVINE’S LOW DOWN 

 

- Movie Gallery’s decision to close all its stores may present some interesting opportunities for those looking to grow in smaller box strip locations. The company expects to shutter all 2,415 doors through a liquidation process over the next couple of months. We visited Hibbett Sporting Goods last week and the company expressed interest in picking some former Movie Gallery locations given their similar footprint.

 

- Keep an eye out for Laurent Potdevin’s new home. The former CEO of Burton announced his resignation after 15 years with the leading snowboard maker. Founder, Jake Burton and his wife, Donna, are expected to take the helm while the company searches for a new leader. Burton remains of the largest and privately owned action sports properties. We wouldn’t be surprised if speculation begins to rise about the company’s ownership fate as a result of the recent management change.

 

- Add off-price to the list of retailers still making their way into Manhattan. Word has it that TJ Maxx is coming to Manhattan’s east side, with a location set in the former Conran Shop high-end rhome store. The store is primarily located below ground, under the Queensboro bridge. While this may seem to be a risky move, the Bed Bath and Beyond next door is likely to alleviate fears given its customer focus vs. the more stereotypical “upper east side” shopper.

 

 

HEDGEYE CALENDAR

 

R3: Adibok for Real? - Calendar

 

 

MORNING NEWS 

 

 

Cambodian Apparel Manufacturers See Stabilization - A survey of managers from 66 Cambodian apparel factories found the majority expecting to increase or maintain their current workforce, and only 10% said they anticipated additional job losses. About one-third believed business conditions would remain as dire as they were last year. The factories polled were predominantly foreign owned, mainly by Asian investors, and on average had 700 apparel workers per facility. The factories specialized in producing T-shirts, pants, jeans, sportswear, underwear and pajamas. The optimistic outlook marks a sharp turnaround from last year, when the global recession triggered a sharp decline in demand for Cambodian apparel. Exports fell by more than 20% and 70 factories were shuttered. <wwd.com/business-news>

 

More Info on the Gordmans IPO - Gordmans Inc., the 67-unit off-price department store chain operating in 16 Midwestern states, has filed plans with the Securities and Exchange Commission for a $75 mm IPO. Gordmans is trying to ride the consumer value wave that has enjoyed strong recent performance, similar to Dollar General. Stats: Headquartered in Omaha, stores average 50,000 square feet, features merchandise at up to 60% off department and specialty store prices, strongest category is juniors and young men's. The filing said it plans to expand the store base by 10% annually over the next several years.  <wwd.com/business-news>

 

Li & Fung Ltd. Growing from Rebounding US Consumer Spending -  L&F, the biggest supplier for retailers including Wal-Mart Stores Inc., climbed the most in more than three months in Hong Kong trading as U.S. consumer spending pointed to a sustainable economic recovery. Li & Fung surged 5.2% to HK$39.65, the biggest increase since Jan. 29. Consumer spending in the U.S. increased 0.6% in March, the most in five months and incomes climbed for the first time this year. <bloomberg.com/news>

 

Jil Sander Extends Uniqlo Deal - German designer Jil Sander is extending her collaboration with Japanese retail brand Uniqlo’s parent company Fast Retailing after one year of partnership. The designer said she’s happy with the two collections of her new brand +J with Uniqlo, and getting the support she needed for her vision of high quality basic apparel with her minimalist signature and affordable price tags. <fashionnetasia.com>

 

DKNY and KNL Team Up - Donna Karan International and S. Kumars Nationwide Limited have formed a joint venture and global licensing agreement for DKNY men’s wear. The deal formalizes and expands an interim agreement that replaces a similar deal DKI had with Marchpole Holdings plc. KNL will source, design, produce and distribute the full range of men’s wear apparel for DKNY Black Label, a bridge line. The agreement runs through 2015, with an option to extend the license for an additional seven years. The spring 2010 collection is the first to be offered by SKNL under this agreement. It is available in high-end department and speciality stores in addition to DKNY’s network of about 100 stores worldwide.  <wwd.com/menswear-news>

 

Famous Footwear Kicks Off Mind Body Sole Tour - Famous Footwear kicked off the Mind Body Sole Tour featuring Ali Vincent, the first female winner of the NBC show, "The Biggest Loser,"* and author of "Believe It. Be It." During the tour, Ali will make special appearances at Famous Footwear stores where she will meet shoppers, sign autographs, provide fitness tips, share her personal health success story and discuss the importance of how toning and fitness footwear can help consumers take the first step to incorporating health and wellness into their lives. <sportsonesource.com/news>

 

Haiti May Enjoy Duty Free Access to US Market - Haitian apparel would enjoy duty-free access to the U.S. market until 2020 under a bipartisan bill introduced last week. The Haiti Economic Lift Program (HELP) Act greatly expands duty-free access to the U.S. market for Haitian textile and apparel exports and extends existing trade preference programs for Haiti through 2020 <sportsonesource.com>

 



Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more