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May 19, 2010


Every quarter when RL reports, my inbox gets flooded with emails from bulls and bears alike looking for validation on their view. This morning after RL printed $1.13 vs the Street at $0.63, I had a couple of long-term bulls who reached out with the closest thing to a smile on their face that can come through electronically. On the bear side…crickets. With such a massive beat and short interest near 10% of the float on a quality global growth company, there’s not much for them to say.

One factor might be guidance. Back of the envelope math suggests – as usual – a hint of caution. But let’s face a couple facts. 1) Caution is warranted. Has anyone looked at Europe recently? Fortunately, RL’s growth focus for this year is in integrating its China business, layering on dot.com functionality to markets beyond the US, and in driving US wholesale AND retail – which have been in a tough spot for two years. Remember when Nike got to a point in about 2000 when two parts of the model compensated when one part of the model came under pressure?

Well…that’s RL today.

Taking a big step back, there are those who have REALLY believed the story all along as opposed to those who looked at pieces of this business in a vacuum, the irony here is that the factor that has not changed throughout all the global economic turmoil is the earnings power of this company. I said it before and I’ll say it again… by the end of this year, people will be eyeing $7 in earnings in earnings power.

Oh, and by the way, I still come up with numbers for the upcoming year that are at least 15% ahead of where RL’s guidance is initially coming out.

We’ll be back with details on our numbers after the call.

R3: RL: Crickets - RL SIGMA


- Despite a modest increase in average ticket at Home Depot, the turn in big ticket items (defined as $900 and above) has yet to occur. While broader results indicate an improvement in consumer spending, lagging sales at the high-end is a telling sign that reservation among consumers persists.


- At a time when Target stores are rolling out a new open layout with 30% more space for its electronics and video games department, WMT highlighted on yesterday’s call that video games and gaming hardware were below expectations across all gaming brands due to fewer new releases and lack on innovation in gaming systems.


- After opening its first stores in new west coast markets just this past fall, DKS CEO Ed Stack commented that the sporting goods retailer would face what he expects to be an increasingly competitive environment in the coming year both in terms of store growth and pricing by targeting 40% of new store openings in new markets.


- In what appears to be a win-win, Quicksilver completed the purchase of stock options back from non-executive employees with an exercise price greater than $7.71 (50%+ above yesterday’s close) and that were issued prior to October 19, 2008 for fewer new options at a $5.08 exercise price - yesterday’s close. With more than 91% of eligible options tendered, employees appeared to agree that ‘one in the hand’ is truly better than 2 in the bush.


UK Retail Sales Fall in April - UK retail sales values fell 2.3% on a like-for-like basis from April 2009, when sales had picked up 4.6%, boosted then by Easter falling in April 2009 but March 2008. Retail footfall in April fell below its year-earlier level, hit by Easter timing and the volcanic ash cloud which prevented tourists from travel. Sterling's weakness continued to attract overseas visitors, especially from western Europe, China and the Middle East. Chinese visitors in particular were much more numerous than a year ago. Food sales fell back, largely reflecting Easter timing. Non-food was also affected by the earlier Easter, but also by pre-election uncertainty and consumer caution, which favoured essentials and replacements over discretionary items. Clothing and footwear slowed and homewares fell back below year-earlier levels, despite some further discounts and promotions.  <brc.org.uk>

Pakistan Textile Mills on 2 Day Strike - The All Pakistan Textile Mills Association went on a two-day strike Tuesday to protest the imposition on May 13 of a 15 percent export tariff on locally produced yarn for 60 days. The government stressed the duty was helping improve the availability and cool the price of yarn in the domestic market for the benefit of knitting mills. Yarn and products of blended yarn that have been imported is exempt from this duty. With less than 90 days left until the new cotton crop comes in, and with India banning its cotton exports on April 19, Pakistani yarn mills are left scrambling to fulfill orders. Yarn mills had been doing a robust business exporting yarn to Chinese mills after China had a shortfall in cotton production last year. This created shortages in the domestic yarn market and caused the price of yarn to double in a year. <wwd.com/business-news>

SKX Launches Backpacks and Bags - Skechers will launch a branded line of backpacks and bags for fall ’10. The Manhattan Beach, Calif.-based company signed a licensing agreement with Global Design Concepts to design, produce and distribute Skechers-branded backpacks, messenger and tote bags for men, women and children. Skechers bags will be available in department, specialty, sporting goods and general athletic footwear stores throughout the U.S. and Canada. The footwear company also has partnered with licensees to produce children’s apparel, sunglasses, legwear, medical scrubs and leather accessories. <wwd.com/footwear-news>

Best Buy Co. Launches CinemaNow - BBY will start its planned online service selling movies and television shows this month, jumping into a market that includes Apple Inc.’s iTunes and Amazon.com Inc. The service, called CinemaNow, allows BBY to tie Web-delivered entertainment to electronic devices sold in its stores as demand for physical DVDs declines. The service will start with a la carte, on-demand purchases and may later become a subscription service like Netflix Inc. Movie rentals will cost $2.99 to $3.99 as part of the service and videos will cost $9.99 to $19.99 for digital purchase.  <bloomberg.com/news>

Anthropologie Eliminates European Managing Director - James Bidwell, managing director Anthropologie Europe, has left the company as part of an international restructuring. The company said it is undergoing a global restructuring “to better leverage internal resources in order to be closer to the customer, achieve greater efficiencies and to prepare for future international expansion.” The announcement comes on the heels of record first-quarter earnings for parent company Urban Outfitters Inc., which operates the Anthropologie, Free People, Leifsdottir, Terrain and Urban Outfitters brands. Glen Senk, chief executive officer of Urban Outfitters Inc., said he was bullish about international expansion. “I used to think international sales could be 25% of our business,” he said. “We could find out over time that it’s 50% . We no longer view ourselves as a North American retailer. The European business is becoming increasingly important to the company.”  <wwd.com/retail-news>

Ski Season Occupancy Up 1.4% - Year-over-year occupancy for the ski season was up 1.4% and the average nightly rate down 5.8% for the 2009-10 snowsports season at more than a dozen western mountain resort destinations, according to the Mountain Travel Research Program. <sportsonesource.com>