R3: Retail Pulse – June Update

R3: REQUIRED RETAIL READING

June 10, 2010

TODAY’S CALL OUT

In light of mixed commentary on sales trends coming out of May, we took a look at the latest wave of comments coming from company management teams.  While the majority of retailers noted the final two weeks of May showed improved trends, largely driven by better weather, did this last into June?  Most recent comments suggest positive trends have held.  However, to be fair and as Keith reminded us this morning on our call, what is the incentive for a management team to update the Street with bad news?   We agree that this is in some ways a biased sample set based on those companies willing to toot their own horn, but the reality is there is a diverse group of retailers seeing positive momentum in early June.  Yes, we know the calendar shift helps, but this is also widely known at this point and fully incorporated into company plans.  More importantly, we’re reminded once again that the sector and underlying health of the consumer on any given week can be quite volatile.  For now though, the consumer appears to be holding up, at least from a retailer’s perspective.

• 6/8/2010- Coach’s CEO: “First, the growth that we experienced in the third quarter -- our third fiscal quarter ending in March has continued through the first two months of the current quarter. We are enjoying very healthy growth in our North American businesses, in our international businesses, led by China.”  Recall that F3Q North American comps increased by 5.1% and by “significant double-digits in China”.
• 6/8/2010- Dollar General recently reiterated that the company still expects same store sales to be in the 4-6% range, which is consistent with the company’s view back in March.    First quarter same store sales were up a better than expected 6.7%.
• 6/8/2010- Talbot’s management noted, “we're only half way through the second quarter, and our comps for the quarter are in the mid single digits.”  Current trends mark an acceleration from 1Q reported comps of 2.4%.
• 6/8/2010- Sherwin Williams CFO comments: “I think we still feel pretty good about our guidance for the second quarter. We had not updated. We said we'd be in the high single digits. I think we feel it's relatively strong.”  Why he “thinks” things are relatively strong rather than “knows” is an entirely different question.  However, it sounds like business has held up.
• 6/8/2010- New York and Co. CEO comments: “To give you some perspective, we entered the spring season with low inventory levels. We saw business improving as we went through March, and we were encouraged by this. We chased some inventory, as one of our priorities was to drive comparable store sales increases. We thought we saw consumers returning. To do this, we needed right levels of inventory, so we pursued- aggressively chasing some categories of merchandise.  And as we had seen improvement in the first quarter, by the time we got to late April, early May, as we mentioned, we saw some softening. We had some big promotions planned for end of May, and also a merchandise group that was to come in the end of May. That group was disappointing, as well as the promotions, and especially in the T-shirt, Dress and Short category, where we think that we got too young and too forward in terms of fashion.”  Self inflicted for sure, but still a noteworthy outlier.
• 6/8/2010- The Children’s Place comments: “We gave guidance when we announced earnings (5/20), and we're confident in the guidance that we gave. We're early on in the quarter to really call it other than-- any differently than we had seen when we gave the guidance. We're comfortable.  And just for those of you that don't know, we did guide to a low, single-digit comp for the quarter.”  Recall that 1Q comps declined by 0.5% and a low single digit increase would mark a sequential improvement.
• 6/8/2010- Cache comments: “And we talked again about the development of the process at the end of our first quarter conference call and validated that, indeed, we were seeing positive comps for the first time in the Company consistently from March onward. I'm please to say and announce, because we are on a webcast, that our May results were the strongest results that we've had in quite some time. The Company has had seven consecutive of negative comp store sales. So we've turned the corner.”  No official comment on June, but sounds positioned to keep positive momentum alive.
• 6/8/2010- Urban Outfitters noted in its 10-Q filing that “thus far during the second quarter of fiscal 2011, our total comparable retail segment net sales remain favorable as compared to the prior year comparable period."  Recall that 1Q comps increased by 11%.
• 6/8/2010 – Oxford Industry’s CEO: “So we're very happy with our business in the last few weeks, and very happy about the prospects in the back half of the year.” After a strong Q1 it sounds like sales may actually have accelerated in recent weeks. Additional commentary suggesting that bookings for the company’s recently launched holiday line have been “very, very strong” are also unequivocally positive.
• 6/8/2010 – Phillips Van Heusen CEO: “Our retail comp trend has only accelerated as we've gone through May and strengthened towards the end of May, going in June. For the first six weeks of the quarter, our comps are running about plus 13% in the United States.” As a point of reference this compares to 12% comps in Q1. Manny continued to assert that “All of our sportswear businesses are on or ahead of planned at retail. Fall orders are very strong and holiday orders are very strong, so we feel very good about our sportswear business. And our Calvin Klein businesses continued to accelerate. In the first quarter, our licensing revenues were up about 32%. We see that trend continuing into the second quarter.” There was zero ambiguity that business is clicking on all cylinders thus far in Q2 for PVH.
• 6/8/2010 – Guess CFO noted that they have not seen indications of business rolling over yet in Italy and that May “continued to be very strong in Europe with very strong comps.” More notable was Dennis’ perspective on the Italian consumer largely dismissing sovereign debt concerns stating “We are less concerned maybe about the Italian consumer behavior because we know that consumer savings and family savings are really high in Italy. Italian families are not in debt. The country is in debt, but not the families.” Last we checked – as the country goes, so does its consumers Dennis.
• 6/8/2010 – Deckers Outdoor COO remarked that  on the topic of retailer demand, with fall bookings complete there will be little indication of mid-quarter demand aside from Nordstrom’s anniversary sale in June.
• 6/9/2010 – Cabela’s CEO commentary around recent trends was focused around the success of its new smaller format (75,000 sq. ft. vs. 150,000+ avg.) store in Grand Junction Colorado, “I can tell you that thus far, now three weeks is not a trend, but that store has met or exceeded all of our expectations.” It was also mentioned that bigger ticket items are at a minimum stabilizing and no longer deteriorating.
• 6/9/2010 – Big Lots CFO: “the 6% comp we posted in the first quarter, and a 4% to 5% comp that we have guided in the second quarter is certainly an acceleration that we are pleased with. we are not sure how the consumer will respond in the back half of the year. And you look at the last couple of weeks and we are very hopeful.” Not exactly hard evidence of improved trends, but there’s something to be said for not backing off expectations too.
• 6/9/2010 – Collective Brands CEO: With near term trend discussions focused primarily around the toning product, Rubel noted that sales are “doing great. So as soon as we get them in, they sell out. So we will continue to flow the product.”  He went on to say that they are actually increasing flows as the company looks to ramp toning from ~1% of sales in Q1 upwards of 4% of sales by Q4.
• 6/9/2010 – Crocs CFO: “our same-store comps are showing up 4% in April and up 5% in May and then up, so far, in June. For the first nine days we're up 14% in June.” While more favorable weather can be thanked for some of the acceleration in June comps, this was the most notable pick up from any retailer over the last few days by a long shot.

Eric Levine

Casey Flavin

LEVINE’S LOW DOWN 

- According to a 2010 survey by WPP, Burt’s Bees and Whole Foods top the list of 10 U.S brands perceived to be the greenest. Other brands in order include, Tom’s of Maine, Trader Joe’s, Google, Aveeno, SC Johnson, Publix, Microsoft, and Ikea. The survey also found that 60% of consumers worldwide want to purchase products from environmentally responsible companies. However, in the U.S., 80% of respondents said they are more concerned about the economy than the environment.

- While there are few retailers without an e-commerce presence, fast fashion brands H&M and Zara are among the minority. However, Zara just announced it will be launching ecommerce this Fall, with a focus on key European markets. Unfortunately for U.S consumers, there is currently no site in the works.

- Even if soccer (football) isn’t as popular here in the U.S as the rest of the globe, there’s no question retailers are looking to capitalize on the World Cup hoopla. In fact, shipments of soccer balls to the U.S from Asian factories nearly doubled the monthly average in May. With this in mind we expect to see many more people out kicking a ball around to get in the World Cup spirit.

MORNING NEWS 

Guangdong Shoe Exports Grow 25% in April, Export Price Down 6% - Guangzhou Custom in China announced that the Province exported 360 mm pairs of shoes in April, reflecting a year-on-year increase of 25% and a month-on-month growth of 35%. The average export price was US$2.3 per pair, down 6% year-on-year. In the first four months of this year, the province's footwear export volume reached 1.32 bn pairs, up 19% year-on-year, and the export value increased by 10% year-on-year to US$3.43 billion. The average price was US$2.6 per pair, 7% less than in the corresponding period of 2009. <fashionnetasia.com>

By Design Acquires Majority Stake in Denim Label David Kahn - Knitwear maker By Design LLC has acquired a majority stake in David Kahn for more than $10 mm and hired a new chief executive officer for the premium denim label. By Design, a New York-based manufacturer that generates annual volume of $200 mm in private label tops sold at retailers, including Nordstrom, Kohl’s and J.C. Penney, purchased the trademark and assets of Los Angeles-based David Kahn. It now owns a 90% stake in the firm, which was founded in 1999 and tallies annual sales of $15 mm at more than 1,100 doors in the U.S. and Canada. <wwd.com/business-news>

 

AEO Heads to China - Seeking to capitalize on China’s consumer spending boom and a perceived void in the teen market, American Eagle Outfitters Inc. said Wednesday that it will open stores in Hong Kong and China through a franchise agreement with Dickson Concepts (International) Ltd., which operates more than 400 stores in Asia. AEO will unveil three stores in Hong Kong, Beijing and Shanghai in early 2011. American Eagle will offer the brand’s complete seasonal assortments, intimates and dormwear from the aerie sub-brand. The only concession to consumers in the region will involve size. “We won’t change the assortment, but we may alter some of the styling and colors,” said Christopher Fiore, executive vice president of AEO International. The U.S. retailer will provide merchandising and marketing input, and Dickson Concepts will handle all operational functions. <wwd.com/retail-news>

Target Announces Store Makeover at Shareholder Meeting - Target Corp. is aiming to upgrade the stores to build upon the momentum of last year, when the firm generated the strongest retail segment profit in its history. Gregg Steinhafel, CEO of TGT said, “The changes beyond food are so extensive, they resemble a brand new store.” He said there will be renewed emphasis on “more open, visually compelling departments.” In the beauty department, there will be efforts to “upgrade the environment so customers feel like browsing,” rather than just popping in to buy a tube of lipstick and heading out the door. Footwear is also changing with gondolas closer to eye level, and more mirrors and seating have been added with backdrops of seasonal product. While children’s wear results have been disappointing, the use of a more friendly color palette in kids’ departments has started to turn things around, aided by merchandising that, through mix-and-match presentations, makes it easier for parents to match tops with bottoms. <wwd.com/business-news>

UK Home Improvement Retailer Home Retail Group Plc Sees Sales Worsen in Q1 Due to Weak Consumer Spending on Video Games & Televisions - The U.K. owner of Argos catalog stores and the Homebase home-improvement chain, said sales worsened in the first quarter as consumers pared spending on video games and televisions. Argos outlets comps declined 8.1% after comps declined 2.2% in 2H of 2009. Sales of video games slumped 20% in the quarter while the overall TV market “has not grown at all,” despite the World Cup soccer tournament, which begins tomorrow. Home Retail is adding product ranges, broadening its online offering and limiting store openings to drive profit. <bloomberg.com/news>

Nike Promoting Basketball in World Festival - This summer, Nike, Inc. and USA Basketball are launching the inaugural World Basketball Festival, a four-day celebration of the performance and culture of the game, an event that Nike has committed to reprising every two years. The event, to be held in New York City, will feature some of the world's best basketball teams and top musical performers. <http://www.sportsonesource.com/>

Adidas and DC Comics Partner to Create Superman-inspired Merchandise Featuring Dwight Howard - Adidas has partnered with Warner Bros. Consumer Products and DC Comics to create a Superman-inspired line of merchandise featuring the iconic superhero and NBA All-Star Dwight Howard of the Orlando Magic. Howard, whose athletic persona has been compared to the Superman character, said in a statement, “I’ve always been a big fan of Superman and to be able to team up on this new line is a dream come true.” The holiday ’10 line will consist of footwear and apparel, to be distributed globally at department stores, sporting goods shops and stadium shops.  <wwd.com/footwear-news>

 

Chinese Shoe Maker and Retailer Anta Sports Expects Q4 Growth to Exceed 25% - Mainland Chinese biggest sports shoe maker Anta Sports Products expects its order book value to grow more than 25% in the fourth quarter of this year. Due to an improved product mix and quality materials, the brand saw the average selling price for footwear and apparel rise more than 5% from a year earlier at its trade fair held in May. Anta will launch a series of marketing campaigns in the fourth quarter ahead of the Asian Games. Its sales growth is expected to be between 15% and 20% in 2010 because the company will open more stores. Anta, which is based in Jinjiang, Fujian Province, plans to increase the number of its outlets by 9% to 7,200 this year <fashionnetasia.com>

 

FitFlop Launches Toning Clog - FitFlop is launching its own clog version this week. Its patent wellness clog, called Happy Gogh, comes in five colors — poppy-red, berry-red, blue, plum and black — and retails for $119 exclusively through Kirna Zabête in New York. “Clogs are really hot, and we needed them to be available now,” said FitFlop founder Marcia Kilgore at the brand’s London press day last week. Kirna Zabête has already amassed a waiting list for Happy Gogh on its website. The retailer is offering 1,000 pairs starting this week, and U.S. retail distribution is set to widen in August. <wwd.com/footwear-news>

Social Media Tactics: Offer Coupons or Rally Consumers Around Special Events - The brands that have enjoyed the most success using social media to drive consumers toward purchases follow one of two paths: Either they offer coupons or discounts, or they position themselves in front of consumers during sales or other special events, according to eMarketer. One-quarter of respondents to a survey conducted by Chadwick Martin Bailey said that coupons and discounts were the primary reason they became fans of a brand on Facebook. An additional 21% said it was because they were already customers. Another survey, by Morpace, found that 37% of Facebook users joined fan pages because they wanted to get coupons and discounts.

<brandweek.com>

Social Media Growth Road Map - Social network usage rose sharply in 2009, thanks to the ever-increasing popularity of Facebook. eMarketer estimates that 57.5% of Internet users, or 127 million people, will use a social network at least once a month in 2010. By 2014, nearly two-thirds of all Internet users, or 164.9 mm people, will be regular users of social networks. Adults will continue to increase their use of social networks, driving most of the growth in the next few years. This year, 59.2% of online adults will visit regularly, up from 52.4% in 2009. By 2014, 139.6 mm US adults will be regular users, up 56% over 2009. Teen usage, already very high, will increase at a slower rate. In 2014, 21 mm teens will use social networks on a monthly basis, up 19% compared with 2009. <emarketer.com>

 

Brazil World Cup Fever Fashion - The fact is that it is not just a question of football or soccer in Brazil. It is also a question of fashion molded by famed Brazilian flair and colored by the hues of its national flag. Optimism is high in Brazil not only with its great selection of players and original fashion but also by the Brazilian GDP growing by 9% in the first quarter of 2010. The national colors are prevalent in the latest products to hit the high street characterized by the blue, green, yellow and white of the national flag.  Here is a small selection of footwear, socks and bags which reflect the country’s mood and its team strip as the XIX FIFA World Cup kicks off on Friday, which grip the  country for one whole month.  <fashionnetasia.com>