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Easily the most notable quote over the weekend came from Adidas’ CEO Herbert Hainer as it relates to the Toning category and impact on Reebok. “The explosion of growth in this [toning] space in such a short period of time eclipses nearly everything I have witnessed in the industry over the last 25 years, and we are well on track to sell at least 5 million pairs of toning footwear in the U.S. alone this year.” Worldwide, Hainer forecast that as many as 10 million pairs of toning product could be sold, up from a prior forecast for 5 million pairs as the Reebok toning product is gaining traction with recent advertising launches in Germany, Russia and the U.K.

What I’m not going to do is sit here blindly and deny the growth of this category, regardless of my personal bias as to how ridiculous the category is, and how hard I laugh when I see Joe Montana on TV advertizing Skechers Shape-Ups for men.  The fact is that the growth is real – for now – and Adibok is benefitting. This is happening at the same time we head into World Cup, which disproportionally helps Adi – at least until they need to anniversary it next year. Remember that Adi’s strategy is to endorse the event to sell the ‘official’ product of the World Cup. Other brands – like Nike and Puma – could care less about selling ‘official product’ that is worn by a ref, but care more about using the event as a platform for growing their business in outer years.

So if you own Adi, be happy. The trends continue to work in your favor. Take outsized growth in ‘toning,’ what may or may not be a sustainable category, add to World Cup – and layer over a German-engineered cost structure. That’s pretty nice as it relates to profit growth trajectory this year. But ‘this year’ is the key part of the phrase. Sustainability is a massive question mark.

- Brian McGough

LEVINE’S LOW DOWN 

  • A recent study by Comscore suggests consumers are less brand loyal than they have been in years. As an example, 57% of consumers surveyed buy the brand of toothpaste they want most vs. 67% only two years ago. In the apparel category, 15% fewer consumers “bought the brand they want most” in March 2010 vs. March 2008. Clearly trading down has had a major impact on brands in just a very short two year time frame.
  • After rumors that famed London department store Harrod’s was for sale, it seems this is now a reality. Over the weekend it was reported that Harrod’s was sold for $2.2 billion to Qatar Holding, the private equity arm of the Qatar royal family. At two times revenues, the purchase price is certainly eye-opening for a single store operation (albeit a very big one).
  • With Mother’s Day now over, it was estimated that Americans spent just shy of $15 billion on gifts for mom’s big day. The holiday ranks second only to Christmas as an occasion for which to give a gift.

HEDGEYE CALENDAR

 

R3: AdiBok Strikes Again - 5 10 Retail Calendar

MORNING NEWS 

Consumers polled by Big Research last month on their shopping habits appeared to be in the mood for shoes: All but one of the top 10 footwear stores registered an increase in market share from the previous year (all figures based on April y/y change in market share):

  1. Walmart - 11.5% (up 0.7% y/y)
  2. Payless ShoeSource - 9.8% (up 0.3%)
  3. Kohl's - 5.1% (down 0.1%)
  4. DSW - 3.8% (up 0.7%)
  5. JCPenney (up 0.3%)
  6. Macy's (up 0.3%)
  7. Kmart (up 0.6%)
  8. Foot Locker (up 0.2%)
  9. Target (up 0.7%)
  10. Famous Footwear (up 0.2%)

<www.wwd.com/footwear>

Broder Bros., Co. reported first quarter 2010 net sales were $153.5 million compared to $151.7 million for the first quarter 2009.  Loss from operations for the first quarter 2010 was $3.3 million compared to $6.9 million for the first quarter 2009.  Net loss for the first quarter 2010 was $6.0 million compared to $14.8 million for the first quarter 2009. First quarter 2010 gross profit was $26.9 million compared to $25.0 million for the first quarter 2009.  The increase in gross profit was due to higher unit volumes and improved gross margins.  First quarter 2010 gross margin was 17.5% compared to 16.5% in the first quarter 2009.  Consistent with management's expectations, the Company began to regain lost market share during the first quarter 2010.  The Company's unit shipments were 4% better than the prior year compared to a 3% increase in overall industry unit shipments as reported by STARS.    <www.sportsonesource.com>

Nordstrom Rack Outlet Concept to Debut in NYC - Nordstrom may one day open a full-line store in Manhattan, but on Tuesday, it will open a Rack unit at One Union Square South, marking the Seattle-based retailer’s entry into New York City. It’s a logical move, given the nation’s mind-set for trading down. It also gives Rack a high-profile location, right on busy 14th Street, and a leg up on competitors such as Saks Off 5th, Lord & Taylor, Talbots and Neiman Marcus, which are getting more aggressive in the outlet arena, as well as Bloomingdale’s, which is opening its first four outlets this summer and fall. Macy’s also is considering an outlet strategy  <www.wwd.com>

China’s trade surplus shrank 87 percent in April from a year earlier as imports grew faster than exports because of stimulus-driven domestic demand.  The surplus of $1.68 billion, reported by the customs bureau on its website today, compared with a deficit in March. Imports gained 49.7 percent. Exports rose 30.5 percent, topping the 28.9 percent median estimate of 30 economists in a Bloomberg News survey.  <www.bloomberg.com>

Multichannel bookseller Borders Group Inc. said today it’s taking online pre-orders for its Kobo eReader for delivery as early as June 17. Also coming soon: A new e-book store on Borders.com, Kobo apps for ordering e-books through mobile devices and PCs, and in-store Area-e shops for downloading e-books. Borders is offering the Kobo eReader for $149.99, compared to $259 for Amazon.com Inc.’s similarly sized Kindle e-reader. The Kobo eReader, which will come pre-loaded with 100 classic books, can carry up to 1,000 book titles; the Kindle carries up to 1,500 while the larger Kindle DX, priced at $489, can handle up to 3,500 titles. Mike Edwards, Borders Group’s interim president and CEO, says its Kobo eReader is just the first of several e-readers the retailer plans to offer.  <www.internetretailer.com>

Retailers joined with the overall economy in adding jobs in April, offering evidence of an improved economic outlook. Specialty apparel retailers added 8,600 jobs last month compared with March to employ 1.39 million, the U.S. Labor Department reported Friday, while department stores expanded payrolls by 300 jobs to employ 1.48 million. “The gains in retailing employment are consistent with a recovery [in] spending at retail chains,” said John Lonski, chief economist for Moody’s Investor Services. “The improvement in private sector employment is consistent with a lasting upturn of consumer spending. Going forward, consumer spending should grow.” Clothing stores helped spur an increase in retail industry employment of 12,400 jobs, said Sandy Kennedy, president of the Retail Industry Leaders Association. The employment figures came on the heels of mixed same-store sales reports from retailers on Thursday, she noted. “Today’s jobs report is yet another reminder of the complex challenges the U.S. economy faces as it moves toward recovery,” Kennedy said. Nationwide, employers added 290,000 jobs, the largest increase in four years and the fourth straight month of job gains. Yet the unemployment rate rose to 9.9 percent in April from 9.7 percent the previous month.  <www.wwd.com/business>

Jockey International Discusses Strategy - Like other heritage brands that have struggled with the tough economy over the past two years, Emma said Jockey is focusing on its most important assets: brand integrity as well as its 134-year-old franchise of men’s, women’s and children’s underwear at retail. Ramping up investments in design and marketing are strategies that have clicked for the privately held company, which generates estimated annual wholesale sales in excess of $300 million.

WWD: How does Jockey differentiate itself from the competition?

E.E.: We focus on innovation and newness and want to stay a step ahead as it relates to fashion. We offer value — it’s built into the product. We have not allowed ourselves to get involved in the promotional frenzy. There’s been a lot of pressure to deviate but we have not deviated from our 25 percent off [seasonal sales]. A lot of companies are doing 40 percent off. We feel that’s a mistake.  <www.wwd.com>

Deal Activity in Outdoor Equipment - Clarus Corporation has signed definitive merger agreements to acquire, in two separate transactions, Black Diamond Equipment, Ltd., the manufacturer of equipment for rock climbers, ice climbers, alpinists, and freeride skiers; and Gregory Mountain Products, Inc., the manufacturer of technical backpacking and related mountaineering products. The aggregate purchase consideration, prior to adjustments, for both acquisitions is approximately $135 million.  <www.sportsonesource.com>

Spanx Innovation Continues - Building on its recent forays into women’s swimwear and men’s products, shapewear company Spanx is keeping the momentum going with a new category launch today: control tops that can be worn as ready-to-wear. The collection, called On Top and In Control, consists of eight styles — including a long-sleeve turtleneck, V-neck and crew neck, a three-quarter bateau-neck top and four sleeveless designs. Priced from $68 to $118 at retail, the tops will launch exclusively on spanx.com. Sara Blakely, founder of Spanx, said the company is developing additional outerwear products and the next launch will be “a new take on a classic item.”   <www.wwd.com>