R3: ADIDAS’ WISHFUL MATH

R3: REQUIRED RETAIL READING

June 22, 2010

 

Don’t you love when CEOs tout ‘record’ growth rates vs. levels from 2008 and 2006?. Hey Adidas, there’s this thing called a CAGR. You may want to give it a whirl.

 

 

TODAY’S CALL OUT

 

Am I the only one who thought it was hilarious when Adidas issued a press release yesterday noting that it would post a record year in football sales following the World Cup. Adidas claimed that soccer sales are expected to be at least 1.5Bbn Euro for the year, which is 15% more than its previous record in 2008 and 25% from 2006.

 

Herbert Hainer (CEO) noted "After the first 10 days it is already clear that this World Cup will be a great success for Adidas. We will not only achieve our ambitious goals in football, we will over achieve them.”

 

First off…EVERY company that claims to be a growth company (and have a growth multiple) should set record results EVERY YEAR. Second, it’s been a while since I’ve heard a CEO state how good its growth numbers are vs. 2-years ago and 4-yrs ago!  Hey Herbert, there’s this thing called a CAGR. Try giving that one a shot on your next press release! Sure, 15% since ‘08 and 25% since ’06 sounds great, but we’re talking less impressive CAGRs of around 7%. Again, that’s great, but it is about the rate of growth in football apparel/footwear globally.  Winners take share, and they take it profitably.

 

 

LEVINE’S LOW DOWN 

 

- In an effort to flex its creative muscles, Urban Outfitters is bringing an interesting approach to its latest Manhattan location slated to open later this year. The outside of the store is designed to look like a series of local mom and pop stores. Whether this is an attempt to appease local opposition to development or purely creative genius is unclear. Either way, Urban continues to show its flexibility in choosing sites and adapting them appropriately.

 

- Keep an eye on Polyvore, the internet’s largest fashion community. Think Facebook crossed with e-commerce. The site allows users to create custom “sets” of fashion items, almost as if they were creating a spread for a fashion magazine. However, all the images are actually linked back to online stores in which other social networkers can actually purchase the goods. Putting the sales aspect aside, this may be one of the fastest ways to see a trend unfold, ever.

 

- Mark your calendar for July 17th, the official return date of Abercrombie’s Quartlery (magalog). Maybe reverting back to old strategies will help to boost the company’s sales, which have been struggling pretty much since the last magalog printed several years ago. In all seriousness, wouldn’t have made sense to re-release the publication in iPad or iPhone form in an effort to keep up with the times? While the rest of the world is going all digital, ANF is heading back to paper…

 

 

MORNING NEWS 

 

Chinese Footwear Companies Focus on Domestic Rural Markets - As national policies intensify consumption in rural areas and competition is getting more intense in urban areas, an increasing number of Chinese footwear companies have been shifting their business focus onto the rural markets, according to the China Leather Industry Association.  <fashionnetasia.com>

Hedgeye Retail’s Take: This call is gaining momentum – we hit on this theme again last week after Yue Yuen results reflected significant outperformance in sales out of Asia. A stronger Yuan only bolsters the case.

  

WMT Works With City of Chicago to Build Stores, Jobs - Wal-Mart Stores Inc. said Monday it is working with the city of Chicago on a plan to build “several dozen” stores and create about 10,000 jobs in the process.As part of a long-term initiative, dubbed the Chicago Community Investment Partnership, Wal-Mart said within five years it would seek to open stores that, in addition to positions within the stores and organization, would create about 2,000 unionized construction jobs to help ease the city’s 11.4% unemployment rate. <wwd.com/business-news>

Hedgeye Retail’s Take: WMT taking advantage of the rare opportunity to score one with local communities while it still can..

 

US-Brazil Cotton Deal Shaded With Doubt - The U.S. and Brazil have reached an agreement in a long-standing dispute over cotton subsidies that could essentially forestall the imposition of sanctions on U.S. exports until 2012. Under the long-term framework agreement, the two sides will meet quarterly to discuss a resolution in the context of a new farm bill containing the cotton subsidy programs that Congress will begin negotiating in 2012.In April, the U.S. and Brazil reached an agreement that averted $800 million in sanctions for 60 days. Under the deal, the U.S. agreed to make some changes in its cotton export and credit guarantee program and to work with Brazil to establish a $147.3 mm fund to provide technical assistance and capacity building for the Brazilian cotton industry. The agreement affects raw cotton, woven fabric, men’s and boys’ cotton pants and shorts, women’s and girls’ cotton pants and shorts, and some jewelry and beauty products.  <wwd.com/business-news>

Hedgeye Retail’s Take: Consider this a band-aid approach to a broader issue for US cotton producers – less stability and support in the near-term future.

 

India’s Shopper's Stop Plans to Increase Stores by 50% - Shopper’s Stop Ltd. , India’s second- largest publicly traded retailer, plans to add 50% more stores in about 18 months as demand rises in the world’s second- most populous nation. <bloomberg.com/news/retail>

Hedgeye Retail’s Take: China, China, China... There’s another country out there that has around 2.4bn feet. India is definitely a tougher culture to crack, but seeing it’s second largest publicly traded retailer grow at this rate can’t be dismissed.

 

Hugo Boss to Open Up to 60 Stores This Year - Hugo Boss AG aims to open as many as 60 new shops per year, a third of which will be in China, to help raise sales, Handelsblatt reported, citing CEO Claus-Dietrich Lahrs. Hugo Boss wants to increase the share of sales stemming from shops and Web-based retail to about 50% by 2015 from 33% last year, the newspaper said. <bloomberg.com/news>

Hedgeye Retail’s Take: 15% growth isn’t exactly earth-shattering, but the shift towards controlling its own distribution is certainly noteworthy. A growth initiative in China on the day that the Yuan is revalued is not exactly great PR timing.

 

Alli Sports Acquires Standard Boardshop - Alli Sports, the NBC- and MTV-owned company behind the Dew Tour, has acquired Standardboardshop.com, the skate e-tailer. It also plans to launch a new e-commerce site called the Alli Shop. <sportsonesource.com/news>

Hedgeye Retail’s Take: This acquisition by Alli, a leading action sports multi-media site, makes a lot of sense. Standardboarshop.com provides Alli with an online retail presence – one of, if not the outperforming channel(s) in retail.

 

E-book Reader Price War Erupts - Barnes & Noble brought the price of a fully functional 3G e-reader under $200 today. Hours later, Amazon.com beat it by $10. The market for e-books has been heating up so much that it may have reached a tipping point where merchants can now subsidize device cost via e-book sales.  <internetretailer.com>

Hedgeye Retail’s Take: As with any razor – razorblade model, there’s little keeping prices of the device afloat with profits embedded in e-book sales. It’s only a matter of time before we see a $99 reader. Innovation in this category will be vital.

 

Father's Day Results Lift Retailers - Shoppers turned out for Father’s Day, lifting the spirits of retailers and affording them the opportunity to meet or exceed plan. Tailored clothing and dress shirts, along with knitwear, were among the bestsellers for most stores, stoking further confidence that the upcoming fall season will be healthy. Brooks Borthers, which ran some one-day specials to drive traffic, said business was strong the week leading up to Father's Day and better than anticipated. Barneys New York was also upbeat noting that shirts, ties, briefcases and watches did well. Saks Fifth Avenue reported that men's wear delivered on buy-now, wear-now and pre-fall with top categories in dress shirts, knit shirts and men’s accessories. Men’s wear for Lord & Taylor saw positive growth, but a slowdown from doubt digits to midsingled-digits. <wwd.com/business-news>

Hedgeye Retail’s Take: We can’t say this catches us by surprise given the dynamic of improved consumer confidence and pent up demand still for certain wardrobe items with men’s dress-wear near the top. For the first time in a long time, the customary Father’s Day shirt or tie was probably met with uncharacteristic appreciation this year.

 

Asia Drove Swiss Watch Export Gains in May, Europe Slows Down - Swiss watch exports posted another double-digit gain in May, though the increase was driven mainly by Asian markets as key European economies recorded sluggish to negative sales. Foreign sales of Swiss watches were up 13%. Sales in Hong Kong, the largest market for Swiss timepieces, rose 30.2% while China practically doubled in May, with a 98.8%. However, sales in Italy crept up just 0.2% while France progressed by 3.4 %. Germany again saw sales slide, with a 24% drop that saw it slipping to the eighth position among leading markets. <wwd.com/business-news>

Hedgeye Retail’s Take: Given the pace of appreciation of both the Hong Kong Dollar and Chinese Yuan versus the Franc since May, we’d expect demand to remain strong through June as Swiss timepieces remain on ‘sale’ on a relative basis in the largest markets.


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