The Weekly Consensus: Week of February 22, 2010
What Would Virgil Do?
Billy Busko
In the past few weeks, several large M & A transactions were announced including Walgreen's acquisition of Duane Reade, Spectrum's purchase of Russell Hobbs (the renamed Salton entity) and Shiseido's acquisition of Bare Escentuals. At the same time and representing the other end of the range, there have been numerous transactions involving middle market companies including Collective Brands buying Above the Rim, Jones Apparel acquiring Robert Rodriguez and Steve Madden purchasing Big Buddha.
Are these transactions indicative of a rebound in M & A activity for the coming year? Further, how easy will it be to comp up compared to 2009?
Beginning with the second question, 2009 was more robust than commonly believed. Per one of the earlier reports to be released so far, McKinsey & Company points out that observers focused on the significant decline in volumes from 2009 compared to 2007 and 2008. To this point, with 5,800 transactions totaling $2.3 trillion in value in 2009, M & A volumes were at their lowest level since 2004. However, most of the reduction was the result of lower market capitalization, which led to smaller absolute transaction sizes, coupled with the significant decline in activity by private equity firms due to the unavailability of credit. When adjusted for market capitalization, the level of 2009 corporate transactions was comparable to 2008 and only modestly behind 2007.
There seem to be a number of reasons why 2010 may see a continuation of the pattern seen so far this year. Foremost, the stock market at 10,000 offers a much more positive mindset than at 7,000. This is true not only for corporations who may being using their shares as currency, but also for privately held companies, where owners have seen some portion of their net worth unrelated to their businesses show some re-found strength. Further, for the public companies, with stock prices rebounding, they can focus resources on being proactive rather than reactive. Another confidence factor relates to forecasts. Eighteen months ago, generally speaking sales and earnings expectations weren't met. Today, they are. Indeed, expectations are lower, but they're credible. Thus, when a potential acquirer reviews a target's forecast today, they don't feel like they may be catching a falling knife, but instead they have meaningful confidence. There's also the fact that companies who were weak have gone by the wayside. The companies who were in the middle of the performance pack now realize that they can't stay in a holding pattern forever and that this challenging economy seems like it may last forever. Thus, there is a desire to find a strong partner. Facing the realities of today's valuations is better than running out of gas. Lastly, the private equity buyer is likely to re-emerge as their troubled portfolios were addressed (hopefully) in 2009 and they try to better market time their investments.
Unfortunately, there are just as many factors that run counter to the above optimism. Most importantly are concerns around the lack of accessible financing (and now possibly a rising interest rate environment), high unemployment and the equity markets suffering a second dip.
Later in the year, we'll visit the results and see how many acquirors followed Virgil's advice, "Fortune favors the bold."
Apparel/Swimwear/Intimates
Betsy White
Talbots Updates Fourth Quarter Outlook
The Talbots, Inc. announced that it expects stronger-than-anticipated operating results for the fiscal fourth quarter ending January 30, 2010, as discussed below. Based on preliminary results, the Company expects total sales from continuing operations for fourth quarter 2009 to decline approximately 4%, better than its previously announced range of down 6% to 8%, driven by positive full price selling in the quarter. Comparable store sales for the fourth quarter are expected to decline approximately 7%. Talbots direct marketing sales are expected to increase approximately 11% compared to last year's fourth quarter, reflecting strong customer demand, better fulfillment and lower return rates. Fourth quarter cost of sales, buying and occupancy is expected to improve significantly compared to last year and a range in-line with the Company's previously announced outlook of an approximate 2,000 basis point improvement, driven by strong merchandise gross margins.
Rue21 Now Expects Q4 Net Sales Growth of 30.4%
In a regulatory filing specialty apparel retailer rue21, Inc. disclosed preliminary estimates for net sales and earnings per share for the fourth quarter and fiscal year ended January 30, 2010. For the fourth quarter, the company estimated net sales growth of 30.4% to $155.4 million from $119.1 million in the comparable period last year. The company had recently guided sales growth in the range of 26% to 28%, up from its previous sales growth guidance in the low-20s range. Warrendale, Pennsylvania-based rue21 attributed the outperformance to an increase of approximately 24% in the number of transactions, primarily driven by new store openings and an increase of 4% in the average dollar value of transactions per store. Comparable store sales is expected to have increased 8.6% for the fourth quarter of fiscal 2009 versus an increase of 11.2% in the year-ago quarter.
Clothing Company Express Files for $200 Million IPO
Express, the sixth-largest specialty retail apparel brand in the United States, filed for an initial public offering of up to $200 million. Columbus, Ohio-based Express Parent LLC sells clothing to women and men between the ages of 20 and 30. As of Jan. 30, the company operated 573 stores. Express posted revenue of $1.2 billion for the 39 weeks ended Oct. 31, down about 4.7 percent from a year earlier. It posted a profit of $29.3 million, compared with a year-earlier loss of $1.9 million loss. The company said it would use proceeds of the offering to prepay loans and credit and pay fees associated with the IPO. Golden Gate Private Equity Inc currently holds a 75 percent ownership stake in Express. The filing with the U.S. Securities and Exchange Commission did not provide details of the offering.
Athletic & Sporting Goods
Michael O'Hara
Cabela's Inc. Reports Strong Fourth Quarter Fiscal 2009 Results
Cabela's Incorporated reported financial results for its fourth fiscal quarter and fiscal year ended January 2, 2010. For the quarter, on a reported basis adjusted for divestitures, total revenue increased 5.5% to $917.6 million; retail store revenue increased 8.0% to $463.8 million; and direct revenue increased 1.3% to $406.0 million. For the quarter, financial services revenue increased 18.6% to $45.2 million. In the fourth quarter, the additional week generated revenue of $34 million and $17 million for the retail and direct segments, respectively. Comparable store sales on a like calendar basis decreased 0.5%. A detailed reconciliation is provided at the end of this release. For the quarter, net income was $52.4 million compared to $52.7 million in the year ago quarter and diluted earnings per share for the quarter were $0.77 compared to $0.79 in the year ago quarter, each excluding impairment and other special charges. For the quarter, the Company reported GAAP net income of $16.6 million and diluted earnings per share of $0.24 as compared to GAAP net income of $49.4 million and diluted earnings per share of $0.74 in the year ago quarter.
Ralph Lauren Poised to Strike Gold at the Olympics
There's probably no better way to build global recognition for a brand than to outfit the athletes of Team USA for the opening ceremonies of the Olympics. The massive captive audience, which was estimated around four billion for the Beijing Games, can bring some serious coin for companies who've creating clothing and accessories inspired by competitive excellence. For the 2010 Winter Games in Vancouver, that particular gold goes to one well-established American brand: Ralph Lauren. This is not Lauren's first foray onto the Olympics playing field. The master of sartorial Americana trotted out his styles for Team USA for the 2008 Summer Games. Then watched the cash roll in to the tune of a cool second quarter revenue increase of 10% to $1.43 billion, with global sales playing a big role. So when it came time to renew the deal, Lauren signed on through 2012.
Catalog & Internet
Christopher Ellis
Gilt Groupe Shines Amid Worldwide Slump
Gilt Groupe, a US-based online luxury retailer set up two years ago, says it expects revenues this year of $400m to $500m as it continues the rapid growth that has made its "private sale" business model one of the few retail success stories of the global slump. Launched on the eve of the US recession in November 2007, the Gilt.com site offers limited-time fashion bargains to a restricted list of customer members, a model pioneered in Europe by France's Vente-Privée. Gilt Groupe, which has 2m registered members, last year added separate online stores for men's fashion and travel to its fashion sale sites as it seeks to maintain its lead over Rue La La, a smaller rival that claims 1.2 members. Gilt's business, dominated by its fashion sales, draws "hundreds of thousands of people" checking its site each day, most at or soon after it unveils its selected daily sales at noon New York time. Some 48 per cent of sales are completed between 12pm and 1pm. Gilt's female customers have an average age of 34-35, are primarily affluent professionals, and largely visit the site from their workplace. There is a large group in the 20-30 age bracket who are aspirational buyers in their first or second jobs.
Reinventing Retail
It's hard to believe that 15 years have passed since Amazon launched as an online bookstore. Back then, e-commerce was largely modeled on the brick-and-mortar experience, but now the reverse is beginning to happen. Retailers, however, have been slow to adopt digital technologies in-store, resulting in antiquated and sometimes frustrating shopping experiences. Online shopping is surpassing in-store shopping for many customers, offering additional benefits like convenience, price comparison, customer reviews and, more recently, social shopping. As customers begin to expect the same from their in-store shopping experience, retailers are trying to resurrect brick-and-mortar environments to bring shoppers back. What will save these stores? Revamping them with digital technologies that integrate the best practices from e-commerce while elevating the qualities that only a physical shopping experience can provide. The potential of digital retail is just beginning to be realized. Digital brought the online and then the mobile revolutions; now it's driving the retail revolution. These advancements are just some of the technologies transforming brick-and-mortar spaces. In the near future, they, along with others, will be seamlessly and expertly embedded into retail environments, creating an unparalleled shopping experience that puts the customer first.
Consumer Electronics/Video/Audio
Douglas Stebbins
Apple, HP Rumors Indicate Tablet Price War Brewing
Hewlett-Packard may set the price of its upcoming tablet PC in order to undercut the price of the Apple iPad, according to new reports, heralding a price war among manufacturers looking to gain an early advantage in the burgeoning tablet PC segment. Hewlett-Packard may adjust the price of its upcoming tablet PC in order to better compete against the Apple iPad, according to a new report in The Wall Street Journal, as a recent wave of manufacturer announcements indicates that a price war may be brewing in the tablet space.
Did Apple Just Undercut Amazon on E-Books?
The $10 bestseller e-book might not be dead yet: Apple reportedly can sell e-books on the iPad for the same prices Amazon once offered. The New York Times reports that Apple worked a provision into its agreement with publishers, requiring them to occasionally sell bestselling books at a discount, possibly as low as $10 per book. A few weeks ago, book publisher Macmillan told Amazon that it wanted out of its existing business model, in which Amazon buys books wholesale and is free to discount them as it pleases for Kindle users. Instead, Macmillan prefers an "agency model," allowing publishers to set firm prices on digital books and giving a cut of revenue to retailers. Amazon ultimately caved and said Macmillan would have its way. Several other publishers followed, striking a critical blow to Amazon's $10 bestsellers.
At the End of Its Reel?
Convergence has had Blockbuster Inc. in its cross hairs for years. Who needs a brick-and-mortar video rental store, the reasoning went, once Wal-Mart started pricing DVDs cheap enough to buy? And, more recently, why shell out $19.99 a month for Blockbuster Total Access when one of 19,000 Redbox kiosks not only resides in your local supermarket but dispenses DVDs for $1 a pop? Now, of course, Netflix Inc. mailings and online delivery systems are reducing the idea of leaving the house on a movie run to an antiquated option. But don't forget Blockbuster was supposed to have died so many deaths that, as early as 2003, The Deal started comparing it to the Meyer Lansky character in "The Godfather: Part II." That's the guy so perpetually "terminal" that Michael Corleone accuses him of "dying from the same heart attack for the last 20 years." So it has been with 25-year-old Blockbuster, which despite premature notices of its passing continues to survive and at times thrive.
Cosmetics & Pharmacy
Billy Busko
Walgreens to Acquire Duane Reade
Speculation has been spreading throughout the industry for some time, and now it's official: Walgreens has reached an agreement to acquire Manhattan-based retailer Duane Reade in a cash deal valued at nearly $1.1 billion. The transaction, which is subject to regulatory approvals, will include all 257 Duane Reade stores located in the New York City metro area, as well as the corporate office and two distribution centers. Walgreens expects the deal to close in its current fiscal year, which ends Aug. 31. For the latest 12-month period ended Dec. 26, 2009, Duane Reade generated unaudited net sales of $1.8 billion. Walgreens expects to retain Duane Reade's stores, pharmacy and distribution center employees and many members of Duane Reade's senor management team. Over time, consolidation of core functions at the corporate offices will occur.
Rite Aid May Be Viable Acquisition, Analyst Says
Walgreens' acquisition of Duane Reade on Wednesday may make Rite Aid a more attractive acquisition target, speculated UBS analyst Neil Currie in a research note. Currie has rated Rite Aid a "buy," which is unchanged from before Walgreens' announcement yesterday, and has a 12-month price target of $4 for Rite Aid's stock. Rite Aid was trading at around $1.50 early Thursday morning after having closed at $1.39 at end-of-day Wednesday. Walmart may be one of the more likely suitors, Currie suggested, especially given the mass merchant's potential urban and pharmacy business aspirations. Currie also identified both Walgreens and CVS as possible suitors despite the fact that either of these chains might have to make significant divestitures to satisfy the Federal Trade Commission. Based on evaluations of Walgreens' acquisition of Duane Reade and CVS' acquisition of Long's Drug in 2008, the possible price-tag for a Rite Aid acquisition could ring as high as $7.7 billion.
Drugstore.com Reports Q4 Sales
Drugstore.com noted a near 25% spike in net sales for its fourth quarter, compared with the year-ago period. For the three months ended Jan. 3, 2010, net sales totaled $117 million, up from $94 million in fourth quarter 2008. Drugstore.com also reported that its new customer base increased 48.5% to 603,000. Drugstore.com, however, said its adjusted EBITDA for the quarter totaled $3.5 million, a 36.7% drop from million last year. The online retailer also posted a widened net loss of $3.5 million from $2.4 million in the year-ago period, which includes $1.9 million of transaction related expenses and integration costs expected to be incurred in connection with the acquisition of Salu's Skinstore.com.
Vitamin Shoppe Reports 4th-Quarter Profit
Vitamin Shoppe Inc., a specialty retailer and direct marketer of vitamins that went public in October, on Wednesday reported a fourth-quarter profit, reversing a year-ago loss. Profit for the three months ended Dec. 26 totaled $970,000, or 4 cents per share, compared with a loss of $1.9 million, or 14 cents per share. Excluding charges related to its initial public offering and other adjustments, the company said it earned 12 cents a share. Sales in stores open at least one year, considered a key metric of a retailer's health, rose 7 percent. For the year, profit totaled nearly $5 million, or 28 cents per share, compared with a loss of $1.1 million, or 8 cents per share. Revenue rose 12 percent to $674.5 million from $601.5 million. The company, which operates 400 stores under the name The Vitamin Shoppe, plans to open 42 new stores in 2010.
Department & Discount Stores
Mark Lenz
Wal-Mart Suffers Sales Decline in Key Quarter
Wal-Mart Stores posted a quarterly profit that beat Wall Street's expectations, but the retailer's store sales dropped during the period that included the all-important year-end holiday sales. Wal-Mart, the world's largest retailer, said fourth-quarter sales at its stores open at least a year - a key gauge of retailers' performance known as same-store sales - fell 1.6% compared to a 2.4% increase for the same period a year ago. For the full year, Wal-Mart said its same-store sales were flat compared to a 2.8% increase last year.
Nordstrom, Target Lead in Customer Satisfaction
In the derby to please shoppers, stores like Nordstrom and Target continue to trounce their competition. But overall, online retailers continue to gain, according to the latest American Customer Satisfaction Index (ACSI), indicating that many consumers find shopping online much more pleasing than hoofing it through an actual store: The ACSI, founded at the University of Michigan and based in Ann Arbor, says its index for e-tailers gained a percentage point to 83 (out of a possible 100) compared to offline retailers, which gained a percentage point to 76. Overall, consumer satisfaction remains relatively strong, despite the weak economy, and the ACSI says it "remains much higher than it was prior to the recession and also slightly higher than this time one year ago."
Recession Alters Retail Landscape
A revolving door of shoe stores, barbershops, restaurants and vacant space, 1960s-era Fair Plaza was a problem that just couldn't be fixed with more retail. It was too big, too old, too inefficient and too awkwardly located. Visible from the city of Fairfield's main thoroughfare, Pleasant Avenue, the strip center reflected poorly on the surrounding community. But Fair Plaza presented a unique opportunity for the dense, landlocked city center. With little land left to develop around its business district, the failed shopping center gave the city a chance to try something new. The teardown of old houses to make room for new homes has become common, especially in older neighborhoods. Now, Fair Plaza has become one of the first local strip centers to be torn down and its land repurposed - part of a growing trend as developers and municipalities plot future development after recession.
Bergdorf Goodman Unveils Children's Department
New York-based department store Bergdorf Goodman has launched a newly designed children's department named LITTLE BG on the seventh floor of its store on Fifth Avenue. LITTLE BG is anchored off the 58th street elevator bank. At the center of the space, an imaginative tree house extends from floor to ceiling. White cabinetry trimmed in blue is filled with an array of "wonderland curiosities," while aged wood flooring rounds out the storytelling space. LITTLE BG offers clothing and accessories in sizes newborn through six. Styles range from classic and traditional dressing to Euro-Boho childrenswear and fashion designers.
Energy
Christopher Ellis
Photosynthesis: a New Source of Electrical Energy
French scientists have transformed the chemical energy generated by photosynthesis into electrical energy. They thus propose a new strategy to convert solar energy into electrical energy in an environmentally-friendly and renewable manner. The biofuel cell thus developed could also have medical applications. These findings have just been published in the journal Analytical Chemistry.
'Green' is the New Black: Northwest Retailers Offer Shoppers More Eco-Friendly Options
When it comes to apparel, green is the new black. Even during the recession, shoppers have increasingly asked for more clothing, shoes and accessories made from sustainable and organic materials. Manufacturers and retailers are responding. Companies such as REI and Nordstrom are stocking more "green" merchandise, including scarves made from recycled cashmere sweaters, organic cotton shirts and running shoes featuring biodegradable midsoles. The Global Green Consumer Survey, released in 2009 and conducted by the Boston Consulting Group, shows 66 percent of consumers think it is important or very important for companies to offer green products and 73 percent believe companies should have a good environmental track record. The survey also shows this to be a trend on the rise. From 2007 to 2008, respondents who systematically look to purchase green products increased from 32 to 34 percent. Consumers who say that they are willing to pay more for a green product also rose from 20 to 24 percent.
Footwear
Michael O'Hara
K-Swiss' Q4 Revenues Slide 21.4%; Sees Flat Sales for 2010
K-Swiss reported a loss in the fourth quarter of $12.5 million, or 36 cents a share, from $13.7 million, or 39 cents, a year ago. The latest period included a pre-tax impairment charge of $4.83 million, or 13 cents, related to the goodwill and intangible assets related to the trademarks of Palladium. Revenues in the quarter decreased 21.4% to $42 million from $53.5 million. Domestic revenues decreased 31.8% to $18.1 million, and international revenues decreased 11.2% to $23.9 million.
Rocky Swings to Profit in Q4; Sales Decline Nears Double Digits
Rocky Brands, Inc. said net sales for the fourth quarter ended Dec. 31 were $61.7 million versus net sales of $66.0 million in the fourth quarter of 2008. The company reported net income of $0.9 million, or 16 cents per diluted share in 2009 versus a net loss of $2.2 million, or 41 cents per diluted share for the fourth quarter of 2008. Wholesale sales for the fourth quarter decreased 7.3% to $45.9 million compared to $49.5 million for the same period in 2008. Retail sales for the fourth quarter were $12.5 million compared to $15.4 million for the same period last year.
Skechers Sees 30% Hike in Q4 Sales
Skechers USA Inc. reported net sales for the fourth quarter of 2009 increased 30.4% to $388.6 million from $298.1 million in the fourth quarter of 2008. Backlogs as of Dec. 31 were up 40%. Earnings reached $27.9 million, or 58 cents a share, rebounding from a loss of $20.4 million, or 44 cents, a year ago. Income from operations in the fourth quarter of 2009 was $41.7 million, versus an operating loss of $35.1 million in the fourth quarter of 2008. Gross profit for the fourth quarter of 2009 was $189.3 million compared to $95.0 million in the fourth quarter of 2008. Gross margin in the fourth quarter 2009 was 48.7% versus 31.9% for the fourth quarter of 2008.
The Walking Company Holdings, Inc. Moves Forward With Its Reorganization Plan
The Walking Company Holdings, Inc. announced that the unsecured creditors committee, established as a result of the Company's voluntary filing for chapter 11 bankruptcy protection, has agreed to support the Company's plan of reorganization filed last week and not pursue other alternatives. "With this positive result, we are now looking to emerge from chapter as early as mid April," stated Andrew Feshbach, CEO of the Company. Working closely with its bank, landlords, vendors, and shareholders, the Company has been able to restructure its balance sheet and long-term financial obligations. As a result, the Company submitted a reorganization plan on February 2, 2010 to keep 207 of its 214 current store locations open and pay off all of its debts and future obligations to trade creditors.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Build-A-Bear Workshop, Inc. Reports Fiscal 2009 Fourth Quarter and Full-Year Results
Build-A-Bear Workshop, Inc., an interactive entertainment retailer, reported results for the 2009 fourth quarter and full year. Fiscal 2009 represented a 52-week period and compares to a 53-week period in fiscal 2008 with the additional week occurring in the fourth quarter of 2008. The Company also provided its initial outlook for fiscal 2010, including the expansion of its experiential product assortment. For the quarter the Company: achieved fiscal 2009 full year cost savings of $25 million in North America, had comparable store sales from European operations increased 4.5% in the fourth quarter, with full year revenue from European operations increased 9.0%, excluding the impact of foreign exchange, and its consolidated cash balance at year-end stood at $60 million with no borrowing under revolving credit facility.
Caring for Pets Left Behind by the Rapture
Many people in the U.S.-perhaps 20 million to 40 million-believe there will be a Second Coming in their lifetimes, followed by the Rapture. In this event, they say, the righteous will be spirited away to a better place while the godless remain on Earth. But what will become of all the pets? Bart Centre, 61, a retired retail executive in New Hampshire, says many people are troubled by this question, and he wants to help. He started a service called Eternal Earth-Bound Pets that promises to rescue and care for animals left behind by the saved. Promoted on the Web as "the next best thing to pet salvation in a Post Rapture World," the service has attracted more than 100 clients, who pay $110 for a 10-year contract ($15 for each additional pet.) If the Rapture happens in that time, the pets left behind will have homes-with atheists. Centre has set up a national network of godless humans to carry out the mission. "If you love your pets, I can't understand how you could not consider this," he says.
Barnes & Noble Nixes Investor's Plan to Raise Stake
Barnes & Noble has spurned Los Angeles billionaire Ron Burkle's effort to increase his stake in the chain from 19% to 37%. The bookseller's new shareholder-rights plan limits investors' stakes to 20% unless they have board approval to purchase more stock. Those who already hold more than 20% are also prohibited from buying more. In a letter to the chain, Burkle said he hoped to increase his stake without triggering the shareholder-rights plan.
Revived Toys 'R' Us Readies for Summer IPO
Toys 'R' Us wants to come out of the attic this year. Five years after taking the giant toy chain private for $6.6 billion, the retailer's private-equity owners are angling to cash in with an initial public offering this summer. Bain Capital, Kohlberg Kravis Roberts and Vornado Realty -- which had recently squabbled over the timing for an IPO, according to one source -- are now interviewing investment banks as potential underwriters. The assignment: to issue as much as $1 billion in publicly traded shares. The cash would be used to slim and refinance Toys 'R' Us' $5 billion debt load, which has hampered the big funds' ability to take profits on their investment.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Whole Foods Q1 Sales, Profits, Exceed Expectations
Things are looking up for natural and organic foods retailer Whole Foods Market, Inc., which saw first-quarter growth that surprised even its own CEO. The grocer's sales for the 16-week first quarter ended Jan. 17 increased 7 percent to $2.6 billion, while comparable-store sales increased 3.5 percent. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 26 percent to $186.0 million. Whole Foods opened six stores and closed one former Wild Oats store in the first quarter, and currently operates 289 stores totaling 10.7 million square feet. Three stores are expected to open in the second quarter. For the 20 weeks ended Feb. 14, total sales increased 7.8 percent, with comparable-store sales increasing 4.2 percent.
Whole Foods: Organic Offerings are Still Important
Although some retailers are reducing their organic-food offerings as customers switch to lower-priced options, Whole Foods says organic foods will continue to be an important facet of the chain's operations. In a conference call with investors, Chief Operating Officer Walter Robb said the chain's research as well as that of analysts shows that the $26 billion organic industry will grow at a 5% to 6% rate, which he says proves that organic foods will continue to be important "even in the darkest of times."
Fresh & Easy Nears 150 Locations
Fresh & Easy Neighborhood Market is on the verge of operating 150 U.S. locations with the opening of four stores this week and four more scheduled to open Feb. 24. The eight openings will bring the chain's total to 145 stores in California, Arizona and Nevada. Fresh & Easy is owned by the United Kingdom's Tesco.
Unified Cites Cautious Consumers in Q1 Sales Dip
Unified Grocers said a shift in consumer demand toward lower-cost items contributed to sales and earnings declines for the fiscal first quarter. Net income for the 13-week period, which ended Jan. 2, fell 4.5% to $3.7 million, while sales declined 4.3% to $999.8 million.
Home Improvement/Auto Repair
Billy Busko
Sears Auto Centers Introduce Franchise Business
Sears Holdings Corp. today announced the launch of a new strategic initiative for the Sears Automotive business. The Independent Sears Auto Center franchise program offers automobile dealers the opportunity to operate licensed Sears Auto Centers, bringing the Sears brand, buying power, distribution network, systems and corporate support to automotive aftermarket businesses. Coleman Auto Group of East Windsor, New Jersey, is the first dealership to take advantage of this opportunity and will open a Sears Auto Center in March 2010. Coleman Auto Group is utilizing a space formerly dedicated to its Chrysler dealership. With over 3000 automobile dealerships that have lost their franchise, Sears designed the new franchise program to help those dealers leverage their facilities by building a set of businesses around parts and services, over-the-counter merchandise, and previously-owned vehicle sales. The new Sears Auto Center franchise locations will provide the same products and services for automobiles, light trucks and motorcycles that are currently available at the nearly 850 company-owned Sears Auto Centers.
Advance Auto Parts Reports Record Free Cash Flow of $410 Million in Fiscal 2009, up 46%
Advance Auto Parts, Inc., a leading retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, announced its financial results for the fourth quarter and fiscal year ended January 2, 2010. Fourth quarter and fiscal 2009 results include the impact of 45 store closures related to the previously announced store divestiture plan. On a comparable basis, total sales for the fourth quarter increased 3.6% to $1.14 billion, compared with total sales of $1.10 billion in the fourth quarter of fiscal year 2008. The sales increase reflected the net addition of 52 new stores during the past 12 months and a comparable store sales gain of 2.4% compared to a 3.0% gain during the fourth quarter of fiscal 2008. The 2.4% comparable store sales gain was comprised of a 9.5% increase in Commercial sales, partially offset by a 0.8% decrease in do-it-yourself (DIY) sales.
Earnings Preview: Home Depot, Lowe's Look for Housing Comeback
Home Depot and Lowe's are scheduled to report fourth-quarter earnings a day apart this week, and investors are hoping for a positive one-two punch from the home-improvement retailers. Home Depot had been suffering from a number of internal issues even before the recession. Then, home-improvement retailers got hammered by the housing crunch even before the rest of retail suffered. Their professional business, selling materials to contractors, froze as soon as foreclosures began to rise and construction projects were abandoned. Then their consumer business went down the drain as homeowners lost their jobs or their home-equity lines of credit, and put improvement projects on hold. The hardware chains reacted by cutting operating costs and focusing on small projects such as paint and plumbing. Those had a better chance of attracting cash-strapped homeowners looking to improve the homes they couldn't sell. The stores boosted their in-store classes and online tools for do-it-yourselfers, stocked up on lower-priced materials, paint and gardening tools, and moved the marble and gold-plated bathroom fixtures off the sales floors to the special-order catalogs. Those moves started to pay off in the third quarter, as consumer confidence began to make a comeback. Lowe's reported good sales of flooring and appliances to homeowners who'd begun taking on more mid-size projects. Home Depot's forecasts have remained more glum, but management has noted that the volume of small transactions rose in the third quarter, and sales appeared to stabilize in the markets hit first by the housing crisis, such as California and Florida.
Housewares/Furniture
Billy Busko
La-Z-Boy Reports Third-Quarter Profit
La-Z-Boy Incorporated reported its operating results for the fiscal third quarter ended January 23, 2010. Net income was $0.21 per share, including a $0.01 per share restructuring charge and income of $0.05 per share in anti-dumping duties received on wood bedroom furniture imported from China. Consolidated sales increased 5.7%, led by a double-digit sales increase in the company's upholstery segment (the upholstery segment posted an 11.1% operating margin). The retail segment's performance continued to improve, with the operating loss reduced by 42%, or $3.0 million, on relatively flat sales. The company generated $22.7 million in cash from operations, including $4.4 million in anti-dumping duties, and increased cash on its balance sheet by $20.5 million to $79.5 million. Net sales for the third quarter were $305.1 million, up 5.7% compared with the prior year's third quarter.
Pier 1 Imports Upgraded
An analyst raised his rating and price target for Pier 1 Imports Inc. Friday, saying the market is overlooking the home decor retailer's potential. Brian Nagel of Oppenheimer increased his rating on Pier 1 to "Outperform" from "Perform" and nearly tripled his price target on the shares to $9 from $3.50. The analyst said improved sales results show the changes being made by CEO Alex Smith and his executive team are working, coupled with improving economic conditions. The company's shares rose 14 cents, or 2.6 percent, to $5.60 in premarket trading. Last month Pier 1 reported that a key sales figure climbed in December as store traffic and the average transaction amount increased.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Dumped! Brand Names Fight to Stay in Stores
Don't be shocked if you can't find your favorite salad dressing or mouthwash on your next trip to Wal-Mart. Large retailers -- including Wal-Mart, the world's biggest -- are wrestling with having too many types of brand-name products. At the same time, shoppers are buying less and looking for bargains. So unless a particular brand is a top seller in its category, it's getting knocked off the shelf -- and sometimes getting replaced by a cheaper store brand. For example, Wal-Mart recently removed Glad and Hefty-branded storage bags from shelves, replacing them with its own lower-priced Great Value brand, according to the parent companies of both products.
PPR Studies Small-Scale Lifestyle Acquisitions
PPR SA is studying several small- scale acquisitions to bolster its luxury and lifestyle portfolio and will take its time disposing of its less profitable retail units, Chief Executive Officer Francois-Henri Pinault said. PPR is seeking to divest its Fnac, Redcats and Conforama consumer businesses to focus on developing the Gucci Group NV and Puma AG divisions, particularly in faster-growing markets such as Asia, Pinault said today at a presentation of the French company's 2009 results in Paris. "We will take time to adjust our portfolio," Pinault said. "We won't make any strategic acquisition before making a disposal."
Jewelry/Mining
Mark Lenz
Jewelry Firm Pandora Eyes $1 Billion IPO
Danish private equity fund Axcel aims to raise $1 billion this year through an initial public offering (IPO) of shares in Danish jewelry maker Pandora, two investment bank sources told Reuters. Axcel owns almost 60 percent of Pandora, whose revenue grew to around 3 billion Danish crowns ($550 million) last year from 1.9 billion in 2008. "I think it will be this year. Otherwise a consortium would not be set up and meetings held," one of the sources said, speaking on condition of anonymity.
Gold Investment Beats Jewelry Demand
Gold investment demand exceeded jewelry demand for the first time since 1980 at the end of last year as prices rose to a record, said AngloGold Ashanti Ltd., Africa's largest producer of the metal. "The U.S. market continued its rally with the case for gold investment gaining traction with both retail investors and institutions," Johannesburg-based AngloGold said in its earnings statement today. "There is now also talk of significant bar purchases by some of the larger buyers which are opting for bullion rather than paying the storage and management fees charged by" so-called exchange-traded funds, or ETFs, AngloGold said.
Damiani Reports Net Loss
Hurt by slow demand in markets such as Japan and Russia, Italian jewelry firm Damiani SpA reported a net loss of 7.4 million euros, or $10.5 million, in the first nine months ending Dec. 31. This compares with a net profit of 7.7 million euros, or $11 million, in the same period the previous year. Consolidated revenues fell 6.6 percent to 118.4 million euros, or $169.3 million, from 126.8 million euros, or $182.5 million, the year before. As of Dec. 31, the group had 79 stores, of which 41 are franchised.
Florida Attorney General Probes Cash4Gold
The Florida Attorney General's Office has launched a civil investigation into mail-in gold company Cash4Gold, after receiving 72 consumer complaints about the operation, the office confirmed to National Jeweler. Cash4Gold, whose parent company is Green Bullion Financial Services LLC, is a Pompano Beach, Fla.-based company that asks consumers to mail in their old, unwanted gold jewelry in exchange for cash. It's perhaps best known for its widespread TV advertising campaign featuring rapper MC Hammer and the late entertainer Ed McMahon, including a spot that aired during last year's Super Bowl.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Tough Times at Office Depot
In the midst of a recession that has hit business and consumer spending especially hard, it may not be so surprising that retailer Office Depot is having a rough go of things: The No. 2 office-supplies chain lost money in each of the past five quarters and is expected to lose $96 million this year. But the company, based in Boca Raton, Fla., is facing troubles that go deeper than reduced demand for paper and pens: namely, an investigation by the SEC that's in the final stages of settlement and a fresh round of probes into whether the company overcharged government customers. Office Depot CEO Steve Odland, who has run the $14.5 billion (in revenue) chain since 2005, says Office Depot is a victim of attacks by disgruntled ex-employees. Indeed, Odland, 51, who previously served as CEO of Autozone under investor Eddie Lampert, is beloved by his board and many investors -- one of which, venture capital firm BC Partners, agreed to throw Office Depot a lifeline in the form of a $350 million investment last June.
Office Depot's Battle with Former Employee Gets National Attention
Fort Myers resident David Sherwin's campaign against Office Depot has received its first mainstream national media coverage with the release of an article in Fortune magazine. The development comes a week after the company posted a video to its YouTube account criticizing the former Office Depot employee and announcing it is working to earn back the trust of customers influenced by him. "I think that the YouTube video and the Fortune article will be looked back upon as a turning point where the momentum has shifted directly against Office Depot," Sherwin said.
OfficeMax Executives Interested in Top Job, but Focused On Growth
Two of the key executives in the running for the top spot at OfficeMax Inc. say they are keeping it all business as the office-products retailer enters fiscal 2010 seeking both expansion and a new leader. Bruce Besanko, chief financial officer and chief administrative officer; and Sam Martin, chief operating officer and executive vice president, talking for the first time since Chairman and Chief Executive Sam Duncan announced his planned departure last week, are tasked with steering the No. 3 office products retailer by sales with a steady hand. Duncan's decision "was a strictly personal one," Besanko said. Duncan's family is on the West Coast, while OfficeMax is based in Chicago. "We are focused on what we have in front of us, but certainly we would have interest should that opportunity present itself," Martin said of the top spot. OfficeMax's board said it plans to launch a national search for a new CEO, and Duncan will stay on until a successor is in place.
Restaurants/Food Service
Mark Boucher
Benihana Investors, Management Battle
Ahead of a Monday vote on Benihana Inc.'s pending merger with a subsidiary that will effectively issue 12.5 million shares of new common stock and raise $30 million, supportive corporate management and major shareholder opponents were publicly crossing swords. At the special shareholder vote scheduled for next week, the parent to three Japanese-themed chains is seeking approval to merge with its BHI Mergersub subsidiary as one of many moves to shore up funds and better its balance sheet. Richard C. Stockinger, president and chief executive of Benihana, which is based in Miami, said in a statement Thursday that not to approve the merger would be "foolhardy." Coliseum Capital Management LLC hedge fund of New York, which holds 9.9 percent of Benihani's common stock, said it opposed the new creating of shares via the merger. Adam L. Gray, Coliseum's managing director, said in a letter to Stockinger that Benihana "has not provided compelling rationale" and that "an equity issuance of this magnitude would be significantly dilutive to existing shareholders."
P.F. Chang's 4Q Profit More Than Doubles
P.F. Chang's fourth-quarter profit more than doubled as it saw more traffic at its high-end restaurant Pei Wei Asian Diner. P.F. Chang's also provided a fiscal 2010 earnings forecast above Wall Street's expectations and said it will begin paying a quarterly dividend in the first quarter. The restaurant sector has struggled during the recession with consumers opting to eat at home more to try to save cash. When they have ventured out, many have traded down to cheaper restaurants in search of more value-oriented meals. The return to restaurants like Pei Wei may suggest that consumers are not as afraid to spend money out. P.F. Chang's earnings surged to $12 million, or 52 cents per share, for the period ended Jan. 3, well above last year's $5.4 million, or 23 cents per share.
Burger King to Brew Seattle's Best Coffee in Restaurants Across US
Burger King has agreed to offer Seattle's Best Coffee, in approximately 7,250 of its restaurants across the US by September 2010. The coffee is available in hot or iced, with optional vanilla or mocha flavor and whipped topping, at a suggested retail price of $1 to $2.79. The company claims that it offers coffee made from 100% arabica beans as part of its commitment to enhance its brand's beverage platform and breakfast menu. Seattle's Best Coffee will replace Burger King current BK JOE coffee program.
Restaurant Earnings: Beyond the Numbers
Financial results were mixed this week as a cross-section of restaurant companies reported fourth-quarter earnings. Beyond the numbers, companies laid out strategies aimed at combating the sluggish economy and igniting sales and traffic.
Banking & Lending
Douglas Stebbins
High Unemployment, Banking Rules to Curb Credit Access Further
The American Bankers Association said Wednesday high unemployment, combined with a federal law that retools banking disclosure rules, has contributed to consumers facing higher interest rates and less access to credit. "Increased unemployment is highly correlated with consumers inability to pay off their credit cards," said ABA Vice President and General Counsel Kenneth Clayton. "This in turn means card companies suffer higher losses, which makes less capital available for them to provide new loans." Clayton said credit card companies have two choices: attempt to price ahead, at the beginning of an account, or to not lend at all. Ahead of the law, Clayton said firms are increasing pricing across the board for all borrowers--those risky or not--in anticipation of expected losses stemming from broader economic conditions, particularly the bleak job market. Credit-card companies have been slipping new fees and practices into customer contracts, closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
Harder to Get Credit When Under 21
If you're younger than 21, the rules for getting a credit card are about to get a lot tougher. Starting Monday, the second phase of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 takes effect. The law, which Congress passed last year to curb abusive card practices, restricts issuers from raising interest rates and imposing certain fees. The law also limits the ease with which anyone younger than 21 can open a credit card, a change that is expected to have a big effect on college students, who often get their first card while in school.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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