R3: Being Bullish With Hindsight

R3: REQUIRED RETAIL READING

May 13, 2010

 

 

TODAY’S CALL OUT

 

Last night Whole Foods reported a solid quarter with EPS coming in at  $0.38 vs. Street $0.34.  Comps were above expectations at 8.7% (Street around 7.1%).  But that’s not the whole story.  Same store sales accelerated post quarter, to up 9.5%. Clearly the recent (stock) market turmoil has not had a knee jerk impact to the consumer’s propensity to buy locally sourced, grass fed beef. 

 

At the risk of being overly bullish with the benefit of hindsight here, the bottom line is WFMI’s results are solid by all accounts.  Importantly, key drivers to the quarter appear to have legs.  Things that struck me on the positive side include the slight reduction in the capex guidance, now $300-$350 vs. $350-$400 (without any store opening slippage), the resolution of the FTC/Wild Oats saga, and the highlighted performance and profit improvement of the Wild Oats stores.  It’s also favorable to see the younger (and for now larger) stores comping as well as they are for two reasons.  One, it validates growth opportunities which I believe are still in doubt by some, and two, it certainly helps ramp store level margins at a better than expected clip.  It’s amazing what a more stable economy can do to clear the air on the viability of the business model.  Perhaps this is also why management hinted at re-accelerating store development over the next couple of years. 

 

The bottom line here is there is still opportunity ahead for WFMI to build sustainable momentum, especially now that company’s value message and price perception is beginning to resonate with existing and new customers.

 

-Eric Levine

 

R3: Being Bullish With Hindsight - WFMI SIGMA

 

 

LEVINE’S LOW DOWN 

 

- Foot Locker’s CCS action sports brand continues to move along with the opening of two additional test locations. A store in Austin, Texas is slated to open this month with an additional location opening in Raleigh, NC this June. These openings bring the total chain to 6 locations nationwide across a range (albeit small) of malls and demographics. While no official “rollout” has been announced, we continue to believe CCS will become a key growth driver for FL over the intermediate term.

 

- Macy’s noted that its best performing stores, or those showing the biggest year over year gains, were represented by two distinct categories. Macy’s Herald Square flagship as well as the company’s smaller format stores led the chain for the quarter. Management believes the My Macy’s program is in some way a big factor in driving the improvement in the smaller footprints.

 

- Whole Foods noted that it anticipates re-accelerating growth in new stores over the next couple of years. However, given the timeline required to sign leases and complete construction, an actual pick up is likely 1-2 years out. Recently, the company has seen a slight reacceleration in new development opportunities (vs. second use), although new real estate projects remain constrained in the larger scheme of the growth pipeline.

 

 

HEDGEYE CALENDAR

 

R3: Being Bullish With Hindsight - Calendar

 

 

MORNING NEWS 

 

Textile and Apparel Imports to the U.S. Posted Double-digit Growth in March - Shipments of textiles and apparel to the U.S. rose 17.7%. For the first quarter, textile and apparel imports increased 14%. Apparel imports were up 17.3% and textile imports increased 17.9%. For the quarter, apparel imports rose 11.4% whiile textile imports were up 16%. The overall trade deficit increased to $40.4 billion in March from $39.4 billion, according to the Commerce Department. Exports in March rose 3.2% to $147.9 billion from February. Combined imports of textiles and apparel from China grew 21.5% (apparel +27%), Vietnam spiked 45.9% (textile +165.2% and apparel +13.5%). <wwd.com/business-news>

R3: Being Bullish With Hindsight - Apparel OTEXA Imports

 

Container Cargo Traffic up 18.7% in April at Port of Long Beach - The monthly container cargo count at the Port of Long Beach increased for the fifth straight month in April, rising 18.7% compared to the same period a year ago. Imports were up 21.2%, pointing to a robust recovery in the domestic retail sector, and exports rose 15.2%. Overall, the Port handled a total of 485,059 twenty-foot equivalent container units in April; 241,245 TEUs inbound, 130,155 TEUs outbound and 113,659 TEUs of empty containers. Empty containers, which are mostly bound overseas for refilling, was up 17.6%.

R3: Being Bullish With Hindsight - Long Beach Container Traffic APril

 

LULU acquires Majority Interest in Australian JV Partner - The Vancouver-based firm boosted its equity interest ownership to 80.3% from the previous 13% stake. The remaining 19.7% is held by David Lawn, who heads up Lululemon’s Australian operations, and another unidentified investor. “This increased ownership interest, combined with David’s ongoing strong leadership and the expertise of the Australian operating team, provide a solid foundation for Lululemon’s expansion in the Australian market,” said Christine Day, chief executive officer of Lululemon. The brand entered Australia in October 2004 with a store in Melbourne, Victoria. There are now nine stores and four showrooms throughout Australia, the firm said.  <wwd.com/business-news>

 

Juicy Couture Enters Canada - Juicy Couture is entering Canada with its first freestanding store at the Yorkdale Shopping Centre in Toronto. The 2,100-square-foot store, which opens May 20, will showcase Juicy’s signature spirit and whimsical decor. It’s the first of what Juicy Couture anticipates will be several stores in Canada. “We see the potential for at least three stores in Toronto within the next three years, and strategic expansion to other major metropolitan Canadian cities within the next five years,” said Laura Mays, senior vice president of North America for Juicy Couture. While Juicy officials declined to give first-year sales projections, industry experts estimate sales could exceed $2 million in the first year. Juicy’s summer women’s collection, which includes relaxed, romantic dresses, shorts and fresh designs on the tracksuit, as well as summer accessories, will be showcased in the new store. <wwd.com/retail-news>

 

QVC Starts Off the Year With Healthy Web Sales - The e-commerce channel grew nicely for QVC in the first quarter. U.S. and international web sales increased 21.7% and 21.1%, respectively, while total sales grew 10.7%. Good news for LIZ who has an exclusive partnership with QVC. <internetretailer.com>

 

U.K. Consumer Confidence Fails to Recover From Drop on Budget-Cut Concerns - U.K. consumer confidence failed to recover in April from the biggest drop in almost two years the previous month on uncertainty about the election and proposed government spending cuts.  <bloomberg.com/news>

 

WMT May Sell Apple's Ipad Later this Year - Wal-Mart may start selling Apple Inc.’s iPad in 2010 in some U.S. stores as it competes with electronics chains for consumers who want to connect their e-mail, movies, games and music. “We anticipate being able to have the iPad later this year,” Gary Severson, senior vice president of entertainment for Wal-Mart’s U.S. stores, said in a telephone interview. Apple has sold more than 1 mm iPads since they went on sale in the U.S. last month, making the debut more successful than the introduction of the iPhone in 2007.  <bloomberg.com/news>

 

The National Council of Textile Organizations and 74 U.S. textile companies sent a letter to House and Senate leaders on Tuesday imploring them to pass legislation suspending duties on imports of rayon and acrylic fibers because the unexpected tariffs are threatening their businesses. The bill, known as the Miscellaneous Tariff Bill, must be renewed by Congress periodically and is meant to help domestic manufacturers compete by giving them tariff breaks on components such as yarns and fibers that are no longer made in the U.S. and must be imported. Acrylic and rayon fibers are no longer produced in the U.S. and have enjoyed tariff breaks for years, but inaction by Congress to pass a new bill reinstating the duty suspensions has imperiled a wide swath of the beleaguered U.S. textile industry.  <wwd.com/business-news>

 

Hugo Boss Eyes China JV - German fashion house Hugo Boss is in talks with Chinese fashion retailer and frranchise partner Rainbow Group to start a joint venture to drive growth in China. <drapersonline.com>

 

ColdwaterCreek.com again leads in high broadband availability - ColdwaterCreek.com ranked first in high broadband availability tests among large retailers for April, says Gomez. <internetretailer.com>

 

Easton-Bell's Q1 Sales Up 5% on Resurging Team Segment - Easton-Bell Sports Inc. said net sales for the first quarter ended April 3 rose 5.0% to $194.1 million on an 8.8% rise in team sports sales and 4.4% decline in action sports sales on a constant currency basis. <sportsonesource.com>


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