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R3: Insights from Weekly Sales Numbers

The athletic industry is still looking good. Regional performance is shaping up out West. Nike and UnderArmour are looking solid, while Columbia is simply crushing it.

 

 

Conclusions:

  1. Both footwear and apparel sales maintain a healthy underlying trend.
  2. Apparel is stronger on the margin, as it continues to gain traction week on week. Footwear decelerated last week, but the more-important 3-week trend is still holding.
  3. The week showed a sharp rebound in Pacific, South Central, and Mountain states. Note that some retailers – including Payless – highlighted these regions as a source of comp weakness in the recent quarter.
  4. Reebok footwear continuing to trend +160-170%yy. This is ALL toning. We’ve gotta give credit where it’s due.
  5. Nike and UnderArmour remain strong…Though a clear standout is Columbia Sportswear, which is posting solid numbers across the board in footwear and apparel alike.

R3: Insights from Weekly Sales Numbers - AppFt Trends 6 17 10 1yr

 

R3: Insights from Weekly Sales Numbers - FW App Industry Data 2yr 6 17 10

 

R3: Insights from Weekly Sales Numbers - FW App Industry Data Table 6 17 10

 

R3: Insights from Weekly Sales Numbers - FW App Industry Data Table 2 6 17 10

 

R3: Insights from Weekly Sales Numbers - FW App Industry Data Table Geo 6 17 10

 

R3: Insights from Weekly Sales Numbers - FW App Industry Data Channel 6 17 10

 

R3: Insights from Weekly Sales Numbers - FW App Industry Data Channel 2 yr 6 17 10

 

LEVINE’S LOW DOWN 

  • According to Nielsen, SKU counts in the supermarket channel shrank by 1% in 2009. While this is hardly a noticeable amount to even the trained eye, 60% of retailers indicated that the reductions were driven by the desire to eliminate shopper confusion. Categories that were reduced the most included water, cookies, and shampoo. Shower gel, yogurt, and carbonated soft drinks actually showed SKU count increases.

 

  • Rumors persist that Kohl’s has been investigating real estate in Canada. While no formal plans have been announced, the move to the north makes sense and is the most “obvious” international expansion opportunity for any domestic retailer. Recall that Target has already announced it will make a move into Canada over the next five years.

 

  • Converse tops the list of growth in Facebook followers for the month of June. The brand currently has north of 3 million fans, up an impressive 30% since May. Interestingly, the next closet brands in terms of sequential growth were Levi’s and Christian Leboutin, up 10% and 9% respectively.

MORNING NEWS 

 

New York & Co.’s Top Two Design Executives Have Abruptly Quit - Marie Holman-Rao, chief design officer, and Anne-Charlotte Windal, senior vice president and general manager of design, both resigned this week. A search for their successors is expected to begin immediately. In the meantime, Greg Scott, president, will lead the design and visual teams. Windal is expected to stay at N.Y. & Co. for awhile until the company rebuilds the design team. The departures compound the challenges of inventory buildups and some fashion misses that have caused the company to expect Q2 losses. The retailer needs to sharpen its image selling sexy, modern and moderate price apparel and accessories targeting women 25 to 45.  <wwd.com/retail-news>

Hedgeye Retail’s Take: This won't be the straw that breaks the camel’s back, but when you're one of the only retailers discounting on top of discounts last year due to fashion misses you've gotta be worried...

 

Adidas Again Defends Soccer Ball - Adidas again defended itself against complaints against its new Jabulani soccer ball and its performance at the World Cup. Adidas' Global PR Manager Erik Van Leeuwen noted that FIFA has said that the new ball is tested and proven and there have been no complaints. <sportsonesource.com>

Hedgeye Retail’s Take:   Negative PR is still PR.  And, this is probably not going to prevent the local kid from wanting an “official” World Cup ball to kick around at the park.

 

Hopkins Sporting Goods Buys Stake in Wrestler's World - Iowa-based Hopkins Sporting Goods has acquired a minority stake in Suplay Products, Inc. dba Wrestler's World. Terms were not disclosed. <sportsonesource.com>

Hedgeye Retail’s Take:  This is the real type of wrestling gear, not the WWE kind.  Aside from the M&A worthiness of this, there are no signs that wrestling has become a growth area for the sporting goods industry.

 

Early Sales Indicate Father's Days Sales Upside - Early sales indications are decent — if not spectacular — for most retailers, and they’re expecting a surge in the final days before the holiday on Sunday. So far, traditional seasonal items such as T-shirts, shorts and short-sleeve knits have been most popular. Stores have been aggressive in their promotions this year — whether it’s gift-with-purchase coupons, one-day specials or celebrity in-store appearances. With overall business still a little shaky, stores believe they need incentives such as these to drive sales. According to the 2010 Father’s Day Consumer Intentions and Actions Survey, conducted by BIGresearch for the National Retail Federation, consumers will spend an average of $94.32 on Father’s Day gifts this year, up nearly 4%. Total Father’s Day spending is expected to reach $9.8 bn. Special outings, gift certificates and apparel are expected to be the most popular gift choices this year, according to the survey. <wwd.com/business-news>

Hedgeye Retail’s Take:  While this commentary on sales trends  is not terribly different from that which characterized Mother’s Day, the reality is the spend on Mom is 50% higher than it is for Dad.  Either way, this bodes well for June- which was already off to a solid start.

 

Tiffany Engages in M-Commerce - The jeweler has introduced an iPhone and iPod Touch app that offers a virtual display case of its diamond rings. The app, dubbed the Tiffany & Co. Engagement Ring Finder, was created in response to growing customer desire for mobile and interactive shopping, the merchant says. The app includes Ring Sizer, a tool that lets shoppers determine their size by placing a ring directly on the screen of the mobile device and aligning it with the correct circle in a guide. Shoppers can browse the collection according to shape, setting, metal or design. The rings are shown in actual size. Each style may be viewed with diamonds of six different carat sizes. And shoppers can zoom in on a ring’s details, pair the rings with wedding bands, and save or share their favorites via e-mail, Facebook and Twitter. <internetretailer.com>

Hedgeye Retail’s Take:  Clever way to get males excited about one of the biggest purchases in their lives, especially if they’re shopping at Tiffany. Or better yet an even more clever way for someone to drop a hint that they want to get engaged!  Also an interesting juxtaposition between and old-school, heritage brand and forward-thinking technology.  It won’t be long before almost every retailer has some sort of mobile presence.

 

Men's Wearhouse Looks to E-commerce and M-commerce for Sales Growth - The addition of mobile-phone shopping applications that store customer sizes, preferences and offer a phone answering message from the Men’s Wearhouse founder and chairman is part of a plan to increase the e-commerce business. Currently, e-commerce accounts for less than 5% of the company’s $1.9 billion in annual sales. “That’s our main focus now in all our divisions — to make e-commerce an integral part of our business,” Zimmer said at the annual shareholder meeting, describing a strategy in which Internet and sales among the company’s 1,142 U.S. and 117 Canadian stores work in tandem to bolster business. <wwd.com/business-news>

Hedgeye Retail’s Take:  With fit and alterations being such an important aspect of a suit purchase, this is one business that may hit some limit on how far it’s direct business can go.  However, once fit is established (provided the waistline stays put), we can see some interesting replenishment opportunities via e-com and m-com.

 

Macy's Private Label I.N.C. to Sell Men's Footwear - Macy’s private-label collection I.N.C. International Concepts, a line of moderately priced apparel and outerwear for men and women, is adding men’s footwear to the offering for fall. A women’s collection is already at retail. The collection will include a wardrobe of looks, from motorcycle boots to high-top sneakers. Set to retail for $60 for sneakers to $100 for boots, the line will hit 150 Macy’s doors in July. <wwd.com/footwear-news>

Hedgeye Retail’s Take:  Seems like a natural extension for Macy’s powerhouse private brand, but not one that is likely to move the needle. 

 

Kohl's Inks Deal with Aldo Shoes - Kohl’s is looking to take its burgeoning footwear business to the next level. The department store chain said Wednesday it has inked a deal with Aldo International to produce private-label offerings for the chain. Aldo will design a range of products for women and men, and the styles will be available at Kohl’s stores and on Kohl’s.com beginning next spring. The move, Kohl’s said, will bolster its private-label and exclusive brand segment, which accounted for 47% of sales in the first quarter. <wwd.com/footwear-news>

Hedgeye Retail’s Take:  Good move here by KSS to boost its fashion footwear offering while maintaining differentiation from JCP and others.  Also, an interesting opportunity to take Aldo distribution out of the mall to new distribution points. 

 

Seven For All Mankind Return to Print Advertising - 7 is aiming to spur growth with an ambitious, multimillion-dollar advertising campaign for fall that will be its first print campaign for the VF Corp.-owned premium denim brand since fall 2008. The campaign, which was shot by Mert Alas and Marcus Piggott and features models Masha and Julian Schratter, will break in September books, in addition to an outdoor and online component. The media buy comprises 15 titles, including Vogue, W, Vanity Fair, InStyle, Elle, GQ, Details, V and Nylon. The ads also will run in Europe and Asia. The brand is celebrating its 10th anniversary this fall and the company hopes the campaign will help drive traffic to stores. For the first time, the brand tapped an outside agency to create the ads, New York-based Chandelier Creative.  <wwd.com/markets-news>

Hedgeye Retail’s Take: We're finally seeing VFC put its money where its mouth is.  VFC claimed over the last 2 quarterly calls that they would increase spending primarily on Vans and TNF.   Now it looks like Seven is getting some marketing dollars as they look to revitalize the once-hyped denim brand.   Next up, accelerating store growth?

 

Overstock.com Most Consistent Online Retail Site in May - Overstock.com had the best consistency rating among large retailers for May, says Gomez, the web performance division of Compuware Corp. Last month the mass merchant had the best aggregate site loading time at 17.60 seconds. Rounding out the top five retailers after Overstock.com, Gomez listed CDW.com (17.85 seconds), Staples.com (18.75), LLBean.com (18.93), and BlueNile.com (18.99).  <internetretailer.com>

Hedgeye Retail’s Take:  Clearly the benefit of operating in an online world, companies can measure with complete accuracy how fast it takes to load their sites.  We just wonder if the consumer really notices a 1-2 second difference in load time across different brands.  No matter how long it takes, waiting even a minute is sure faster than getting into the car and heading to the local strip-mall.  Clearly there’s a double standard here in terms of expectations in an online vs. offline retail experience.

 

China's Quanzhou City Produces 20% of World's Sport Shoes - Sports shoes manufactured in China's Quanzhou city currently accounts for 40% of national production in 2010, and 20% of the world's total output, according to China Leather Industry Association. The city has 925 shoe businesses with production capacity of RMB100 million and achieved total output value of RMB208.315 billion in the first five months, up 29.4% from early year. <fashionnetasia.com>

Hedgeye Retail’s Take: Its not like Quanzhou was off the radar, but add the city name to your google global alerts… we will.


MACAU ACCELERATES THROUGH HOLIDAY

Following the 3 day holiday and through the 16th, June revenues now look on track for north of HK$14 billion. 

 

 

Macau table gaming revenues through June 16 came in at HK$7.5 billion.  Projecting the current run rate over the remaining 14 days of the month, and adding estimated slot revenues, yields a full month projection of HK$14.8 billion.  However, business is likely to taper off following the recent 3 day Chinese holiday so our best estimate is for June revenues of HK$14.0-14.5 billion.  While it's not May's 95% growth, 74-80% growth is still very impressive.

 

In terms of table market share, LVS lost a lot of share over the holiday, down to 19.2% but similar to May's low of 19.4%.  Wynn held steady, just below 18% but way up from May's 15.7%.  MPEL seemed to do quite well over the holiday, raising its table share from 12.0% to 12.8%, but still below May's table share of 14%.

 

MACAU ACCELERATES THROUGH HOLIDAY - table2


THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION)

Things Continue to Get Worse

For the last few months we've been growing incrementally more bearish for two reasons. First, we've become worried about the rising risk of a double dip in the housing market; our Financials vertical will be hosting a conference call on next week. Second, we've become cognizant of the lack of improvement in the employment picture. Since the start of this year, almost six months now, the number of people filing new unemployment insurance claims hasn't fallen one iota. Compare that with the almost straight line of improvement we saw from April 2009 through year-end 2009, where claims were falling at a rate of 23k/month. The reported number this week rose 12k to 472k, but that's after revising the prior week up by 4k so the real increase was 16k. Either way, the bottom line is that claims remain in the ~450-460k range. Rolling claims were actually flat at 463.5k vs 464k the prior week. As a reminder, we need to see initial claims fall to a sustained level of 375-400k in order for unemployment to fall meaningfully and, by extension, lenders' net charge-offs to return to normalized levels.  We remain well above that level, but more importantly we're showing zero signs of progress moving to that level.  

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - rolling

 

Below we chart the raw claims data. 

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - raw

 

As a reminder, May was the peak month of Census hiring, and it should now be a headwind to jobs from here as the Census winds down.

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - census chart

 

Below, we've added a U.S. equities correlations table which regresses the S&P 500 and the nine S&P sectors against weekly jobless claims, the U.S. Dollar Index, and 10-Year U.S. Treasury yields. The highest inverse correlations to weekly jobless claims on a one-year basis are (in order): Consumer Staples (XLP), Consumer Discretionary (XLY), and Technology (XLK). Utilities (XLU) has the lowest inverse correlation of all the sectors during the same duration.

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - R

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Darius Dale


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THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION)

*** We've added subsector and company correlations to initial jobless claims later in this note. ***

 

Things Continue to Get Worse

For the last few months we've been growing incrementally more bearish for two reasons. First, we've become worried about the rising risk of a double dip in the housing market, which we'll be hosting a conference call on next week. Second, we've become cognizant of the lack of improvement in the employment picture. Since the start of this year, almost six months now, the number of people filing new unemployment insurance claims hasn't fallen one iota. Compare that with the almost straight line of improvement we saw from April 2009 through year-end 2009, where claims were falling at a rate of 23k/month. The reported number this week rose 12k to 472k, but that's after revising the prior week up by 4k so the real increase was 16k. Either way, the bottom line is that claims remain in the ~450-460k range. Rolling claims were actually flat at 463.5k vs 464k the prior week. As a reminder, we need to see initial claims fall to a sustained level of 375-400k in order for unemployment to fall meaningfully and, by extension, lenders' net charge-offs to return to normalized levels.  We remain well above that level, but more importantly we're showing zero signs of progress moving to that level.  

 

Below the jobless claims charts, we show the correlations between initial claims and each of the 30 Financial Subsectors. Not surprisingly, Credit Card and Payment Processing companies show the strongest correlations to initial claims, with R-squared values of .62 and .72 over the last year, respectively.  Surprisingly, some subsectors show a positive correlation coefficient to initial claims - i.e. Financials that go up as unemployment claims go up.  These names are concentrated in the Pacific Northwest Banks and Construction Banks, though these correlations are usually not very high.  

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - rolling

In the table below, we found the correlation and R-squared of each company with initial claims, then took the average for each subsector.  For composition of the subsectors, see Chart 5 below.  

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - subsector correlation analysis

 

The following table shows the most highly correlated stocks (both positively and negatively correlated) with initial claims. Note that the top 15 negatively correlated stocks have a much stronger correlation on average than the top 15 positively correlated stocks - as you would expect, given that most of the Financial space is pro-cyclical.  

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - company correlation analysis

 

Astute investors will note that in some cases the R-squared doesn't seem to reconcile with the square of the correlation coefficient. This is a result of finding the correlation and then averaging. For example, Pacific Northwest Banks have an average correlation coefficient of .32 and an average R-squared of .52 (with CACB, CTBK, FTBK, and STSA strongly positively correlated and UMPQ strongly negatively correlated). The different directions have the effect of canceling out each other out when finding the average correlation coefficient, but do not cancel out when finding the average R-squared. 

 

Below we chart the raw claims data. 

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - raw

 

The table below shows the stock performance of each subsector over four durations.   

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - tobin chart

 

As a reminder, May was the peak month of Census hiring, and it should now be a headwind to jobs from here as the Census winds down.  

 

THE JOBS SITUATION STUMBLES FURTHER - CLAIMS RISE 16K (12K NET OF THE REVISION) - census chart

 

Joshua Steiner, CFA

 

Allison Kaptur


TALES OF THE TAPE

QSR underperformed yesterday on more negative commentary around current trends.

 

The tales from yesterday centered around the underperformance of QSR following the news from SONC.  See the post from yesterday about current QSR trends and outlook.  The most disturbing move yesterday was EAT, which declined 3.3% on big volume: +40%.  The environment is tough for casual dining, with some select companies showing improving trends.  EAT’s fiscal 4Q10 quarter will be sloppy as expected; improving trends are not expected until early fiscal FY11.    

 

It is also worth noting the low short interest in the QSR category.  While takeover speculation does scare investors from being short some of these stocks, the level of short interest will likely increase significantly if the S&P 500 turns down.

 

TALES OF THE TAPE - stocks 620

 

Howard Penney

Managing Director


THE M3: AGAIN, SMOKING ALLOWED; GALAXY COTAI LOAN UPSIZED; LARGE MACAU OFFICE TRANSACTION

The Macau Metro Monitor, June 16th and 17th, 2010

 

SMOKING TO BE ALLOWED IN CASINOS FOR A THREE-YEAR PERIOD Macau Daily Times

The latest version of the tobacco ban bill draft declares that smoking will be allowed in "venues for adults"--i.e. casinos, bars, terraces and business open areas, massage lounges and dance halls--for a three-year period.  According to Chan Chak Mo, who heads the Second Standing Committee of the Legislative Assembly, pressure from several industries led to this decision. “  After two years, the government says that a revision of the law should be done in order to decide if the suspension continues in the third year or not,” added Chan.

 

GALAXY ENTERTAINMENT GROUP ANNOUNCES CLOSING OF HK$9 BILLION CLUB LOAN Galaxy Entertainment Group

Galaxy has closed its six-year HK$9 billion club loan from a consortium of Asia’s banks.  The loan was upsized to HK $9 billion from HK $8.8 billion.  The lending consortium agreed to undertake a “take and hold” on the loan with no sell down requirement.  The interest rate is HIBOR + 4.5%, substantially below the previous bond rate of 9.875%.


Lui Che Woo, chairman of GEG said: “I am delighted to say that we are in a very strong financial position and that 2010 is shaping up to be a fantastic year for GEG. This club loan, combined with the outstanding credentials of the banks involved, is a clear endorsement of both our future plans and the strength of the Macau market."

 

MACAU OFFICE TOWER SALE SIGNALS MARKET RECOVERY SCMP

Zhu Kuan Mansion was sold to Cheng Long for HK$701 million in the biggest office transaction in Macau since the global financial crisis began in late 2008. The original owner, Capitalsino Properties, bought the property for more than HK$700 million in 2007.  The transaction price of HK$701 million equates to a price of HK$1,443 per square foot, reflecting an initial yield of 3.5%.

 

Franco Liu Pui-lam, a consultant at Savills, which brokered the deal, said that the Macau office market and investor sentiment had picked up after a subdued period last year. According to a Savills report, office demand from gaming and related industries will return and office prices and rents will be supported by extremely limited supply as no new projects have been approved by the government recently.


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