The Weekly Consensus: Week of February 27, 2012 Vol. 4, No. 9

Brand on the Run

Steve Bowles

In a list of the world’s top consumer brands, Apple will likely appear somewhere in the top 10.  The company has had a string of hit products, and is currently sitting on so much cash that CEO Tim Cook recently said, "Frankly speaking, it's more than we need to run the company."  It’s a great time to attach the sleek and shiny Apple logo to almost anything.  The consumers will come.

But Apple hasn’t always been considered a great consumer brand.  Back when the Apple logo was rainbow-colored, it built up an identity through the much-loved Apple II/II+/IIc as a brand that captured innovation, ease of use and style.  Such unloveable and unworkable products as the Apple III and the Lisa sent the brand into the wilderness.  It took a long time, and a lot of Macintoshes, iMacs, iBooks, iPods and iPads, to bring the brand back to the top (or at least near the top) once again.

Yet, at least since the death of Steve Jobs last October, some very un-Jobsian things have been happening at Apple – small mistakes that might hint at larger issues.  It has been noted in several places that the iOS 5 calendar app has certain layout issues.  More surprisingly, on Apple’s website there are several pictures containing non-Apple products.  PCs running Microsoft Windows, displayed on Apple’s own website?  It’s hard to imagine that happening on Jobs’s watch.

Neither of these issues is Lisa-sized, but, as has been noted here in the Weekly, Apple is now engaged in a struggle over its right to use the iPad trademark in China.  Is it possible that the lack of attention to detail has spread from Apple’s programmers to its web designers to its corporate lawyers?

The issue at the center of the dispute is whether Apple acquired the rights to the name “iPad” for use in China from a small, struggling company called Shenzen Proview Technology (“Shenzen China”) at the same time it reached an agreement with a Taiwanese affiliate, Proview Taipei, to transfer the trademark in 2009, for $54,700.

Shenzen China has not marketed its own Internet Personal Access Device, or “IPAD” (an easy to use, stripped-down desktop computer offering a way to connect to the Internet) for years, but that has not stopped it from suing to stop Apple selling the iPad in China, at least under that globally-known and incredibly valuable name. Some iPads have been pulled from stores in some locations, but no national policy has been enacted.

After a series of contentious hearings, last week a court in Shanghai rejected Shenzen China’s request, at least until a ruling is handed down in a separate case being heard in a higher court in Guangdong, on Shenzen China’s home turf.  The next hearing in that case is set to be held on February 29.

Proview has indicated it is willing to settle out of court, but Apple has shown little interest in what it feels would be buying the rights to iPad twice, and at a cost of far more than $54,700, to be sure.  Shenzen China sees an opportunity to pay off its creditors.  In fact, settling with Apple is thought to be the key to Shenzen China’s avoiding delisting from the Hong Kong stock exchange in mid-2012.  Apple is not interested in providing its rival in court with a lifeline, even if it CEO does admit that it has more money than it needs.

As the courts in China work their way to ruling on the issue, Shenzen China has filed suit in California, bringing dispute to Silicon Valley.  Clearly, the parties will have plenty of opportunities to argue who bought what from whom, and when.  It’s likely that the rights to Lisa will not be brought up. 

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In continuation of our efforts to connect growing, dynamic consumer brands with private capital investors, Consensus will host the latest edition of the Next Great Consumer Brands Showcase at the NASDAQ OMX MarketSite in New York on March 14th

The Next Great Consumer Brands Showcase features some of the fastest-growing, most exciting privately held consumer brand companies.  The exhibitors will present and demonstrate their products to private equity, venture capital and commercial lender attendees with an interest in investing in the consumer space. 

Presentations will be accompanied by keynote speakers, a luncheon and a networking cocktail session.  In addition, several leading consumer food and beverage brands donate their products for sampling throughout the day.  There is no cost to attend. 

Please click here for more information, and to register to attend.  We look forward to seeing you there.

Apparel & Footwear

Kenneth Cole Offers to Take His Company Private

Kenneth Cole, the clothing designer who made a fortune selling shoes, bags and apparel to the masses, is seeking more exclusive ownership of his company. Mr. Cole offered to take his eponymous company private for $15 a share, explaining that the pressures of the public markets had weighed on earnings. The proposal for Kenneth Cole Productions pegs the company’s value at around $280 million, and represents a 26 percent premium over the 45-day average closing stock price.

Dov Taps Urban Outfitters Vet

American Apparel has tapped a former Urban Outfitters exec as its new chief merchant. Jordan Schiff — a 31-year-old retail maven who had supervised buying and communications for Urban Outfitters until last month — has been named American Apparel’s new general merchandise manager, executives said. The key hire comes as American Apparel CEO Dov Charney is looking to boost the hipster clothier’s profitability. While sales have recently improved, the company is still struggling under a heavy debt load.

Apparel Sellers Face New Cost Pressures

Ugg sheepskin boot maker Deckers Outdoor Corp. tumbled on Feb. 24 after it said inflation in sheepskin costs would continue to hurt gross margins this year. At clothing chain Gap Inc., shares fell 4% as it said “some uncertainty exists” as to where product costs will land. Cotton costs were a problem in 2011, eating into gross margins at apparel and shoe companies including Nike Inc., VF Corp., Polo Ralph Lauren Corp. and Sears Holdings Corp. But retailers had been expecting the cost of cotton and other materials to decline this year, especially in the second half. “Product cost and raw material cost moderation is a tailwind for sourcing in 2012,” Buss said in an interview. “The question is who benefits the most from product cost deflation and whether the brand and retailers will be able to hold on to the pricing increase they took in 2011. The brand with pricing power will be able to translate that into gross margin.” However, while cotton costs may be declining, the industry still faces pressures on other fronts. For one, labor costs in the industry’s key manufacturing hubs remain on the rise. In China’s Shenzhen, minimum wage is expected to rise 16% and up 23% in Sichuan this year, Buss said. He estimated a 40% increase this year in Thailand, a 30% gain in Vietnam, a 4% rise in Mexico and 14% jump in Brazil. “Long-term product cost outlook remains cloudy for all apparel companies given the structural rise in Chinese wages and the hyper-competitive nature of the mall specialty channel,” said ISI Group analyst Omar Saad.

Salus Capital Partners Closes $12.5MM Facility for Miss Matched

Salus Capital Partners provided a $12.5 million senior secured working capital facility to Miss Matched, Inc. (LittleMissMatched), the tween lifestyle company with the simple mission of encouraging individual style. The financing will be used by LittleMissMatched to refinance its existing credit facility and provide working capital for general corporate purposes. Miss Matched, Inc. was founded in 2003 and currently operates 13 LittleMissMatched locations, including stores at Disneyland, Disney World and on Fifth Avenue in New York City.

How Startups like Frank & Oak Are Changing How Men Shop for Clothes

To say that the titans of the tech world aren’t snappy dressers is an understatement. Think of the late Steve Jobs’ iconic turtleneck-and-jeans combo or Mark Zuckerberg’s loose-fit hoodie. While fashion and tech might seem anathema to each other, a few entrepreneurs are applying nimble online strategies to long-established retail models in the hope that tech-savvy young men don’t dislike fashion, they simply dislike the experience of shopping for it. Take Frank & Oak. The company has recently received press from blogs such as the The Next Web and TechCrunch, hardly the usual suspects when it comes to covering the world of men’s style. The appeal for techies is Frank & Oak’s business model, a lean and responsive one that has made countless e-commerce sites — from Amazon to Zappos — big successes. The difference here is the top-to-bottom control that encourages a small-scale, carefully curated feel to the product lines. Everything it sells on its website is $50 or less, and brand-new collections are released every single month. Users can also sign up for the Hunt Club, a free service that lets you choose five pieces from the current collection, try them on and ship them back for free with no pressure to buy anything.

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Athletic & Sporting Goods

Adidas Goes Fashion-Forward in China

Adidas AG will aim at niches such as high fashion and children's wear as it seeks to overtake Nike Inc. in China and become the nation's top sports-apparel brand. The German sporting-goods company said Monday that it hopes this year to surpass its estimated €1 billion ($1.3 billion) in 2011 revenue in China, Hong Kong and Taiwan. To reach its goal, the world's second-largest maker of sports goods by revenue, after Nike, plans to home in on segments that rivals don't already dominate. "China has shown that it is more interested in leisure and fashion than any other country" where Adidas operates, Adidas Chief Executive Herbert Hainer said. The fight for China's sports-apparel buyers has become heated. Nike has become the country's No. 1 sports brand, according to market-research firm Euromonitor, with 7,500 outlets that sell its products across the country. Adidas runs 6,700 retail outlets across China and declined to say how many it plans to open this year. While track suits and sweatpants are common in China, sports participation is low and consumers are less likely to buy the higher-end products that Western sports-apparel companies sell to aspiring athletes elsewhere.

Michael Jordan Wants Respect for his Brand in China

Michael Jordan is used to winning big on the basketball court. Now the retired NBA great is taking on a new challenge, this time in a Chinese law court. On Feb. 22, Jordan announced he is suing a Chinese maker of sportswear and shoes, Qiaodan Sports, for allegedly using his name without authorization. (Jordan’s name in Chinese is Qiaodan.) “I am taking this action to preserve ownership of my name and my brand,” he said in a press release.

Nike Continues Push into the Digital World

Just a month ago, Stefan Olander, Nike Inc.’s vice president of digital sport, showed off the company’s new FuelBand training wristband promising more digital innovations to come. “What I can say is we’ve got some really exciting experiences that we’re going to reveal here in the coming months,” Olander said at the time.Well, what he meant was coming “month,” because the sporting goods giant took an even bigger step into the digital age by expanding its Nike+ technology to basketball and training footwear. Nike+ made its debut in 2006 for running shoes. It features pressure sensors in the shoes that gather performance data and sends it to the user’s mobile phone. To date, it has more than six million users. Now, Nike has expanded the use of the technology to its Hyperdunk basketball shoes and its Lunar line of training shoes. More than just tech-enabled shoes, what Nike debuted is a digital training regimen that connects the Nike+ footwear with interactive iPhone applications that help guide an athlete’s training regimen and motivates them to improve.

Women, Girls Taking Up Guns, Shooting in Higher Numbers

There are pink guns. Pink ear protection. Pink shell pouches. For your car, don't miss the pink "Pistol Packing Princess" sticker. And if you want to pack heat while lunching at your favorite tea room, a purse with a special pistol holster is de rigueur. All of this is aimed at women who want to own a gun — for protection, for hunting or for sport shooting — a rapidly growing demographic. But don't let all that girly pink fool you. Women in the United States, take their firearms seriously. Research by the National Sporting Goods Association shows female participation in target shooting grew by 46.5% between 2001 and 2010. And an October 2011 Gallup Poll found 23% of women own a gun.

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Cosmetics & Pharmacy

Revlon CEO: 2011 Was a Year of Many Notable Achievements

Beauty company Revlon posted a 4.5% sales gain in 2011, driven in part by its acquisition of Sinful Colors and higher sales of Revlon and Almay color cosmetics, and Revlon ColorSilk hair color. “2011 was a year of many notable achievements. We delivered net sales growth of 4.5% and sustained highly competitive operating income margins. We delivered our fourth consecutive year of positive free cash flow and we improved our capital structure by refinancing and reducing our net debt,” stated Revlon president and CEO Alan T. Ennis. “From a marketplace perspective, our emphasis on effective brand communication and strong in-store execution drove our positive performance, and we introduced a number of successful new, innovative, consumer-preferred products across our entire portfolio," Ennis continued. "We acquired the Sinful Colors brand and signed two of Hollywood’s most sought-after actresses, Emma Stone and Olivia Wilde, as global brand ambassadors for the Revlon brand.”

Prestige Brands Expresses Surprise Over Acquisition Letter

Prestige Brands will take an acquisition offer from Genomma Lab Internacional under advisement, the company announced. Prestige Brands confirmed the company's receipt of a non-binding letter from Genomma Lab Internacional, proposing to acquire all outstanding common shares of Prestige Brands at a price of $16.60 per share in cash. "The 'offer' described in the letter is highly conditional, requiring, among other things, due diligence, significant financing and Genomma Lab shareholder approval," Prestige stated in a release. "Given the extensive conditionality, combined with the absence of detail and the expressed preference for a negotiated transaction, we are puzzled by Genomma Lab’s decision to go public without any attempt to first engage in discussions with, or make a proposal to, the board of directors of Prestige Brands. The company advises shareholders that they need not take any action at this time in response to Genomma Lab’s letter."

China Luxury Pits L’Oreal Against Chiang Kai-Shek Kin

Global brands from L’Oreal SA to Gucci face new competition in their race for a share of the $33.7 billion Chinese luxury market: homegrown Chinese brands. Shanghai Jahwa United Co., established more than a century ago, sells a revamped line of products, including 1,000 yuan ($159) perfumes, whose package is designed by Demos Chiang, great grandson of the nationalist leader and Taiwan’s first president Chiang Kai-Shek. Eve Group has more than 400 boutiques which sell its own brand of luxury menswear to clients that include Chinese film director Zhang Yimou and martial arts actor Jet Li.

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Discounters & Department Stores

Sears to Raise $1 Billion by Selling Divisions, Stores

In the wake of its fourth quarter loss of more than $2.4 billion, Sears Holdings said today it hopes to raise $1 billion from spinning off its Hometown and hardware store businesses, selling stores and reducing inventory.“We’re taking immediate actions to restore the strength of our company,” Lou D’Ambrosio, ceo, said. “These actions are targeted to improve operations, unlock the value of our assets and portfolio, and accelerate our strategy around integrated retail.” For the quarter ended Jan. 28, Sears swung into a loss of $2.4 billion, or $22.63 a share, compared with a profit of $374 million a year ago. The results included an accounting charge of $2.5 billion, or $23.17 a share, with only $95 million in cash. The charge was related to deferred tax assets, impairment of goodwill and store closings and severance. Excluding these charges, company earned $58 million, or 54 cents a share.

Web Sales Increase 40% at Macy’s in 2011

Macy’s Inc. sees a big year ahead for e-commerce in 2012. Macy’s normally doesn’t break out actual numbers in its quarterly financials. But bolstered by continued strong growth on and, Macy’s expects web sales to top $2 billion in 2012. “This will be another exciting year in every aspect of growing our business,” says CEO Terry J. Lundgren. “This includes our online business, which we expect will exceed $2 billion in sales in 2012.”

J.C. Penney Cut to Junk by Fitch on Pricing Overhaul Concern

J.C. Penney Co.’s debt was downgraded to speculative grade by Fitch Ratings on concern that the retailer’s overhaul of pricing and reduction of promotions will fail to lure shoppers. Penney’s issuer rating and $3.1 billion of unsecured debt was lowered to BB+, one step below investment grade, from BBB-, New York-based Fitch said today in a statement. Secured bank debt totaling $1.5 billion was cut to BBB- from BBB. Penney’s steps may not draw consumers, hurting efforts by the Plano, Texas-based department store chain to boost sales, Fitch said. Chief Executive Officer Ron Johnson told analysts last month his plan to introduce a three-tier price model and scale back discount promotions to 12 per year may triple revenue.

Luxury Shoppers Are Back—and at Full Price: Saks CEO

Internet shopping gave a boost to Saks' earnings Tuesday and CEO Steve Sadove told CNBC he's encouraged because the luxury shopper appears to be back. Saks reported a higher quarterly profit, thanks to a 20 percent increase in online sales. The online component is "forcing us to put into place technologies and systems" like never before because "we have to be able to move inventory around among channels," he said. "[W]e have to operate totally differently than we have in the past," Sadove said. "A lot of the investment is behind the scenes."

Retail Groups Give Mixed Reviews to White House's Corporate Tax Plan

Retail industry groups gave mixed reviews to President Obama's corporate tax plan suggesting it favors some industries over others. The National Retail Federation and the Retail Industry Leaders Association (RILA) support an overhaul of the corporate tax code but agree the Obama administration needs to ensure that any reform is fair to all businesses and aims to create jobs and grow the economy. The White House proposal calls for lowering the top corporate tax rate to 28 percent to 35 percent corporate rate by eliminating certain preferences and incentives. The plan proposes to drop the effective tax rate paid by manufacturers to about 25 percent. RILA criticized the White House's plan, arguing that it favors some industries and doesn't provide an avenue for the greatest amount of job creation.

Kohl's Forecast Disappoints, Target Sees Pickup

Department-store operator Kohl's Corp gave a profit forecast that came in below Wall Street expectations this year as customers balked at its attempts to pass on rising costs, while Target Corp said it would be helped by its credit card business. Results and forecasts from those two retailers showed that consumers at the low to mid-end of the U.S. economy are pressured by rising gasoline prices and still high unemployment even as Dillard's Inc, which caters to a more affluent customer, posted better sales during the holiday quarter. Both Kohl's and Target tried to protect margins as best they could during the holiday quarter by not slashing prices beyond a certain point, but that came at the cost of disappointing sales for both retailers.

Penney Still Has to Show New Strategy Works

The mid-priced department-store operator’s loss of $87 million, or 41 cents a share, for the three months ended Jan 28, compared with a profit of $271 million, or $1.13 a share, in the year-earlier fourth quarter. Quarterly sales decreased 4.9%, to $5.43 billion, as comparable store sales declined 1.8%, missing the company’s original forecast of sales being flat to down slightly. Internet sales fell 3.1%, the retailer said. The company’s implementing a strategy drawn up by new Chief Executive Ron Johnson, who announced in January that beginning Feb. 1, J.C. Penney would cease its string of sales, coupons and rebates to concentrate on three types of prices: everyday regular price, monthly promotions and clearance prices. Penney also is simplifying its business model in other ways. Johnson said on a conference call that February sales “are trending below” last year, especially when compared against major promotional marketing from a year ago when Penney offered extra discounts and coupons.

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Grocery & Restaurant

AB InBev, Others Mull Bid for StarBev

Anheuser-Busch InBev NV and other beer brewers are mulling a potential acquisition of StarBev, the owner of Czech lager Staropramen, sources familiar with the situation said. A deal could be valued at roughly $3 billion. CVC Capital Partners has owned the brewer since buying it from AB InBev in December 2009. CVC declined to comment.

Unified Q1 Sales Rise on Speciality Business

Unified Grocers here said Wednesday sales and earnings increased during the first fiscal quarter, which ended Dec. 31, buoyed by the company's specialty-products division. Net income rose 13.1% to $4.1 million, and sales were up 1.1% to $991.1 million. The company said the earnings increases were due to the strong performance of its Market Centre subsidiary, which distributes organic, ethnic and specialty items, and the results of its cost-containment efforts. Unified said the sales increase was partially offset by store closures among its membership and by the loss of C&K Market, a 62-store operator based in Brookings, Ore., which switched to Supervalu last spring.

Loblaws Parent Appoints CFO

George Weston Ltd., the parent company of Canadian grocer Loblaw Cos. Ltd., has named Richard Dufresne Weston’s CFO, effective March 26. Dufresne is joining Weston from a major Canadian food distributor, Montreal-based Metro Inc., where for several years he was CFO. Before that, he held senior positions within the investment banking sector. Weston, one of North America’s largest food-processing and distribution groups, operates in two segments: baking, through Weston Foods, and food and general merchandise distribution, through Loblaws.

Safeway Reports 6% Drop in Quarterly Profit

Safeway Inc.'s fourth-quarter earnings fell 6.1% as higher costs continued to hurt the supermarket operator's margins, though revenue grew more than expected. Like its peers, the company has lately faced the delicate task of passing along rising costs to consumers keeping a sharp eye on prices in the grocery aisle. Safeway--which operates regional chains like Vons and Randalls--has tried to manage those pressures by selling more of its private-label products and controlling expenses. The company reported a profit of $215.6 million, or 67 cents a share, compared with a year-earlier profit of $229.6 million, or 62 cents a share. Revenue rose 6.2% to $13.6 billion, primarily on higher fuel sales.

No Bitter Aftertaste from This Stock Offering

Jim Koch is well known among beer aficionados for creating the full-bodied brew called Samuel Adams Boston Lager and for helping to foster the craft brew movement in the United States. He is less well known for playing an important role in another niche revolution — one that has the potential to be at least as significant. What could be better for the quality of life in America than good beer? That’s a high hurdle, I’m the first to admit, but bear with me. Consider that in 1995, when it was time to take the Boston Beer Company public, Mr. Koch moved his loyal customers to the front of the line, and made sure that they could buy shares at the most favorable price. He wanted to help beer guys, not Wall Street guys. He did this not as a philanthropist but as a die-hard capitalist, believing that his fledgling beer company would be better off in the long run if he democratized its initial public offering. Unlike the founders of many consumer-oriented companies that are ready for initial public offerings — Facebook is a prominent current example — Mr. Koch decided that his I.P.O. would be consumer-oriented. A graduate of Harvard and of the Boston Consulting Group — and a dropout from a joint Harvard business-law graduate program in which Mitt Romney was a classmate — he examined how traditional I.P.O.’s actually worked. He concluded that he could do better if he harnessed the same innovative energy that he used to build his business.

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Home & Road

Home Depot Points to Q4 Winners

The Home Depot this week announced fourth-quarter sales of $16 billion, a 5.9% increase over the same quarter last year. What happened? From Craig Menear's perspective, the answer involves execution, warm weather and strength in maintenance and repair categories. "Warmer-than-expected weather encouraged customers to tackle exterior projects," said Menear, Home Depot's executive VP merchandising. A "nimble response," he said, led to double-digit comps in gutters, roofing, vinyl siding, patio furniture, fencing, exterior paint, pressure washers, exterior lighting and concrete. The company said the growth was widespread -- all 40 top markets saw positive comps.

Advance Auto Profits Up 58%

Advance Auto Parts Inc. reported a 58% rise in profit to 90 cents per share in the fourth quarter fiscal 2011 ended December 31, 2011 from 57 cents in the comparable quarter ended January 1, 2011. The increase in profit was driven by the company’s aggressive store expansion strategy, enabling better availability of parts to its customers. Sales in the quarter grew 4.5% to $1.33 billion from $1.27 billion in the fourth quarter of fiscal 2010. The increase in sales reflects the net addition of 99 new stores during the past 12 months and a comparable store sales gain of 2.9% compared with 8.9% during the fourth quarter of fiscal 2010. However, the company’s gross margin deteriorated 39 basis points to 49% from 49.4% in the fourth quarter of fiscal 2010. The decline was attributable to higher supply chain expenses due to investments in hub stores and increased shrink expenses.

Lumber Liquidators Holdings' Earnings Beat Last Year's by 43%

For the quarter ended Dec. 31, Lumber Liquidators Holdings beat slightly on revenues and whiffed on earnings per share. Compared to the prior-year quarter, revenue improved and GAAP earnings per share improved significantly. Margins improved across the board. Lumber Liquidators Holdings tallied revenue of $174.5 million. The 11 analysts polled by S&P Capital IQ expected revenue of $171.1 million on the same basis. GAAP reported sales were 14% higher than the prior-year quarter's $153.2 million.

NKBA Reveals Kitchen and Bath Trends for 2012

After surveying its membership across North America, the National Kitchen & Bath Association has released its kitchen and bath trends for 2012, based on the results of 350 K&B designers who participated in the fourth-quarter 2011 survey. Some of the top trends: (i) cherry wood cabinetry is declining in popularity, and no single wood species is rising to take its place. Among painted cabinetry, white is the most popular options (59%) but the distressed look is making a comeback; (ii): more than half of kitchen designers now use glass blacksplashes; (iii) the initial higher upfront cost of LED lighting is no longer a deterrent for most consumers; (iv) pull-out faucets are replacing the standard faucet with a detached side spray; (v) medicine cabinets are replacing decorative wall mirrors in bathrooms; (vi) gray color schemes in both kitchen and bath are gaining popularity; and (vii) polished chrome is back.

At Coney Island Boardwalk: It's Wood vs. Wood-Alternative

Emotions are running high over the building materials to be used to replace Coney Island, N.Y.'s famous boardwalk, according to an article in the New York Times. While community members clamor for wood to be used to repair stretches of the 2.7 mil boardwalk, authorities are suggesting easier-to-maintain non-wood alternatives.

Hyde Tools Enhances Glass Scrapers

Southbridge, Mass.-based Hyde Tools introduced three new Hyde glass scrapers with a new look and new functionality. The high end of these offerings is a retractable, soft-grip glass scraper with built-in storage for removing coatings, paint and stickers from glass, mirrors or windshields. The rubberized body provides a safe, comfortable grip. Tucked into the tool is convenient storage for up to five razor blades.

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Jewelry & Luxury

Zale Reports Its Second Consecutive Decent Christmas

Jewelry retailer Zale Corp. had another decent Christmas. The Irving-based retailer also said that Valentine's Day sales were strong. Its Vera Wang designer wedding rings performed consistently well during the holiday season, but Zale said it's dropping another line that it also added last year from entertainer Jessica Simpson. So far this month, sales are up 8 percent from a year ago, said CEO Theo Killion during a conference call with analysts. Zale's results were lifted by improved sales at its U.S. Zales and Gordon's chains and from warranty revenue. It beat analyst forecasts.

Pandora Shares Tumble on Product Swap

Shares in Pandora suffered their worst fall in six months after the Danish jeweler said it would allow retailers to swap its unsold jewelry for better-selling items. The unexpected move, which came as the company reported a 39 per cent drop in fourth-quarter operating profits, will cost Pandora up to DKr800m ($142m). It will also cannibalize sales in the short term and contribute to a fall in 2012 revenue, said the company. But Pandora, chaired by Allan Leighton, the UK retail veteran, said that the move would be beneficial in the long term for the company and its retailers. “Our goal is to accelerate like-for-like sales growth by improving the quality of the stock mix at our key retail partners,” said the company.

Palladium Price to Continue Gaining Ground on Platinum

Supply constraints out of South Africa, the biggest platinum producer, coupled with shrinking palladium shipments from Russia, mean that the prices of the two metals will continue to move closer together, Stillwater Mining CEO Francis McAllister said. “Nobody really knows what is left there,” he said of Russian inventories, which have accounted for one-quarter of global supplies in recent years, and which the country keeps secret. “It would appear – both from shipments of the last couple of years and what’s taken place this year – that they’re winding down.” McAllister said that this was the “wildcard” for palladium, and that the market had concluded that these sales were coming to an end.

The Evolution of a Jewelry Prince

Alexis Bittar stood in his studio in Dumbo, Brooklyn, surrounded by rows of chunky Lucite bangles in a spectrum of candy colors. The bracelets, which have graced the covers of nearly every major fashion magazine, including Vogue and Harper’s Bazaar, have earned him many nicknames. “He’s the Lucite king,” said Dawn Mello, a fashion consultant. Others call him the crown prince of costume jewelry. But one thing you won’t hear Mr. Bittar called is predictable. Pieces from his newer lines were also scattered around the showroom: weaponlike jagged metallics, clusters of Swarovski crystals and dark woods twisted and gnarled like prehistoric artifacts. That they look nothing like his trademark Lucite suits him just fine.

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Office & Leisure

New Nook Tablet Steps into Kindle Fire Territory with Price

Our sources were right on the money: Barnes & Noble has announced an 8GB version of its Nook Tablet, pricing it in direct competition with the Kindle Fire at $199. The Nook Color has also been reduced in price, down to $169. The new Nook Tablet is the same Android slate as the $249 offering that's been available since November, only with its onboard storage halved to 8GB. Today's price alterations leave B&N with a portfolio starting at $99 with the Nook Simple Touch, then stepping up to $169 with the Nook Color, $199 with the Nook Tablet 8GB model, and finally $249 with the 16GB Tablet. Barnes & Noble launched the Nook Tablet late last year with 16GB of memory and a $249 price tag. The device has its advantages over the Kindle Fire — a better screen for reading, for example — but hasn’t taken off in the same way, likely because of its higher price point.

Amazon Pulls 5,000 Books from Kindle Store

In a move that signifies Amazon’s determination to tighten its reign over the high stakes e-book market, the retailer removed a staggering 5,000 titles from its Kindle store because a Chicago distributor would not agree to new terms. Independent Publishers Group claims the new electronic book agreement was too friendly to Amazon. The second largest distributor of independent books rejected the contract after the one in place came up for renewal.

FAO: Toys "R" Us Trying to Capitalize on Iconic Brand

Can FAO Schwarz appeal to kids raised in a high-tech world? At FAO, toys like wooden blocks, baby dolls and stuffed bears haven't changed much since Frederick August Otto Schwarz founded the company in 1862. At Apple, children and parents crowd around displays of iPads and other touch screen technologies that are changing the definition of play. "Two of the greatest names in toys are side by side," quipped the toy editor and consultant Chris Byrne, who said he usually stops by FAO when making a trip to the Apple store. Yet Byrne and other toy experts acknowledge that for today's kids, the Apple store probably seems much more magical than FAO.

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Technology & Internet

CEO: Apple Has More Cash Than It Needs

Apple CEO Tim Cook says he believes the world's most valuable company has more money than it needs. His next challenge is to figure out whether Apple should break from the cash-hoarding ways of his predecessor, the late Steve Jobs, and dip into its $98 billion bank account to pay shareholders a dividend this year. The question of how to handle Apple's cash stockpile is a touchy one, partly because company co-founder Jobs had steadfastly brushed aside suggestions that the company restore its quarterly dividend.

Dish Network Closing 500 Blockbuster Stores

Dish Network will close 500 underperforming and unprofitable Blockbuster video stores in the coming weeks, accounting for about a third of its stores. The announcement came as the company announced its fourth quarter profits increased 24 percent to $313 million in the fourth quarter. It reversed subscriber losses to pick up a net 22,000 subscribers thanks in part to its new Blockbuster-branded services. It acquired Blockbuster last year.

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Finance & Economy

BofA Halts Routing New Mortgages to Fannie Mae

Bank of America Corp., the second- biggest U.S. lender by assets, is stopping the sale of new home loans to government-owned Fannie Mae as a dispute over who should bear the costs for defective mortgages escalates. The bank is cutting off Fannie Mae from loans starting this month, except for modifications and some refinancings, because of the U.S.-controlled company’s stance on repurchases, Bank of America said in a filing. The firms are in talks to end the disagreement, the bank said.

Consumer Comfort Highest in Almost Four Years

Consumer confidence in the U.S. increased to the highest level since April 2008 as more Americans had a favorable view of their finances. The Bloomberg Consumer Comfort Index rose to minus 38.4 in the period ended Feb. 19, its fifth consecutive gain, from minus 39.8 the previous week. It marked the second straight week above minus 40, which is the level associated with recessions and their aftermath. Men, homeowners and households with annual incomes of more than $50,000 were the most optimistic in more than a year.

Single-Family Debt Gives Best Risk-Adj. Return

Right in the eye of the housing storm, bonds that finance single-family mortgages are outperforming the entire $3.7 trillion municipal market. While residential housing suffered its biggest depreciation since the Great Depression after the 2008 bankruptcy of Lehman Brothers Holdings Inc., municipal bonds that fund loans on homes proved to be among the safest securities as most occupants continued to make payments. “People aren’t buying the homes to flip them,” said John Hallacy, head of municipal research at Bank of America Merrill Lynch in New York. “They’re buying the homes to live in.”

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