• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

R3: REQUIRED RETAIL READING

June 9, 2010

Positive sales reports out of JD Sports in the UK, Forzani in Canada, and another week of acceleration of sales in the US are all notable – especially given that World Cup is still an inventory event for retail rather than a sales event. In other words, World Cup sell-through is yet to occur. Good for our calls on FL, UA and NKE. Other boats will rise. 

 

CALL OUT

Positive sales reports out of JD Sports in the UK, Forzani in Canada, and another week of acceleration of sales in the US are all notable – especially given that World Cup is still an inventory event for retail rather than a sales event. In other words, World Cup sell-through is yet to occur. Good for our calls on FL, UA and NKE. Other boats will rise.

US sales accelerated for the 3rd straight week, with particular strength in the athletic specialty channel. We don’t particularly trust the absolute results from this sample (Sportscan), but we view it as a consistently flawed sample. In other words, things continue to get better directionally.

R3: 6/9 --  UK, check. Canada, check. US, check.  - 1

R3: 6/9 --  UK, check. Canada, check. US, check.  - 2

 LEVINE’S LOW DOWN 

- When asked about whether ROST has cut inventories too far (they’re down about 33% since ’07 per store), management suggested quite the opposite. The company intends to continue cutting inventory until it begins to impact sales, which it is currently not doing. Unfortunately, this strategy suggests that sales at some point will be negatively impacted before any changes are made to stabilize overall inventory levels. We can’t imagine how that top-line impact, and subsequent leverage to EBIT, will be a positive event for the stock. Overall, it smells like rather lackluster risk management.

 

- One of DG’s key initiatives is to roll out back-office computers which will facilitate the transfer advertising information to the stores, transmit shelf labels, download training programs and perform pre-employment screening. Prior to this rollout, these tasks were manual and paper based. Welcome to 2010.

 

- Neiman Marcus noted that the rebound in New York City was particularly noteworthy over the past few months. Bergdorf Goodman reported a 25% increase in sales for the quarter. In fact management noted, “it’s amazing how much it bounced back”. It still remains to be seen how sustainable this NYC revival will last, especially with Euro impacted tourism on the decline and increased financial market volatility.

MORNING NEWS 

Brown Shoe Continues International Expansion with Parternships in Russia and Ukraine - Brown Shoe Co. announced Tuesday a partnership with MTB Group Ltd. to offer the Naturalizer brand in Russia and the Ukraine. The deal allows MTB’s affiliate, Monarch Group, to wholesale the label and sell it in its 80 Monarch retail stores by late August. Additional standalone Naturalizer shops are planned for 2011. Brown Shoe also recently disclosed expansion plans for Naturalizer in the U.K., Germany, Korea and Morocco. <wwd.com/footwear-news>

Hedgeye Retail’s Take: Newsflash: DO NOT confuse MTB Group for MBT, which is the originator of the toning shoe back in the late 1990s (no, Skechers did not create the product, it just knocked it off!).  As far as this move by Brown Shoe, it’s a push to broaden exposure to Eastern Europe. Probably not a bad idea because 1) it’s not a great brand here – maybe it actually works there (I say that tongue-in-cheek), and 2) this is actually not a bad time for US companies to be investing capital in Europe.

Forzani Crushing it in Canada: The Forzani Group Ltd. reported sales rose 6.8% due to comp increase of 9.8% offset by a 5% decline in wholesale. Strategic initiatives, strong market share and seasonal weather all contributed to improved same store sales, margin and operating cost in the Q1. Strategic initiatives: FGL's plan to increase its golf, fitness and cycling businesses within Sport Chek delivered a combined 27% same-store sales increase in the quarter in those categories. Seasonal weather: seasonable weather through much of the quarter positively impacted sales of all spring categories, most notably outerwear, athletic clothing, footwear and hockey equipment. The 2010 Vancouver Olympics spurred sales of licensed apparel, in particular Team Canada hockey jerseys. Gross margin grew 240 bps due to gains in the corporate retail business which has higher margins and improvements in age and mix of inventory to avoid significant discounting. Results in the four weeks of the fiscal 2011 second quarter continued to show improvement over the prior year, despite somewhat unseasonable weather in Western Canada. On a same-store category basis, the increase was led by athletic clothing, footwear and fitness equipment. <sportsonesource.com/news>

Hedgeye Retail’s Take: Long live the Olympics! (Let’s hope so, because Canadians generally could care less about World Cup).

New Balance Pushes Apparel with Signing of Pitcher Johan Santana - New Balance announced the signing of All-Star and award-winning pitcher, Johan Santana, to a multi-year endorsement contract. New Balance will be Santana s official on-field footwear and on and off-field athletic apparel provider . <sportsonesource.com>

Hedgeye Retail’s Take: This is actually more meaningful than it might seem. I could care less about whether this is Johan Santana or Johan Sebastian. One person does not matter. But a new initiative in a new category for a company that has been pigeonholed as a stodgy old running company makes sense. Also, it suggests to me that New Balance will not need to solely defend its running presence as Under Armour pushes harder into the category. On the margin I think this takes a little pressure off of KSWS as New Balance’s R&D/marketing budget shifts elsewhere on the margin.

UK Sport Retailer JD Sports Fashion Reports Improving Sales - JD Sports Fashion has reported improved trading in the UK and Republic of Ireland with like-for-like retail sales up 4.1% for the eighteen weeks to June 5. <drapersonline.com>

Hedgeye Retail’s Take: Yet another sign that the athletic space tends to have a mind of its own relative to the rest of retail. We could have the best economy in the world, and this space could be in the tank – and vice versa. Note that World Cup has been more of an inventory event for retail so far – not a sales event. Yes, this is bullish.

Juicy Couture and Social Media - Kate Foster, VP of global marketing and communications at Juicy Couture, explained the brand’s devotees tend toward the fanatic, a trait the company has leveraged in its social media program. “Social media perpetuates Juicy mania,” Foster said. “Our customer wants to participate in our brands. She wants to interact with the brand, and she’ll go that extra mile to share her experiences with others. She loves us, and we love that she loves us.” In 18 months on Facebook, Juicy Couture has garnered about 360,000 “likes” and is on track to clear 500,000 by the end of the year. Juicy's customer profile is smack in the middle of the social media demographic. Juicy treats Facebook like an editorial outlet with a proper editorial calendar. The company uses social media to drive consumers to its own online store and to retail. <wwd.com/business-news>

Hedgeye Retail’s Take: We won’t dispute any of this. But EVERY brand manager will say this about their respective brands. Have you ever heard a brand manager or marketing exec say “the person that uses our product really has very little interest in doing so.”  The real question here for Juicy, and all brands for that matter, is whether they can use social media tools to actually grow the top line.