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R3: REQUIRED RETAIL READING

June 3, 2010

Many interesting call outs today. The usual about Toning shoes picking up mo... but GSI making a key acquisition, 2 doggies coming public bc they have to (Toys R Us and Prada), while another postpones – bc it should.

 LEVINE’S LOW DOWN 

- Laundry at Kmart. When the going gets tough, get creative. Word has it that Kmart is testing a laundromat in one of its stores in Iowa.
Hedgeye Retail’s Take: While it seems a bit odd, the combination of shopping and doing laundry kinda makes sense from time efficiency standpoint – though it’s a stretch. Kill time shopping while laundry is cooking. Clearly SHLD is pulling out all of the stops here with yet another attempt to drum up same store sales. I guess where I struggle is figuring out who wants to haul their laundry to and from a Kmart/Sears store.

 

- PSS Toning.  PSS management noted that the company aims to have a multi-brand, multi price-point effort underway to offer a wide range of toning products over the next few months. On the high end, Saucony is expected to introduce a toning product while the Champion brand represents the company’s value priced offering (at ~$40). The company also noted early success with the selling of the mid priced Grasshopper GetFit sneakers, which were debuted on HSN and are a sub-brand of the company’s Keds division.

 

- More Toning. You tired of hearing this yet? SCVL noted that toning shoes, especially Reebok, remain in short supply and there is little sign of demand letting up in the near –term. Management went on to say that pricing remains stable at the high end (~$100), with vendors still setting the pricing in the market. The company expects to see more products coming into the market over the remainder of the year, including a “fitness” effort by Nike (based on Free).

MORNING NEWS 

TOY IPO – how are they going to sell this doggy? Lot’s of hope and prayer.... Here’s a story from the venerable NY Post on Toys R Us – meaning that it must be true. Per the Post, Toys R Us Owner KKR Has Been Pushing Analysts to Give Positive Assessments - Sources tell the NY Post that analysts felt "grilled and cajoled" about TOYS's valuation, making the analysts suspect they were competing for investment-banking business. Sources say that Bank of America (BAC) chose not to take part in the analyst interviews, thinking they might run afoul of a 2003 settlement between the SEC and most banks. Sources say that KKR has been similarly aggressive and pressurizing in other recent IPOs, and the article notes that KKR is not in danger of violating the law with such tactics, only the investment banks that are part of the pact are. The four banks underwriting the deal: Goldman Sachs, JPMorgan Chase, Bank of America, and Credit Suisse. <nypost.com>

Hedgeye Retail’s Take: There’s not enough room on this page for me to say what I really think about this. Sad. Truly sad.

WAG Off the Wagon: Walgreens Reversing 15-yr Old Policy and is once more Selling Alcohol - The store is once more selling beer and wine as it seeks to become a one-stop shop without damaging its family friendly image. Up until the mid-90's, the store had been one of the country's largest alcohol retailers. Alcohol and other beverages had comprised about 10% of sales. It stopped when the sales become cumbersome and time-consuming for staff. It now has a limited beer and wine selection in about 3100 of its 7500 stores. <wsj.com>

Hedgeye Retail’s Take: Makes sense…and a lot of it.

GSI Acquires Retargeting Solutions Company - GSI Commerce Inc. announced its Marketing Services division has acquired FetchBack Inc., a Tempe, Arizona-based provider of retargeting solutions for more than 500 advertisers. <sportsonesource.com>

Hedgeye Retail’s Take: GSI is one of the more important companies that many people have not ever heard of. The leading outsourced web-enabled commerce business buying a top ‘retargeting’ advertiser makes sense – knowing little else about the economics. The business is focused on the 98% of consumers that show interest in a company by visiting a site, but ultimately leave for one reason or another without transacting. This is one to watch.

Prada Considers IPO… Again - Prada SpA, buoyed by surging profit at the eponymous fashion label, is exploring options to revive an initial public offering, according to four people familiar with the talks. Prada, which has scrapped an IPO four times in the last 10 years, is considering a Hong Kong listing in addition to Milan. Prada has cut debt and opened new stores in Asia as the industry rebounds from the worst year on record. The strong rebound in the first quarter, which may continue through the end of the year, would make it an opportune time to consider an IPO. While Prada may hold an IPO as soon as this year, it’s more likely the firm will wait for stock markets to rise and sell stock in 2011. <bloomberg.com/news>

 Hedgeye Retail’s Take: Wing and a prayer. At least it’s better than Toys R Us going public.

UK Discount Clothier In No Rush on IPO After Postponement in February - New Look Group Ltd., the U.K. budget clothing retailer, said it has no immediate plans to revive its IPO after reporting an 18% profit increase driven by refurbished outlets and online fashion sales. New Look postponed an IPO in February. The 1,108-store retailer, taken private in 2004 by Permira Advisers LLP, Apax Partners Worldwide LLP and founder Tom Singh, cited “unfavorable” market conditions when it put off the IPO on Feb. 12. New Look has opened outlets in the Netherlands, Egypt, Poland and Singapore as well as larger-format premises in the U.K., and is expanding online overseas to drive profit.  <bloomberg.com/news>

Hedgeye Retail’s Take: Isn’t it fascinating to see how troubled companies are accelerating IPO calendar, while others that are more in control of their own destiny are postponing?

Wal-Mart's Apparel Woes - Apparel is Wal-Mart Stores Inc.’s perennial Achilles’ heel and the question remains whether it will ever be able to repair it. Even during the recession apparel lagged while food and areas such as consumer electronics soared. And the problem has only become more intense now that the economy has begun to recover and Wal-Mart’s competitors such as Target are closing the gap with clothing driving sales and profitability while Wal-Mart admitted its apparel sales were below expectations and continues to be a work in progress.  <wwd.com/retail-news>

Hedgeye Retail’s Take: Wal-Mart is already scaling back footwear, which is a solid move. Apparel is a less complex category from a logistical standpoint, but the abysmal track record for WMT is just flat-out embarrassing. WMT needs to buy Liz Claiborne, or some other down and out brand that holds massive brand-equity with middle America.

Sport Chalet Sees First Positive Comp in 11 Quarters - Sport Chalet's posted its first gain in comp store sales in 11 quarters in the fourth quarter ended March 28, thanks to favorable winter weather in Southern California that propped up winter prices. Same-store sales increased 5.7%, contributing to a 6.8% increase in sales to $90.2 million that reduced the net loss for the quarter. <sportsonesource.com>

Hedgeye Retail’s Take: The athletic space continues to beat to its own drum.

Cole Haan Gets Callout by Clinton and Obama - Cole Haan got a big boost from not one but two U.S. presidents during a World Cup event at the White House last week. President Barack Obama, along with Vice President Joe Biden and former President Bill Clinton, gave the U.S. World Cup team a big sendoff on Thursday before they departed for South Africa. Clinton took notice of the team’s Cole Haan caramel Caper shoes, a cap-toe oxford. “I want to join the team to get the shoes,” said Clinton, according to a transcript from the event. And the former president event made a point of showing them to Obama following the current president’s remarks. “Those are nice-looking shoes,” said Obama, who has regularly worn Cole Haan, including on his inauguration day. “This is the best-dressed soccer team I’ve ever seen.” Cole Haan reps said they are excited about the buzz surrounding the shoe. <wwd.com/footwear-news>

Hedgeye Retail’s Take: This might seem insignificant, but it actually matters. I still struggle with why Nike still owns Cole Haan, but I guess press like this helps the cause.

Berkshire Cites Strength in Fruit of the Loom as Driver of Other Manufacturing Business Profit Growth - Berkshire Hathaway said pre-tax earnings in its Other Manufacturing businesses jumped 89% in the first quarter to $332 mm. The gains were driven by higher profits in its apparel businesses, Fruit of the Loom (FOL) in particular.  <sportsonesource.com>

Hedgeye Retail’s Take: It’s been a while since Berkshire called out FOTL as a profit growth driver. We don’t think they are gaining outsized market share, which is a likely positive read through for HBI, which continues to have top line wind at its back this year.

Another Promotion for Golfsmith - Just months after Phil Mickelson's Masters win resulted in Golfsmith giving away a $1 million in golf clubs, Golfsmith said it is teaming up with TaylorMade and a trio of golfers, Retief Goosen, Sergio Garcia and Sean O'Hair with a new national promotion tied to the U.S. Open Golf Championship.  <sportsonesource.com>

 Hedgeye Retail’s Take: The last promo was geared towards unloading excess inventory. This time it is about promoting growth in the category.