The Weekly Consensus: Week of January 11, 2010
The Big Story: Fiscal Fitness
Mark Boucher
In the fitness industry, each January brings in a new herd of what are known as "six-weekers:" a group of earnest individuals who not only resolve that this is the year to shape up but also follow through by getting out and joining a health club...and six weeks later, none of them can be found in the gym. Before the heartening glow of this new year dims, and before 2010's six weeks are up, I'd like to put forward a resolution for the retail industry. This is the year retailers need to start producing actionable, consistent information reported on financial statements to banks, to the SEC and to analysts.
In an age there are ever fewer real secrets in the operation of public businesses, who must share results with the outside world, the "game" within finance departments in many cases to report the bare minimum of information while still following GAAP and SEC requirements. However, between information available electronically, employees and executives jumping from one organization to another, unofficial blogs, indiscrete industry insiders and a myriad of other information streams, the gaming becomes apparent, and intolerable.
Gross margin and comp store sales reporting are two excellent examples. Some retailers include store occupancy costs in costs of sales while others include it as part of their SG&A* calculation. It is inconsistent between industry segments and even for retailers within the same segments. In fact Consensus has found that 52 percent of public trader retailers consider it part of SG&A while 48 percent consider it a component in cost of goods sold. Additionally, some retailers treat distribution centers as cost of sales, while others don't. Incredibly, neither GAAP nor the SEC requires a specific treatment on what to include in cost of sales.
And, seemingly everyone reports comp store sales inconsistently. Accounting periods are different: a company might have a 52/53 week year, 4/5/4 week months in each quarter or it might use the traditional calendar. There is also the question of how catalog and internet sales treated in relation to brick-and-mortar store sales. Some retailers break out their comps for each component, while others blend them, and woe be it unto the outside observer who mistakes one for the other. Comparing what should be apples and apples can rapidly turn into a fruit salad.
So how about it? Is this the year where the retail industry becomes the standard bearer in the production of information about itself? If it is to happen, every interested player must take a role. If you're a producer of financial information, don't try to sanitize your financial results, make them mean something. Remember, there are no more secrets. If you are an analyst, be sure to blog about real, not gamed, information. Your readers deserve it. And, if you're a reader, become a pest. Tell companies, the SEC and AICPA that we require more consistent data. And stick with it: leave the quitting to the six-weekers.
*Selling, General & Administrative expenses
Apparel/Swimwear/Intimates
Betsy White
Talbots Amends Loan Facility and Repays All Outstanding Third Party Bank Debt
The Talbots, Inc. today announced that it amended and restated its secured revolving loan agreement as entered into on April 10, 2009 with Aeon Co., Ltd., the Company's majority shareholder, in order to repay all of its outstanding third party debt. Pursuant to the Agreement, the principal amount of the Company's earlier $150 million secured credit facility with Aeon was increased to $250 million. On December 29, 2009 Talbots drew $245 million under the Amended Facility and paid off all of its third party bank indebtedness totaling approximately $241 million in principal amount, in addition to other related costs and expenses associated with the amendment and debt repayment. Under the amended revolving loan facility, interest on the outstanding principal is one-month LIBOR plus 600 basis points, with interest payable monthly in arrears. The facility is secured by all of the Company's assets, including charge card receivables, inventory and mortgages on its Hingham, MA headquarters facility and its Lakeville, MA distribution facility.
JoS. A. Bank to Begin Tuxedo Rental Service
Men's clothing seller JoS. A. Bank Clothiers said Wednesday it will test a tuxedo rental business in 5 percent of its stores beginning in January, in an effort to expand its offerings to wedding parties. Following the test, the company plans to roll out the rental service in more than half of its 474 stores in the spring. The company operates in 42 states. Currently, the company sells, but does not rent, tuxedos. The rental service adds formalwear products and services that are commonly used by wedding parties and offers "one-stop shopping" to customers, the company said.
Lands' End, LL Bean Betting Slim Silhouettes Will Fatten Profits
Lands' End has been around for over 45 years, operating independently until 2002 when they were drawn into the Sears/Kmart family. Famous for (ahem) sensible clothing for both men and women and their seemingly indestructible luggage, you wouldn't expect Lands' End to set the hearts of young fashionistas aflutter with the anticipation of a new spring collection. Until now. "Love my 'boyfriend cardigans'! Plus, the bag is awesome!!" crows just one of the 2909 (and counting) Facebook fans of Canvas 1963, a new Lands' End line that made its debut in November. Others are equally enthusiastic, touting the cuts, fabrics, and the old-fashioned courtesy of hand-written notes included in the shipments. Models for the Canvas 1963 line sport low-slung khakis and fitted plaid shirts, bold accessories and skinny jeans. The attractive (and young) men and women strolling across their Web pages in flip-flops have the same casual/preppy chic that J. Crew has successfully cultivated over the past two decades. They've even adopted some of the same terms, such as "matchstick," a slim fit J. Crew carries in denim and twill. Ninety-eight-year old LL Bean is up next. Lead designer Alex Carleton, who has worked with Ralph Lauren and Abercrombie & Fitch, is set to deliver a "Signature" line in March, in hopes that a mix of madras shirtwaist dresses and narrow-waisted buffalo plaid shirts will resonate with the younger consumer. But will it be enough to reinvigorate sales? The problem with trends is just that - they're trendy. The fashion-minded are often fickle, as Ray Smith reported in the WSJ, and their passion for Americana is becoming passé.
Athletic & Sporting Goods
Michael O'Hara
Ski Market Files for Bankruptcy Protection
Ski Market, a retailer of outdoor products and winter sports gear with headquarters in Wellesley, MA, filed for Chapter 11 bankruptcy protection. In court documents, Ski Market's president and chief executive, Andrew Ferguson, said the company had been operating at a loss for several years and the economic downturn and its "negative impact on consumer spending during 2008 and 2009 exacerbated Ski Market's financial problems." Ski Market employs 170 full- and part-time employees in seven retail stores. Its website lists 16 locations, most of which have been shut down. According to its website, only 7 stores remain in operation. During its 2009 fiscal year, from April 1, 2008 through March 31, 2009, Ski Market reported $22.5 million in gross sales. From April 2009 through mid-December, the company's gross sales were less than $7 million, putting it on pace for at least a 50% percent drop in sales.
Oregon Scientific Announces Partnership with Gaiam, Inc. to Launch Women's Fitness Line
Oregon Scientific, a leading designer and worldwide marketer of personal electronics, including weather and timing devices, today announced its partnership with lifestyle company Gaiam, Inc. at the Consumer Electronics Show (CES) in Las Vegas. As provider of information, goods and services that benefit the environment, a sustainable economy and healthy living, Gaiam's expertise will allow Oregon Scientific to further expand its Sports & Fitness division and enter the Women's Fitness market. The new Gaiam line will debut with four fitness products, all featuring a sleek, stylish design to promote healthy living for today's modern woman. Products range in price from $39.99 - $99.99 and will be available to consumers in Fall 2010.
Banking & Lending
Douglas Stebbins
Principal Cuts on More Lender Menus as U.S. Foreclosures Rise
Efforts by U.S. banks to help distressed homeowners have focused mainly on temporary fixes such as interest-rate reductions that may only put off the day of reckoning, despite policy makers wanting them to do more. Banks may be forced to resort to a remedy they've been trying to avoid—principal reductions—as another wave of foreclosures looms and payments on risky loans rise, Bloomberg BusinessWeek magazine reports in the Jan. 18 issue. While interest-rate reductions or extending loan terms do reduce homeowners' monthly payments, they don't give much comfort to borrowers who owe more on their homes than their properties are worth. Borrowers who don't have equity in their homes are more likely to hand over the keys when they run into trouble. The foreclosure crisis is likely to deepen this year in part because payments on many adjustable-rate mortgages are set to balloon. Unless there's a sharp recovery in property values or a change in lenders' willingness to cut principal, at least 7 million borrowers currently behind on their payments will lose their homes, estimates Goodman.
How Visa, Using Card Fees, Dominates a Market
Every day, millions of Americans stand at store checkout counters and make a seemingly random decision: after swiping their debit card, they choose whether to punch in a code, or to sign their name. Skip to next paragraph It is a pointless distinction to most consumers, since the price is the same either way. But behind the scenes, billions of dollars are at stake. When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.
America's Best and Worst Banks
With Bank of America and Citigroup buoying their balance sheets and repaying billions of dollars in taxpayer bailout funds, the casual observer might assume the banking crisis is just about over. The casual observer would be wrong. Busted banks are still keeping the Federal Deposit Insurance Corp. busy. In the past two months, 41 went under, surpassing the total of 26 for all of 2008. What's more, by some measures bank balance sheets are in worse shape today than they were at the height of the financial crisis. Nonperforming loans represented 3.4% of loans outstanding among big banks in the most recent quarter, compared with 1.5% a year earlier. Nonperforming assets were 2.4% in the latest quarter compared to 1.2% a year earlier. We ranked the 100 banks on each metric and added up the individual ranks. Our top-ranked bank is Honolulu's Bank of Hawaii with assets of $12.2 billion. "Boring is good," says its chief executive, Allan Landon.
Catalog & Internet
Christopher Ellis
Wal-Mart Talks Big
Stores made Wal-Mart great. But those stores may be the biggest obstacle to the world's largest retailer achieving its stated goal of becoming the No. 1 online merchant. That's because strategies that could boost sales at Walmart.com may conflict with what has always been the goal of Wal-Mart Stores Inc.: to get as many consumers into large Wal-Mart stores and sell them as wide an array of products as possible, observers say. For instance, while Amazon.com Inc. has recruited thousands of merchants to sell on Amazon.com, and shows the lowest-priced product on the site, even if an outside merchant's price is cheaper than Amazon's, that collides with the way Wal-Mart and other retail chains have built their businesses.
Sears Expands Online Efforts
Sears Holdings Corp. joined at least two other major retailers Thursday in allowing third parties - including some rivals - to sell items on its Web site. Sears' latest push to beef up its Web presence follows similar moves by Wal-Mart Stores Inc., at walmart.com, and by Amazon.com, which have tussled recently over prices for books, movies and music. Officials wouldn't say how many products were available at Sears.com before the announcement of "Marketplace at Sears.com." But they said more than 10 million items were being sold there through 1,500 outside vendors this week. The vendors will pay Sears a listing fee plus a commission on any sales they make through the site. Sears didn't say how much it expects to make through the venture.
Anthony to Lead Sharper Image Consumer-Direct Biz
Camelot Venture Group, the license holders and operators of the Sharperimage.com ecommerce business as well as the catalog business has hired Mark Anthony as senior vp and general merchandise manager responsible for developing, sourcing and merchandising products. The site and catalog will carry product from both Sharper Image supplier licensees and non-licensees. Anthony most recently served as operational vp/gmm at Brookstone, spending 12 years overseeing all web and catalog merchandising.
Consumer Electronics/Video/Audio
Douglas Stebbins
Skype to Offer High-Definition Video Calling on TVs, Computers
Skype Technologies SA, the Web-based telephone company sold last year by EBay Inc., introduced a high-definition video calling service that will work on computers and televisions. The latest version of Skype will come preinstalled on some LG Electronics Inc. and Panasonic Corp. television sets by June, Luxembourg-based Skype said today in a statement. Quanta Computer Inc.'s FaceVision unit and In Store Solutions SL will sell a high-definition Web camera to use the service with a computer, Skype said. Skype, with more than 520 million users, has expanded beyond a service that lets consumers call each other from computers for free. It's now available on mobile phones, and the company is upgrading its product line and targeting corporations to boost sales.
Google's Nexus One Marks Shift into Online Retailing
Google Inc.'s Nexus One marks more than the company's entrance into mobile phones: It propels the Internet search engine into online retailing for the first time. Google yesterday started selling the Nexus One, a phone manufactured by Taiwan's HTC Corp. that uses the Android mobile operating system. The Mountain View, California-based company will also offer other devices that use Android, such as phones from Motorola Inc. By selling directly, Google can forge closer ties to consumers, potentially allowing the company to offer other products and services in the future, said Will Stofega, an analyst at Framingham, Massachusetts-based research firm IDC. Offering a range of Android phones may also spur the development of applications for the software as Google tries to catch up with Apple Inc.
Cosmetics & Pharmacy
William Busko
Rite Aid Reports Decline in Monthly Sales
For the four weeks ended Dec. 26, Rite Aid on Monday reported a same-store sales decrease of 1.8% over the prior-year period. Front-end same-store sales decreased 2.3%, and pharmacy same-store sales were down 1.5%. Prescriptions filled at comparable stores decreased 0.2% over the prior-year period. Total drug store sales for the four-week period decreased 3% to $2.1 billion. Prescription revenue accounted for 62.7% of drug store sales, and third party prescription revenue represented 96.2% of pharmacy sales.
Steiner Acquisition of Bliss A Done Deal
Steiner Leisure Ltd. marked the completion of its $100 million acquisition of Bliss World Holdings Inc. from Starwood Hotels Inc. this week by ringing the Nasdaq opening bell in Manhattan on Thursday. Members of the Bliss team, decked out in the brand's signature robin's egg blue, were on hand distributing free Glamour Gloves, which are designed to moisturize the hands, to passersby in Times Square and they joined Fluxman on stage during the bell ringing with cheers and applause. Bliss' sister brand, Laboratoire Remède, was also acquired in the deal.
Fragrance Finds Way on Rough Road
For prestige beauty retailers and manufacturers, it was a Bob Cratchit Christmas. While a few retailers were able to breathe a sigh of relief, others were picking at their meager returns. By all reports, most not for attribution, the fragrance business continued to be tough. But both retailers and their vendors managed to find their way through the financial minefield and emerge mostly intact. And there were a few bright spots, like Marc Jacobs' new fragrance, Lola, and Viva La Juicy by Juicy Couture. Bloomingdale's sidestepped the dreaded possibility of a another December downturn - its fragrance business registered a single-digit gain for the holidays, according to sources. The retailer's parent, Macy's Inc., reported a 1 percent comp-store sales gain for the five weeks of December, ended Jan. 2. But no mention was made of the company's beauty business.
L'Oréal Acquires Two Distributors
L'Oréal USA has added two distributors to its professional arm, Maly's Midwest and Marshall's Salon Services, bringing the beauty firm close to national coverage - to more than 80 percent, with 1,150 distributor sales consultants and 700 professional stores. Both distributorships, which generate a combined $130 million in sales, are a major presence in the Midwest, covering Michigan, Ohio, Indiana, Wisconsin, Illinois, Iowa, Minnesota and part of North Dakota. Combined, both organizations have approximately 700 employees, more than 120 sales consultants and 90 professional stores. Both will operate under Clearwater, Fla.-based SalonCentric, L'Oréal's distribution arm, which includes Beauty Alliance, Maly's West and Columbia Beauty Supply.
Department & Discount Stores
Mark Lenz
Walmart Aims to Cut Supply Chain Cost
With annual sales of more than $400bn, Walmart, which owns Asda in the UK, plans to exploit the scale of its buying power. Walmart is launching a drive this year to cut billions of dollars of costs from its supply chain by combining its store purchasing across national frontiers in a new stage in the globalization of its business. The effort is part of plans by the world's largest retailer to increase the proportion of goods that it buys directly from manufacturers, rather than through third-party procurement companies or suppliers. Eduardo Castro-Wright, the head of Walmart's US stores, has said that the retailer sees the opportunity to consolidate global sourcing as "a major source of leverage for the company in years to come." With annual sales of more than $400bn, Walmart is famously tough in negotiating with its suppliers, exploiting the scale of its buying to gain discounts. It spends about $100bn on purchasing private label products such as its Faded Glory and George brand clothing, or its Great Value food and home products. But it acquires less than a fifth of these goods directly from the manufacturers, and has generally made its purchases on a country-by-country basis. Mr. Castro-Wright has estimated that shifting to direct purchasing could reduce costs by 5-15 per cent across the supply chain within five years - suggesting potential savings of $4bn-$12bn if the retailer were to meet its long-term goal of shifting to sourcing about 80 per cent of purchases directly.
Retail Space Opens Up as Big Chains Shrink
Many big chain stores are expected to keep downsizing, letting other retailers grab the vacant spots in malls and big-box buildings more cheaply. Surges of large-scale retail bankruptcies such as Circuit City electronics and Mervyns department stores altered the shopping landscape in 2009 -- and experts say 2010 is likely to bring even more changes. Amid a still-tepid economic recovery, big retail chains are expected to continue closing their less productive stores and retrenching on expansion plans. But at the same time, others will be hurtling into the breach to take advantage of falling rents and vacancies in neighborhoods they couldn't get into a few years ago.
Wave of Store Closings Seen as Firms Reshape
Is another big shoe about to drop? As Macy's Inc. on Tuesday revealed it's shutting down five units over the next two months, there's been growing speculation other chains will soon chime in with their own announcements of closures after digesting 2009 results and determining which units performed and which didn't. The first quarter is usually when retailers streamline their fleets. However, the recession has underscored the nation's overstored and over-inventoried state. It's testing retailers' management skills, pushing them to rethink the future, strive for greater productivity and to make painful cuts across the board. Aside from closing stores, retailers have intensified negotiations with landlords over rent concessions, mitigating some downsizing. Last year, there were sharp reductions in head counts and merchandise orders, but not the tsunami of store closings that was expected.
Energy Alternatives
Christopher Ellis
When Will Renewable Energy Companies Overtake Traditional Energy Companies?
Renewable energy has got buzz, growth and growing government support. But it's no secret that it still makes up a small portion of the overall energy mix. As interest in renewables increases, the question has begun coming up more and more often: when will renewable energy companies catch up to conventional energy companies? That is, when will we see an Exxon Mobil Corp., Chevron Corp. or ConocoPhilips of renewables? As a new year - and new decade - begins, many hope it will launch a new era of growth and profit for renewable energy after a year of financial suffering. It's also a time when companies, as well as individuals, traditionally take stock of where they are and set new goals and resolutions. So it seems like a fitting time to examine this question and take a look at various predictions of when this might happen.
Final Cape Wind Review Coming by March
U.S. Secretary of the Interior Ken Salazar this week responded to a determination made by the National Park Service's Keeper of the National Register of Historic Places that Nantucket Sound is eligible for listing in the National Register of Historic Places. The finding of eligibility ensures that significant archeological, historic and cultural values are considered in the review of the permit for the proposed Cape Wind project by the Minerals Management Service and could be a stumbling block for the project if any of these considerations are deemed too great to proceed with project development.
Footwear
Michael O'Hara
Richard Johnson to Lead Foot Locker's U.S. Operations
Foot Locker, Inc. said it is consolidating the management team that oversees its Lady Foot Locker business with the team that currently manages the Foot Locker U.S., Kids Foot Locker and Footaction businesses. As a result, Richard A. Johnson will become president and CEO of Foot Locker U.S., Footaction, Kids Foot Locker and Lady Foot Locker. Keith Daly, president and CEO of Foot Locker U.S., Kids Foot Locker and Footaction, is leaving the company. Marla Anderson, president and CEO of Lady Foot Locker, remains at the company but her role is being determined, according to Peter Brown, Foot Locker's senior vice president and chief information officer. Johnson is moving from his position as president and CEO of the company's Foot Locker Europe operation, effective immediately.
LaCrosse Footwear Sees 21% Q4 Revenue Hike
LaCrosse Footwear, Inc. said it expects to report net sales of approximately $42.5 million, up approximately 21% from the same period of 2008. For the full year 2009, net sales are expected to be approximately $139.2 million, up approximately 9% from 2008. Sales for the fourth quarter of 2009 increased strongly in both the work and outdoor markets. Work sales are expected to be approximately $25.2 million for the quarter, up approximately 25% from the same period in 2008. Outdoor sales are expected to be approximately $17.3 million for the quarter, up approximately 16% from the same period in 2008. At the end of 2009, LaCrosse had cash and cash equivalents of approximately $17.7 million, up approximately 30% from the end of 2008, even after making investments of $2.6 million in its new Midwest distribution center and paying dividends of $3.2 million to its shareholders during 2009.
Baker's Reports December Comps Up 9.9%
Bakers Footwear Group, Inc. reported net sales for the five-week period ended Jan. 2, 2010 increased to $30.0 million compared to $27.4 million in the same period last year. Comparable store sales (sales for stores open at least one year or more) for Dec. 2009 increased 9.9%, compared to an increase of 3.4% for Dec. 2008, the five-week period ended Jan. 3, 2009.
Gifts/Accessories/Luggage/Pets
Mark Boucher
The $175 Razor: A Sign of Economic Recovery in Retail?
The place feels like a jewelry store. Wood furnishings give the display that luxury vibe; sterling-silver pieces sit inside glass-enclosed cases. But at the Art of Shaving, a 14-year-old retail outlet that sells high-end grooming products, shoppers aren't searching for diamonds and pearls. It's the razors that rule the room. Want to pay $3,400 for a sterling-silver razor, stand and brush? Believe it or not, there's actually a store for you. The Art of Shaving has 36 outlets around the country, and is set to expand. While sales took a predictable hit during the worst of the recession, perhaps it's a positive sign for the economy that the Art of Shaving's revenues rose 19% during the last quarter of the year. If people will fork over insane amounts of money to properly trim their facial hair—in a New York City store, a razor with a nickel-plated brass handle costs $175—perhaps national spending will finally loosen. In fact, Procter & Gamble, the $79 billion consumer-goods giant, is even taking a bet on the blades. The maker of mass-market products such as Tide detergent, Crest toothpaste and Ivory soap purchased the Art of Shaving in June for an undisclosed sum. P&G's move surprised some analysts, as it represented the company's first real foray into retail, which has struggled during the downturn.
Closing the Book on B. Dalton
B. Dalton Bookseller is about to turn its last page, nearly 44 years after throwing open the doors to its first store at Southdale Center in Edina, MN. With just 50 stores in the once-mighty chain still open, parent company Barnes & Noble Inc. will shut down all remaining stores by month's end. It's another chapter in nearly two decades of upheaval in the book industry, as the rise of Amazon.com and national supercenters crowded out smaller chains and independents. But back in its day, B. Dalton Bookseller was one of the nation's top retailers and on the cutting edge of technology. Founded by the Dayton department stores in 1966, it underwent phenomenal growth in the 1970s and 1980s, eventually expanding to nearly 800 locations in 1986, when Barnes & Noble bought it. But like Waldenbooks—which Kmart bought for $295 million in 1984 and which is now operated by Borders Group Inc.—B. Dalton stores have been disappearing from shopping malls for years.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Hilco Real Estate to Sell Penn Traffic's BiLo Foods, Other Stores
The Penn Traffic Co., which filed for Chapter 11 bankruptcy in November 2009, has entered into a "stalking horse" agreement with a joint venture comprising Hilco Merchant Resources, LLC and Hilco Real Estate Holdings, LLC, to act as the exclusive agent in the disposition of the Syracuse, N.Y.-based regional grocer's real estate holdings and other assets. Chief among the Penn Traffic properties to be sold by Hilco Real Estate are leased and fee-owned grocery store sites in New York and Pennsylvania. These properties are in freestanding buildings and shopping center locations, and range in size from 10,000 to 50,000 square feet.
Industry Executives See Another Wild Ride Ahead
While a new year can mean a new start, few grocery industry leaders are anticipating much will change in 2010. They expect the new year will be a continuation of a difficult 2009, which challenged operators to compete amid price deflation, tight credit markets and a heavy new emphasis on value to meet a U.S. shopper base beset by financial uncertainty and high unemployment. Optimism for 2010 centers on retailers being able to keep their own costs down, and for deflation to reverse itself. Retailers are also anxious to apply the lessons that operating in 2009's difficult environment provided, including the ability to re-merchandise on the fly. Many were reluctant to predict a reversal of fortunes in the grocery business until job growth perks up again, perhaps late in the year.
Whole Foods Top Stock Gainer in 2009
Whole Foods Market here led the field of food retailers tracked by SN in 2009 with a stock gain of about 192% during the year. The company, which had been one of the poorest stock performers in the previous few years, recovered some of its lost value as it completed the acquisition of Wild Oats Markets, cut costs to preserve margins, stabilized sales slippage and slowed its expansion pace. Overall performance among food retailers was mixed, with the big three traditional players - Kroger Co., Supervalu and Safeway - all down for the year, by about 22.2%, 11.7% and 9.8%, respectively.
Cadbury Talks to Hershey for Rival Bid
Members of Cadbury Plc's board have been talking with counterparts at Hershey Co (HSY.N) as expectations fade for a significantly higher bid from Kraft Foods Inc. Cadbury is not only seeking a higher price than Kraft's $16.8 billion hostile offer, but also a merger partner that would let the British chocolatier have some say in a combined company. Hershey has struggled for weeks to decide whether to take the risk of bidding for a company more than twice its size. However, even if it does not make an offer, the specter of a rival adds pressure on Kraft, which has until January 19 to raise its offer. Hershey and Cadbury are already partners. They each hold the licenses to market the other's products outside their domestic markets. The family-built companies share other similarities, including a history of charitable involvement in their communities. Within hours, it drew a rare public show of opposition from Warren Buffett's Berkshire Hathaway, its largest investor, over a proposal to float shares to fund the bid. The comments prompted a drop in Cadbury shares as investors questioned how much room Kraft had to sweeten its offer further.
Home Improvement/Auto Repair
William Busko
Auto Sales: Good End to Terrible Year
The auto industry ended its worst year in memory with one of its best sales months of the year. Overall industrywide U.S. sales soared 15% compared to a year ago, the biggest percentage gain since July 2005. Total sales topped the 1 million mark for only the second time this year, trailing only August. Sales spiked that month thanks to the federal government's Cash for Clunkers program. Most of the automakers posted better than expected results as five of the seven largest automakers reported increases of 18% or more from a year earlier. But the boom in December wasn't enough to lift the industry out of its year-long slump. Last year was a tumultuous one for the industry to say the least as GM and Chrysler filed for bankruptcy and many auto plants and dealerships closed. Full-year sales fell 21% from 2008 to 10.4 million, a 27-year low. Last year's sales are also far below the 16.7 million annual average during the 10 years before the start of the recession.
Sell Geelys? Volvo Dealers Ponder Possibility
Volvo dealers don't know whether a sale of the brand to China's Zhejiang Geely Holding Group means they'll get an opportunity to sell inexpensive Chinese cars in the United States. But it "sounds appealing," says Mark O'Steen, owner of O'Steen Volvo in Jacksonville, FL."I'll try anything. It is just another niche that we don't cover, and hopefully they do have some potential in the United States." Lin Huaibin, a Shanghai-based analyst at Global Insight, said that given the existing quality of Geely's models and the high U.S. safety and emissions standards, it will take the company several years to build products of its own brand that are good enough for the United States.
Housewares/Furniture
William Busko
Sure Fit Acquired by Guardian Capital
Guardian Capital Partners, a Philadelphia-based private equity firm, has purchased Sure Fit from D.E. Shaw Group. Terms of the acquisition were not disclosed. According to a joint statement from Sure Fit and Guardian Capital, Wells Fargo Business Credit, Sure Fit's senior lender, and Argosy Private Equity provided additional financing for the transaction.
Classic Sleep Files Chapter 11 to Restructure Under New Ownership
Classic Sleep Products has filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Maryland, in an effort to restructure its ownership. According to a statement from the mattress manufacturer, it is seeking the approval of the sale of assets which would result in the formation of a new company, to be called Classic Brands LLC. Subject to the court's approval, the restructuring would increase the majority ownership in the company of the current management team, led by Mike Zippelli, chief executive officer. The funding, which would result in the infusion of $10 million in new financing, would come from JMX Capital Partners, which was formed by partners in Dlandis, Classic's China-based manufacturing partner; and CIT Financial, Classic's senior lender. In the Chapter 11 filing, CIT is listed as the largest creditor holding secured claims, at $4.3 million.
Bed Bath & Beyond Net Climbs 73 Percent in Third Quarter
Net income for Bed Bath & Beyond totaled $151.3 million in the retailer's fiscal third quarter, up a strong 73 percent from its third quarter of last year. The huge gain on the bottom line was powered by an 11 percent pickup in net sales for the quarter, which totaled nearly $2 billion and which included a 7.3 percent increase in same-store sales. The sales rise offset increases of 1.8 percent in selling, general and administrative expenses and 6.7 percent in cost of sales.
Libbey Approved for NYSE Amex Listing
Libbey Inc. announced that its common stock has been approved for listing on the NYSE Amex. Trading is expected to commence on the NYSE Amex today under the ticker symbol 'LBY'.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
President as Pitchman: Obama Image Used in Ad
A larger-than-life President Barack Obama became a presidential pitchman Wednesday on a Times Square billboard that used his photo without permission. Outerwear company Weatherproof used a recent news photo of the president in front of the Great Wall in Badaling, China, for the advertisement, with the tagline "A Leader In Style." The White House asked Weatherproof to remove the billboard because the ad misleads by suggesting it was approved by Obama or the White House, which has a long-standing policy disapproving of the use of Obama's name and likeness for commercial purposes. Obama stands alone in the image and is captured in a striking, rugged pose. Weatherproof president Freddie Stollmack said he first saw the photo in a newspaper while Obama was on his trip to China in November. The coat looked familiar, so Stollmack got out a magnifying glass and found the brand's logo.
North Face, South Butt End Up in Court Over Logo
The company, formed in 2007 by St. Louis high school student James Winkelmann, this week called for the dismissal of a federal trademark lawsuit by The North Face Apparel Corp, a unit of VF Corp. Known for its outdoor clothing, North Face sued South Butt in December to halt the sale of fleece jackets, T-shirts and other apparel with the South Butt name and logo. Calling Winkelmann and South Butt "opportunists seeking to pirate its famous trademarks for their inferior knockoffs," North Face said the competing mark confuses customers and constitutes unfair competition.
Jewelry/Mining
Mark Lenz
Zale Corporation Announces Holiday Season Sales
Zale Corporation reported that comparable store sales decreased 12.0% for the combined months of November and December 2009, encompassing the entire holiday selling period. Total revenues for the two-month period were $494 million compared to $582 million last year, a decrease of 15.1%. Within this two-month period, November same store sales declined 18.6% and December same store sales declined 9.2%. During the holiday selling period, the Company maintained pricing and promotional discipline which favorably impacted gross margin performance and appreciably mitigated the impact of reduced sales on aggregate margin dollars.
Lazare Kaplan Disputes Early Termination of Credit Facility
Lazare Kaplan International provided an update to its ongoing compliance plan for the NYSE Regulation, on behalf of NYSE AMEX LLC, and requested an extension of a delisting deadline to May 31, 2010, which would give Lazare Kaplan time it believes necessary to prepare and file all delinquent Exchange Act reports. The exchange staff is currently reviewing the request. With the plan update though, the company briefed investors on two credit facilities that have been terminated by the Antwerp Diamond Bank, and an interim payment of $28 million granted by underwriters. The Antwerp Diamond Bank notified company subsidiary Lazare Kaplan Belgium NV that it was terminating an uncommitted $25 million credit facility that was granted on February 19, 2008. The subsidiary previously used the facility from time to time for working capital purposes; however, as of December 29, 2009, there were no amounts outstanding. A second facility was granted on February 20, 2008, for $45 million, for which approximately $43 million was reflected as outstanding by the bank. Antwerp Diamond Bank notified the company that it was terminating the facility on March 1, and that the outstanding principal balance was due and owed under the agreement, plus accrued and unpaid interest, costs, charges and fees. Lazare Kaplan "sharply disputes" the bank's claim that it has the right under the credit agreement to terminate the $45 million facility at this time.
Less Competition for Jewelers in '10
Retailers who have managed to survive the trials and tribulations of 2008 and 2009 will find themselves operating in a less competitive "new normal" retail environment in 2010 and beyond. That's the conclusion of Susan Rada, editor of the National Retail Federation's magazine, Stores. Jewelry retailers are no exception: At the end of 2009, there were about 22,000 jewelry firms in the United States, down from roughly 23,000 at the beginning of 2008. Several large chains--most notably Whitehall and Friedman's--have closed, significantly reducing the number of jewelry stores in malls. That means there are already fewer jewelry merchants poised to serve a retail market that is expected to grow by 4 to 5 percent annually over the next decade.
If Wholesale Diamond Prices Are Down, Retail Prices Should Fall, Right?
I can always tell it is a slow news day for the mass media when a reporter calls with an off-the-wall question about the diamond and jewelry industry. It is often a young writer who has dug up some obscure fact - usually out of context - and is trying to come up with a news story that will beat the competition. I don't blow them off; I just roll my eyes and shake my head in despair. After all, back in the Dark Ages, I was one of them, trolling for the news story that would win a Pulitzer Prize. My news reporting ended when I went off to Business School, but at some point very early in my short-lived writing career, I realized that a little knowledge can be a very dangerous thing, especially in the hands of a young whippersnapper reporter. And, that's the subject of today's Gassman's Insiders View. If you have a short attention span, you can go to the end of this article to read the punch-line. This will be a short lesson about diamond price economics.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Staples Launches Small-Biz Incentive Plan
Staples is launching a new campaign aimed at helping small business get its groove back, with a tough-love approach to New Year's resolutions. Its oddly named "stickK to it! Business Challenge" is scheduled to run from Jan. 12 through April 12, and uses an incentive-based form of goal-setting to motivate people to stay with their good intentions. Staples' microsite allows small-business folk to select specific goals -- getting organized or saving the business money, for example. They can then use the site to track their progress while earning EasyPoints, which they can redeem for Staples merchandise and services.
Plastic Logic Creates the 'Paperless Briefcase'
After a year of slowly dribbling out news about its plans, Plastic Logic has finally unveiled the Que proReader, another rival to the Amazon Kindle and Barnes & Noble Nook in the growing market for electronic reading devices. The Que proReader, a slender, lightweight touch-screen device the size of an 8 1/2-by-11 piece of paper, is designed primarily for mobile business professionals as a replacement for bulky printouts. The device was created with the celebrated Silicon Valley design firm IDEO. "We are not creating a paperless office, or like the e-book world, trying to create a paperless bookshelf. What we are driving on is the paperless briefcase," said Richard Archuleta, chief executive of Plastic Logic.
Restaurants/Food Service
Mark Boucher
BK Singles Out Gluten-Free Menu Items
In an effort to serve gluten-sensitive customers, Burger King has introduced a list of its menu items and ingredients that are free of wheat, barley, oats and rye. The list includes beef patties, French fries, Tendergrill chicken fillets, egg omelets and various dips and condiments. The complete list is available online here. Burger King said the move to identify menu items that are safe for gluten-sensitive guests is part of its BK Positive Steps social responsibility program. Other nutrition-focused actions the company has taken under the program have included the introduction of more healthful kids' meals and trans-fat-free cooking oil. In addition, Burger King said it posts examples of meal combinations containing 650 calories or less each throughout its stores.
NakedPizza Signs 50-Unit Deal
NakedPizza, the single-unit healthful pizza concept that has attracted heavy-hitting investors, has signed a 50-unit development deal for South Florida, including Miami. The deal is with Florida NKP LLC, which a Naked Pizza spokesman said on Monday is led by an international team of multi-unit foodservice veterans who have operated more than 77 fast-food, casual and fine-dining concepts throughout Latin America and Florida. At press time, information on the executives involved and the brands they have operated was unavailable. Investors in NakedPizza, which is known as a social-media-savvy, "functional food" take-out and pizza delivery brand, include Dallas Mavericks owner Mark Cuban and The Kraft Group LLC, a privately held company based in Foxborough, MA, with investments in professional sports, including the New England Patriots and Gillette Stadium, as well as manufacturing and real-estate development. In September 2009, The Kraft Group aligned itself with NakedPizza's growth through an investment deal, terms of which were undisclosed.
Tavern on the Green Goes Out with a Bang
Tavern on the Green, perhaps New York City's most famous restaurant, dimmed its brilliant lights and closed its doors early Friday following a rollicking New Year's Eve party, the last given by its outgoing operators, LeRoy family. The LeRoys lost their contract to operate the Central Park restaurant last year when the city's Parks Department signed a tentative agreement with another restaurateur, Dean Poll. "We watched the old girl go out," said Shelley Clark, a spokeswoman for Tavern on the Green. She said about 1,700 people attended the restaurant's final festivities on New Year's Eve. Revelers paid between $135 and $350 to attend the New Year's Eve events, which included a formal six-course dinner and live entertainment in two dining rooms and a more casual, buffet-style setup with DJs in two other rooms.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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