The Weekly Consensus: Week of March 1, 2010

The Big Story: Cleaning Up

Steven Bowles

Every four years since the Nagano Games in the winter of 1998, there is one sport rises from total obscurity in the United States to fascinating near-total obscurity, through the miracle of cable television. While almost all of the coverage is done on one of the "affiliated networks" of the network covering the games, having more than 100 hours of coverage of a single sport speaks to there being something special about it. Surprisingly, it is not the ice princesses, with their graceful axels, Salchows and Lutzes, or the ski jumpers and the chance that there will be a recurrence of Vinko Bogataj's epic failure (a fall that still defines that sport to a generation of Americans) that merits this attention. Rather, it is those practitioners of "shuffleboard on ice," the curlers, whose humble efforts with rocks and brooms rate all the camera time, however little of it is in prime time.

America's curling teams underachieved in the latest Olympics, so it follows that now that the Games are over, when it comes to endorsement opportunities there is little chance that Fuller Brush or American Broom Company will be signing them up. Further working against every competitor in Vancouver is the position of the Winter Games themselves in the American sports hierarchy. When it comes to mass market appeal, winter sports outside of ladies figure skating are not exactly basketball or golf in terms of desirability to marketers. In fact, they are not even track or swimming, which require a remarkable performance to cause a ripple in the marketplace.

In spite of this, some of the winter athletes will command the attention of Madison Avenue. Out of the more than 220 participants for the United States, expect to see snowboarder Shaun White, who was a proven commodity even before he rode his "Double McTwist 1260" to gold; Apolo Anton Ohno, is a heavily decorated Olympic short track veteran who has already Danced with the Stars; Lindsay Vonn, who has a gold medal, is a top Internet draw and has a budding feud with her competition that adds further intrigue; and Bode Miller, whose story of failure and redemption should resonate. These four athletes represent a fortunate few whose games will not end with the month of February. The rest will have to take consolation from their outstanding achievement in their chosen sport and in some cases gold, silver and bronze medals that just will not translate to mass appeal.

While those who compete in bobsled or biathlon or Nordic combined (an event that has inspired the question "You do what?" since its inception) seem destined to remain on the outside of the marketing mainstream no matter what the level of achievement its participants reach, the day may come when curlers do clean up more than their narrow stretch of ice. After all, coverage of the event has gone from 50 hours in 2002, to 80 in 2006, to 100 this time around. That shows a clear trend.

Maybe it would be easier to line up endorsements if they used vacuum cleaners...

Apparel/Swimwear/Intimates

Betsy White

BPW Shareholders Approve Talbots Buyout

Shareholders of BPW Acquisition Corp., a special-purpose acquisition company, agreed on Wednesday to be bought out by women's clothing seller Talbots Inc. as part of a broader restructuring plan to help the retailer. Special-purpose acquisition companies are often referred to as "blank checks." Such entities usually buy other companies, not the other way around. This deal is part of a plan to let Talbots buy out its majority shareholder, lower its debt by about $330 million and continue its turnaround. About 91 percent of BPW shareholders approved the deal, the company said in a statement. Talbots still must secure financing for the deal.

Abercrombie & Fitch Finally Ready to Try Discounting

Abercrombie & Fitch took a bold stand during the depths of the recession when the retailer refused to cut prices. Sadly, that move has not paid off. Though the New Albany, OH-based company is still profitable, sales plummeted, and 2009 did not turn out well for the retailer. Abercrombie & Fitch stores open at least a year saw sales plunge 12 percent during its all-important fourth quarter, which highlighted a disappointing holiday season. Additionally, the retailer closed down its upscale Ruehl concept, which never got off the ground. Meanwhile, chains that used promotional prices for their items gained ground. Aeropostale, and its relatively inexpensive products, continue to record great sales. Private retailer Forever 21 continues to expand rapidly. Gap Inc. even shows sales improvement after years of dismal performance. Now it looks like Abercrombie will modify its tough-love strategy. "While we never and do not ever plan to be a promotionally led business, we are getting better at figuring something out that was completely alien to us," said Mike Jeffries, Abercrombie's chairman and chief executive, during the company's fourth-quarter conference call. The chain will moderately lower prices.

Burberry Takes Off

Burberry PLC took off on the runway with a vintage-aviator look Tuesday, blasting a live feed of designer Christopher Bailey's London show to five cities around the globe in 3-D. The show, which has become the highlight of London Fashion Week since Burberry moved its couture line from Milan to London last fall, comes about a month after the fashion house beat market expectations by reporting a 10% increase in same-store retail sales for the third quarter ended Dec. 31. Burberry PLC took off on the runway with a vintage-aviator look Tuesday, blasting a live feed of designer Christopher Bailey's London show to five cities around the globe in 3-D. Burberry has fared better than other luxury labels in the recession thanks to tight inventory control, successful digital marketing, lower entry-level price points and agile moves to cut costs that were made early on in the downturn.

Athletic & Sporting Goods

Michael O'Hara

NBA Scores In-Store Shop at Champs Sports, More

Champs Sports is launching 69 in-store NBA shops in partnership with Adidas this month. The retailer's remaining 486 stores will add the shops by the start of the 2010-11 NBA season. The dedicated shops feature select local team products, as well as product featuring the NBA's most popular players. Merchandise includes swingman jerseys, on-court shooting shirts, T-shirts, shorts, headwear and track jackets. Additionally, each season, Champs Sports will roll out exclusive NBA fashion collections, beginning this spring with the Adidas White/White Collection, featuring a white swingman jersey, track jacket and T-shirt.

Selk'bag Sleepwear Gets New U.S. Distributor

Mountain's Best Gear, a distributor focused on launching European and South American outdoor gear in the United States, said it has taken over North American distribution the Selk'bag Sleepwear System made by Müsuc of Santiago, Chile. The deal marks the end of Müsuc's association with Lippi Outdoor of Santiago, Chile and the launch of both its new outdoor division and the all new Selk'bag 3G, the third generation of the popular sleeping bag alternative, or sleepwear system. With the deal, Müsuc also announced the formation of its new outdoor division, also based in Santiago, Chile. The move marks the end of Rodrigo Alonso's three-year relationship with Lippi Outdoor, which follows the dissolution of Lippi USA, the Chilean company's North American arm.

Banking & Lending

Douglas Stebbins

Merchants' Credit Card Fees Becoming Political Issue

Consumers recently got some financial relief when Congress passed a bill making it illegal for credit card companies to raise interest rates arbitrarily on monthly balances. And now, some politicians think retailers should get a break, too. The Credit Card Act of 2009, also known as the Credit Card Accountability, Responsibility and Disclosure Act of 2009, went into effect this month for millions of consumers. Last month, California Assemblyman Pedro Nava (D-Santa Barbara) held an informational hearing in Sacramento on the interchange fees credit card companies charge retailers. Interchange fees are imposed on merchants every time a customer uses a credit card. The cost of these fees ranges from 1 percent to 3 percent of the total purchase price, meaning that retailers pay credit card companies $1 to $3 on every $100 purchased. This may seem like a small fee, but it adds up when you think that retailers such as Macy's Inc. took in nearly $25 billion in sales in fiscal 2009.

Have Cash, Must Shop: Deals are Back

After cutting back on expenses and making some hard choices in the recession, it looks like it's time to go shopping. At least that's the attitude of the nation's merchants. After a long dry spell, and restructuring moves that left them rich with cash and itching to bag some bargains, stores and sellers are shopping around for their rivals. And by trimming the roster of companies selling goods, consumers stand to benefit by getting better products and better stores, according to industry experts. Retailers took the spotlight this month when No. 1 mall operator Simon Property Group made a $10 billion all-cash bid for its troubled rival, No. 2 mall operator General Growth Properties. General Growth spurned Simon's bid, but that hasn't deterred Simon's interest. In addition, Walgreens, the largest U.S. drugstore chain, announced it was buying New York City-based rival Duane Reade in an all-cash offer of $1.1 billion.

Catalog & Internet

Christopher Ellis

Groupon Spawns Rivals on Social Media Bargain-Hunting Scene

Everyone loves getting a good deal. These days, it seems everyone also loves giving one. Chicago-based Groupon was launched in October 2008, offering daily discounts online to local businesses that are triggered if a minimum number of people sign up. The company's success - it has 2.6 million subscribers in 38 cities - has helped spawn dozens of startups, all aimed at tapping into the same social-commerce and bargain-hunting zeitgeist that has enabled Groupon's rise. While not all may survive in the long run, this much is sure: Social commerce is hot, as consumers increasingly become comfortable finding deals and networking on the Web. Social commerce goes beyond offering just online coupons; it also employs Web tools that encourage users to tell their friends about the deals and discuss the promotions. A list of the newcomers reads like a word ladder: LivingSocial, SocialBuy, BuyWithMe. There's also YouSwoop, Groop Swoop and SwoopOff. Some are city-specific, such as Chitown Deals and LA Daily Deals. Others focus just on restaurants or spa services. One Chicago-based company, We Give to Get, donates a percentage of a deal's proceeds to charity.

LVMH's Nowness.com Takes the High Road, Promoting Culture Above Commerce

When Moët Hennessy - Louis Vuitton shuttered its long-standing e-commerce site last year, the news dismayed loyal followers and logo-lusting shoppers alike. But the multi-billion dollar luxury products group knew exactly what it was doing, as you can tell from its new site - Nowness.com - that not only replaces the defunct eLuxury.com but proves that LVMH has its finger on the pulse of luxury, fashion, art, consumers, and its own mission. The Nowness concept is deceptively simple: present one "feature" a day on fashion, art, culture, or travel. The product is complex: independently produced short films, photographic slide-shows, and culturally-relevant content that encourage discovery and inspiration rather than direct commerce. Vastly different from what some other fashion brands are calling innovative.

Consumer Electronics/Video/Audio

Douglas Stebbins

Wal-Mart Adds Its Clout to Movie Streaming

Sure, you took the plunge and bought that expensive high-definition television. But does it connect to the Internet? Analysts estimate that fewer than 5 percent of the HDTVs sold in the United States last year can go online to pull in movies and television shows, bypassing traditional cable and satellite TV service. Now, however, the idea of an Internet-ready home entertainment setup has a powerful new backer: Wal-Mart. The retail giant said on Monday that it had agreed to buy Vudu, a Silicon Valley start-up whose three-year-old online movie service is being built into an increasing number of televisions and Blu-ray players.

Trouble for Blockbuster as Competition from Netflix, Others Deepen Sales Declines

Shares of Blockbuster Inc. tumbled Thursday as analysts said the company may need to undergo a significant restructuring this year as competition from Netflix Inc. and DVD vending machines erode revenue, making it difficult for the company to pay its debts. The Dallas video rental chain said Wednesday it lost $435 million in the fourth quarter, while a key sales measure sank 16 percent—a dismal holiday season performance despite higher advertising and big library purchases, said BMO Capital Markets analyst Jeffrey Logsdon in a research note Thursday. "Revenue erosion is now a defined trend," said Logsdon, even though Blockbuster has closed more than 1,300 underperforming stores. The company plans to close up to 545 more stores this year.

Hhgregg to Open in Five Baltimore-Area Circuit City Sites

National electronics retailer Hhgregg plans to open five new stores in Greater Baltimore this spring as it fills in the void left by bankrupt Circuit City Stores Inc. The Indianapolis company has selected two sites in Baltimore County and three in Anne Arundel for the first leg of its expansion, with the possibility of more to come. The retailer has timed its expansion with the demise of national retailer Circuit City. Each has shed prime locales in Greater Baltimore in response to a drop in consumer spending. That's also made for some good bargains for Hhgregg, and Pearson admits cheap rental rates are part of what's driving the company's expansion. Hhgregg plans to open 40 to 45 new stores in its 2011 fiscal year across the mid-Atlantic, each employing about 40 workers.

Cosmetics & Pharmacy

Billy Busko

Drugstore.com Closes Acquisition of Salu

Bellevue-based online retailer Drugstore.com has closed its acquisition of Salu, which owns and operates SkinStore.com, a website that sells skin creams and cosmetics. Drugstore.com in late December announced plans to acquire Sacramento, Calif.-based Salu in a cash and stock deal valued at $36 million. Drugstore.com operates a variety of e-commerce websites, including Beauty.com.

Dollar Stores See Beauty Potential

Walgreens' acquisition of Duane Reade last week further narrows an already compressed chain drugstore industry. That opens up the door for another channel to grab not only more shoppers, but suppliers who have fewer and fewer merchants to sell. Dollar stores, buoyed by swelling consumer and vendor acceptance, are embracing that opportunity. Newly published research from WSL Strategic Retail finds that 58 percent of consumers polled in the firm's "How America Shops: The Pulse of Shopping Life" survey have shopped the dollar channel within the past three months.

Bare Escentuals Nets Grows 58.8%

Bare Escentuals Inc. announced that its net income leaped 58.8 percent in the fourth quarter, as its efforts in marketing, product extension and global expansion helped to drive sales. The San Francisco-based cosmetics company, which in January received a bid from Shiseido to be purchased for $1.7 billion, said for the period ended Jan. 3, it recorded a profit of $39.1 million, or 42 cents a diluted share, compared with $24.6 million, or 26 cents a share, in the year-ago quarter. Revenue jumped 12.2 percent to $165.1 million from $147.1 million last year.

Revlon's Balancing Act: Growing Market Share While Trimming Costs

Revlon Inc. seems to have found equilibrium in a precarious balancing act: trumpeting glamour and celebrity-backed innovation while strengthening the balance sheet. Now the beauty firm, which is 79 percent owned by Ronald Perelman, faces the tough task of maintaining and growing its market share against the likes of Procter & Gamble Co. and L'Oréal. Revlon clearly has made strides compared with a few years ago, when the firm seemed to be bleeding red. The company on Thursday said fourth-quarter profits rose 13.3 percent on higher sales and lower expenses.

Department & Discount Stores

Mark Lenz

TJX Continues to Show Strength

TJX reported for the 13-week fourth quarter ended Jan. 30, net sales were $5.9 billion, a 10% increase over the 14-week prior-year period. Consolidated comparable-store sales increased 12% over the prior year on a 13-week comparable basis. Net income from continuing operations was $395 million, and diluted earnings per share from continuing operations were 94 cents compared with 58 cents in the prior year. Net sales for the 52-week fiscal year were $20.3 billion, a 7% increase over the 53-week fiscal period last year. Consolidated comparable-store sales increased 6% on a 52-week comparable basis. Net income from continuing operations for the 52-week fiscal year was $1.2 billion, and diluted earnings per share from continuing operations were $2.84 compared with $2.08 last year.

Sears Profit Soars on Fewer Charges

Sears Holdings Corp.'s fiscal fourth-quarter earnings more than doubled compared to year-ago results that included $336 million in year-earlier write-downs, as cost-cutting and fewer markdowns offset flat sales. Sears Chairman Edward Lampert said earnings without items had risen more than $200 million over 2008. "While this may be surprising to some, it isn't to me," Mr. Lampert wrote in his annual letter to stockholders, citing the diversity of Sears businesses and brands, which range from department stores, to auto centers, to the Web. "I recognize that our financial results, while substantially improved from 2008, remain well below where we would like them to be," but given tough economic times are being aided by "significant improvements in our focus on customers and the transformation of our culture," Mr. Lampert said.

Target Cautiously Upbeat on 2010

Shoppers remain prudent with their pocketbooks, but after finishing the year stronger than expected, executives at Target Corp. on Tuesday offered an upbeat outlook for the year ahead. Profit soared nearly 54 percent in the fourth quarter, helped along by healthy holiday sales and leaner inventory levels that put fewer items on clearance racks. Also helping: for the first time in years, Target's shoppers began buying more discretionary items, including clothing and home furnishings, which carry higher margins.

Ex-Kmart CEO Must Pay $10M

Former Kmart Corp. CEO Charles Conaway was ordered Thursday to pay more than $10 million in penalties for misleading investors about the company's finances, as a case that has spanned years and destroyed lives finally began to come to a close. The penalties include repayment of a $5 million loan the company forgave, more than $2.6 million in interest on that loan, and a $2.5 million civil penalty, according to a 70-page opinion issued by U.S. Magistrate Judge Steven Pepe. But Pepe rejected calls for an injunction barring Conaway from serving as a director or officer of another public company. Since leaving Kmart, Conaway has done some consulting work—including in China.

Saks to Add More Exclusive Lines

Luxury retailer Saks Inc. is betting that it can grab market share, improve profits and stand out from rivals by adding more exclusive lines. Merchandise that can't be found anywhere else makes up less than 10 percent of the assortment at Saks Fifth Avenue stores. But the retailer said it will announce several new product lines in 2010 and will make so-called "exclusive" brands about 20 percent of its offerings over the next several years. The move is aimed at improving sales at Saks, which reported a narrower fourth-quarter loss after repairing inventory and discounting problems that cost it heavily at the end of 2008. Its exclusive lines typically offer designer products at lower prices, giving the store more options to cater to frugal customers. The strategy can be risky. It requires Saks, known as a seller of Chanel and Armani, to introduce consumers to lines they may never have heard of. If customers respond, margins can be higher, and the arrangements could help Saks react faster to sales trends. But unlike traditional retail relationships, where both parties share the burden of markdowns, deals for exclusive lines often require retailers to bear all the inventory risk.

Energy Alternatives

Christopher Ellis

Bloom Box: Segway or Savior?

Now that Bloom Energy has come out of hiding on Fortune.com last Friday and on a recent episode of CBS's "60 Minutes," you'd think we'd all be able to start celebrating the invention of K.R. Sridhar's magic black fuel-cell box. The CEO claims it can provide abundant, cheap, clean electricity that will finally rid us of our dependence on fossil fuels. But hold the champagne. A few critical questions remain that we hope will be answered at Bloom's big press event in San Jose, Calif. on the campus of eBay, one of Bloom's first customers. Here's what everyone should be asking: 1. Can the Bloom Box be cost-competitive without subsidies?, 2. How will people respond when they find out this isn't a zero-emission generator? and 3. Has the company made a mistake targeting consumers?

Office Depot Announces Major Environmental Initiative

Boca Raton, Fla.-based Office Depot announced that the company will pursue LEED for Commercial Interiors (CI) certification from the U.S. Green Building Council for all new Office Depot retail stores, beginning in June 2010. "As a retailer with store locations opening around the country, we have a great opportunity to make a difference on the overall environmental footprint of today's businesses," said Chuck Rubin, president of North American Retail for Office Depot. "Office Depot takes that role very seriously and have therefore decided to LEED CI certify all of our new store locations going forward.

Footwear

Michael O'Hara

Crocs Wins Appeal in Patent Case Over Shoe Design

A federal appeals' court overturned a 2008 U.S. International Trade Commission ruling that rejected Crocs Inc.'s claims of patent infringement against shoe makers who sold knock-off versions of the company's foam clogs. The U.S. Court of Appeals for the Federal Circuit on Wednesday restored one Crocs patent, ruling that the ITC was wrong in deciding that the patent was obvious, and therefore invalid. The Federal Circuit also said the ITC erred in ruling that shoe makers did not infringe another Crocs patent. The court found that the Commission had relied too heavily on the verbal claims made in the patent without adequately considering the design as a whole. The appeals court sent the case back to the ITC for further patent- infringement proceedings and consideration of possible remedies to which Crocs may be entitled. Crocs, based in Niwot, Colorado, can seek an order to prevent imports of rival Holeys, Dawgs and Waldies shoes made in Asia and brought to the U.S. The case is Crocs Inc. v. International Trade Commission, 2008-1596.

Finish Line Secures Credit Facility

The Finish Line, Inc. entered into an unsecured $50 million revolving credit facility credit agreement. The facility, which expires on March 1, 2013, provides that, under certain circumstances, the company may increase the aggregate maximum amount of the credit facility by up to an additional $50 million. According to a filing with the Securities & Exchange Commission, the new credit agreement will be used by the company, among other things, to issue letters of credit, support working capital needs, fund capital expenditures and for other general corporate purposes.

Payless, Stride Rite to Debut Star Wars Shoe Brand

Collective Brands Inc., the Kansas owner of footwear chains, will introduce Star Wars-themed shoes at its Payless ShoeSource and Stride Rite stores this year. The lines will be available in June or July and will feature Darth Vader and other characters from the George Lucas movies and cartoon series, President and Chief Executive Officer Matt Rubel said in a Feb. 5 telephone interview. "We'll have both good and evil," Rubel said. "We'll have the light side and the dark side."Collective is adding brands and expanding into new markets such as Russia and the Philippines. Payless has about 4,500 stores in North and South America and the Middle East. Stride Rite operates about 300 and also sells through retailers such as Macy's Inc.

Gifts/Accessories/Luggage/Pets

Mark Boucher

Pet Spending Increases: Consumer Expenditures Went Up 5.4 Percent in 2009

The U.S. pet market continues to grow despite the economic recession, according to figures released by the American Pet Products Association (APPA). Overall spending in the pet industry, which includes food, supplies, veterinary care, live animal purchases and other pet care services, increased 5.4 percent to $45.5 billion in 2009, compared to $43.2 billion in 2008. There have been no declines in any category since 2007. Moreover, the trade group projects U.S. spending on pets to increase 4.9 percent to $47.74 billion in 2010.

Andis Pet Grooming Supplier Expands Operations

Andis Company, a manufacturer of handheld tools for animal groomers, plans to develop a 50,000 square foot expansion of its headquarters, at 1800 Renaissance Blvd., Sturtevant, Wis. The growth, the company said, adds space for manufacturing and warehousing, while generating job opportunities. The project is expected to be completed by the end of this summer. Andis Company's facilities house office space, plus manufacturing, assembly, and distribution operations in more than 107,000 square feet. The expansion takes place on the south side of the building to provide easy product flow, the company said.

International Association of Canine Professionals to Hold Annual Conference in March

International Association of Canine Professionals to Hold Annual Conference in MarchThe International Association of Canine Professionals (IACP) will host its 10th annual conference in Hutto, Texas, March 18 to 21. The event is open to pet professionals as well as the public. The conference, entitled, "Your Future Success Relies on Dollars and Scents—Providing the 'Knows' for Business and Success," is targeted at trainers, groomers and pet sitters. Seminars and workshops will cover a range of pet care and business topics, from tips for deciphering dog behavior to tips for attracting new customers.

Grocery/Healthy Foods/Snacks/Confectionery

Mark Boucher

Safeway Takes $1.8 Billion Charge

A massive goodwill write-off in its Vons and Eastern divisions triggered a $1.6 billion loss in the fourth quarter for Safeway, the retailer said. The $1.8 billion charge was necessitated by a sharp decline in year-over-year share prices. Excluding the charge, Safeway posted net income of $209.1 million for the quarter that ended Jan. 2, down from $338 million in the fourth quarter last year. Sales of $12.7 billion in the quarter decreased by 8.1%, driven by an extra week in the previous period, food price deflation, and identical-store sales declines of 4.1%, Safeway said.

Albertsons LLC Offers to Buy Bashas'

Albertsons LLC has offered to acquire the Bashas' chain out of bankruptcy for about $290 million, according to local reports. Bashas', based here, has rejected the offer, which had been discussed for some time but was formalized in a letter from Robert Miller, chief executive officer of Boise, Idaho-based Abertsons LLC, earlier this month. Bashas' filed Chapter 11 bankruptcy last July, citing the economic downturn and lack of access to capital, and shuttered about 30 locations. It had hoped to emerge with new financing early this year. Albertsons LLC, a privately owned chain with 220 stores in several markets, including 43 in Arizona, is distinct from the Albertsons chain operated by Supervalu.

Unified Seeks Financial Flexibility in 2010

If 2009 was a year of adaptability for Unified Grocers, 2010 will be a year of flexibility, Al Plamann, president and chief executive officer, told the company's annual meeting. Unified said it plans to take a proactive approach this year, particularly with regard to financial flexibility— something it has been doing over the last 12 months by completing three financial transactions that have enabled the company to boost its borrowing capacity by $75 million "for future opportunities," Plamann said. "We will not be a victim of this downturn," he said. "Hunkering down in a recession is easy, but a proactive approach yields positive results." Unified's mission, he said, will be "success at retail [and] sustainability at wholesale."

Home Improvement/Auto Repair

Billy Busko

Home Depot Swings to Q4 Profit

The world's largest home-improvement retailer posted fourth-quarter earnings of $342 million, compared with a loss of $54 million in the same period last year. Total company comp-store sales increased 1.2% in the quarter, as sales declined 0.3% to $14.6 billion. The company's 20 cents per share earnings were higher than Wall Street analysts' consensus estimate of 17 cents. In the fourth quarter, the company's sales performance was driven by gains in kitchen and bath, paint, flooring and plumbing as well as its international businesses. Like rival Lowe's, Home Depot's sales performance improved significantly in the fourth quarter, compared with the full year. For fiscal 2009, the company reported net earnings of $2.7 billion, compared with $2.3 billion in fiscal 2008. Sales for the year declined 7.2% to $66.2 billion, and total company comp-store sales were negative 6.6%.

Lowe's Posts Q4 Gains in Sales and Earnings

Lowe's posted fourth-quarter earnings of $205 million, up 26.5% from the same period last year. Comp-store sales for the quarter declined 1.6%, on sales of $10.2 billion, up 1.8% from the fourth quarter of 2008. For the full year, the company posted earnings of $1.78 billion, down 18.8% from the previous year. For the fiscal year ended Jan. 29, sales declined 2.1% to $47.2 billion. During the quarter, Lowe's opened 11 stores. As of Jan. 29, the company operated an empire of 1,710 stores in the United States and Canada representing 193.2 million sq. ft. of retail selling space, a 3.5% increase over last year. The company expects to open 40 to 45 stores in 2010, reflecting total square footage growth of approximately 2%.

Hummer Bidders Surface After Deal Collapses

General Motors Co. is examining offers for Hummer in the wake of a Chinese machinery maker's failed bid for the SUV brand, press reports said. GM is giving prior bidders a fresh look after Sichuan Tengzhong Heavy Industrial Machinery failed to win approval from Chinese regulators for its planned purchase, The Wall Street Journal reported. Bloomberg News, citing five people briefed on the talks, said interested parties have done little or no due diligence and GM may still wind down the brand.

American Tire Distributors Plans IPO

American Tire Distributors Holdings Inc. is planning an initial public offering, the company said Friday. American Tire, the country's largest distributor of replacement tires, expects to raise about $230 million, according to a filing with the U.S. Securities and Exchange Commission. That figure was submitted for the purpose of calculating the IPO registration fee, and could change as the deal comes closer to market. American Tire did not disclose the expected number or price range of shares to be offered. The company, based in Charlotte, N.C., expects to trade on the New York Stock Exchange under the symbol ATD. BofA Merrill Lynch and Deutsche Bank Securities are serving as joint book runners for the IPO. American Tire Distributors has a network of 83 distribution centers serving 37 states. It posted revenue of $1.96 billion in fiscal 2008, the most recent full year it disclosed in its filing.

Housewares/Furniture

Billy Busko

Russell Hobbs Reverses Fourth-Quarter Loss, Post $9.1 Million Net

Russell Hobbs, formerly known as Salton Inc., reported fourth-quarter net income of $9.1 million, a turnaround from the fourth-quarter net loss of $20.8 million last year. A hard line on the company's expenses proved critical to the much-improved quarterly results. The company slashed 14 percent off its total expenses in the quarter, and gross margin jumped 640 basis points. Net sales increased by 1.5 percent to $248.7 million. For the 2009 fiscal year, Russell Hobbs reduced its net loss to $17.1 million from $77.6 million the prior year. Net sales were down 8.8 percent to $779.7 million.

Mohawk Industries, Inc. Announces Fourth Quarter Earnings

Mohawk Industries, Inc. announced 2009 fourth quarter net earnings of $20 million and diluted earnings per share (EPS) of $0.29 which included a restructuring charge of approximately $30 million primarily related to our distribution and manufacturing infrastructure. Excluding the restructuring charge, net earnings and EPS would have been $39 million and $0.56 per share, respectively. In the fourth quarter of 2008, the net loss was $128 million and loss per share was $1.87. Excluding the 2008 fourth quarter goodwill, intangible and restructuring charges, net loss and loss per share would have been $5.1 million and $0.08 per share, respectively. Net sales for the 2009 fourth quarter were $1,347 million, a decrease of 9% (11% with a constant exchange rate) from 2008. Strong working capital management, reductions in capital spending and active cost control enabled generation of free cash flow of $222 million for the quarter.

Cheap Leases Helping Rooms to Go Expand

Rooms to Go is the latest mid-sized furniture chain to launch expansion plans. It joins Raymour & Flanigan, and other regional furniture chains looking to push growth in the current economic environment, when they can get deals from landlords looking to fill vacant spaces. On the surface, this sector of retailers growing might look like a good thing since the retail real estate industry is faced with so many store closings. But shopping center owners should remain cautious, so they aren't in a position similar to 2008 when popular sporting-goods chain Steve & Barry's grew too quickly and then shut all 276 of its stores. Plus, the furniture sector is catering to an unstable housing market as well. In the case of Rooms to Go, the chain, with 121 stores mostly in the South, plans to open 16 locations over the next three months, in its biggest growth push in three years. The company posted a sales slide of 11 percent last year, according to Home Accents Today, when revenues came in at $1.35 billion. It's hard to know the real performance of some of these stores because they're privately held. Rooms to Go, Raymour, and a chain expanding in the South, called The Dump, are all private companies. Furniture-chain expansion must be tempting for shopping center owners. They are getting tenants to fill large spaces plagued by vacancies. And maybe an operator with lagging sales is better than none at all. But if problems in the sector persist, and furniture stores start to close, then landlords are faced with looking toward another area of retail for growth, if they can.

Intellectual Property & Multi-brand Companies

Douglas Stebbins

Iconix Sees 21% Hike in Q4 Revenues

As previously disclosed both the fourth quarter of 2009 and the fourth quarter of 2008 include gains from the formation of international ventures. Excluding these gains, revenue for the fourth quarter of 2009 increased 21% to $58.8 million from $48.5 million in the fourth quarter of 2008. EBITDA for the fourth quarter was approximately $41.9 million, an 11% increase as compared to approximately $37.8 million in the prior year quarter. Free cash flow for the quarter was $33.2 million a 6% increase as compared to approximately $31.5 million in the prior year quarter. Revenue for the full year 2009 was approximately $232.1 million, a 7% increase as compared to approximately $216.8 million in the prior year period.

DieHard Batteries, the Big Prize, Wasn't a Part of the Deal

When Sears Holdings Corp. inked its first deal to license DieHard battery chargers and other accessories to a little-known Mount Prospect company this month, the response from Wall Street was underwhelming. Now, the company's attention is turning to Craftsman, the tool and lawn equipment line that appears to hold the best hope of making it outside of Sears and Kmart walls. Sears signed a deal with Ace Hardware Corp. to sell Craftsman tools at 100 Ace stores starting in May, marking the first time a retailer other than Sears, and more recently its sister division Kmart, has sold the 83-year-old brand, the Chicago Tribune reported late Friday. By June, Ace plans to promote Craftsman products to its 4,500 Ace stores, independent dealers that are part of a cooperative.

IT 'Insourcing,' E-Tail Expansion at Kellwood

Kellwood Co.-one of the nation's largest apparel suppliers and owner of brands such as Vince, David Meister, Sag Harbor and Koret-made a bold move last year when it embarked on an eight-month project to "insource" its information technology. JoAnn Ashman, Kellwood's vice president of marketing and digital, said the IT renovation gave her the tools to launch four new, direct-to-consumer e-commerce sites for Vince, David Meister, XOXO and Jolt. The four new sites are meant to act as showcases for the brands, not competition for the retailers that carry those brands, Ashman said. "We're interested in telling the story of the brands and offering a full lifestyle experience [that isn't available in brick-and-mortar stores]," she said.

Inditex Supplier Li & Fung Acquires U.K.'s Visage

Li & Fung Ltd., the biggest outsourcer for retailers including Wal-Mart Stores Inc. and Inditex SA's Zara, will buy U.K. clothes maker Visage Group Ltd. to expand in Europe, its fastest-growing market. Li & Fung agreed to pay as much as 173 million pounds ($264 million) for Visage, a private-label apparel supplier to U.K. retailers. The Hong Kong-based company will use its cash reserves for the acquisition, it said in a statement to the city's stock exchange late yesterday. The purchase is the fourth in the past year for Li & Fung, which may spend another $500 million on acquisitions and had HK$3.16 billion ($407 million) cash in June.

Jewelry/Mining

Mark Lenz

Struggling Zale Is Offered Variety of Lifelines

Would-be rescuers have offered a variety of lifelines to Zale Corp., the jewelry retailer that is strapped for cash and reeling from poor holiday sales. A group of investors that includes former jewelry-industry executives, with the backing of the private-equity firm MidOcean Partners, sent Zale a proposal several months ago to buy its Canadian operations, according to someone involved in the effort. "We put in a healthy offer that would have allowed Zale to bring down its overall borrowing level and fund some strategies to fix its business," this person said. "But there was no real sense of interest on Zale's part." Zale, which reported $1.7 billion in sales in its fiscal year ended July 31, owns the two largest retail jewelry chains in Canada.

Diamond Prices Set to Consolidate

In announcing Petra Diamonds' half-year results, chief executive Johan Dippenaar pointed to several indicators of a strong recent recovery in the diamond market. Rough diamond prices have recovered to within 80-95 per cent of their levels before the 2008 crash, and buyers who have exhausted their stockpiles have started to buy again. Mr. Dippenaar has seen the market reduce its dependence on the US (traditionally 50 per cent of the global market) and Japan, with China having overtaken Japan as the second most important market and Indian demand also growing. Chinese and Indian demand had already been growing strongly for a couple of years, but this growth is no longer coming from its previous low base.

Middle Class Job Blues Hurting Mall-Based Jewelers

Case in point: mall-based jewelry vendors. Bling has not been on the minds of average folks and that has put a dent in the fortunes of one-time kings of bling such as Zale Corp. and Blue Nile. Disappointing 2009 holiday sales have pushed Zale's to the point of nearly breaching its debt covenants and prompted the shares of Blue Nile to decrease by 4.4% following its fourth-quarter results. Valentine's Day sales helped Zale realize a profit, but the sustainability of needed revenue increases is. Hard-pressed consumers have drifted away from the malls in search of bargains at big box outlets like Walmart and that shift to the lower end has also included jewelry. It's a dramatic contrast to the goings on in the higher end of the jewelry market where tony vendors like Tiffany have benefited from the continued strong demand from their high-end clientèle. Tiffany recently reported expectations-beating results and increased its dividend.

Office/Crafts & Hobby/Flowers/Party

Mark Lenz

Office Depot Still Reporting a Loss, But Much Lower Than Last Year

Office Depot Inc. reported discouraging results for fourth quarter and full year 2009. During the quarter, total revenue declined 6% year over year to $3.1 billion. Full year 2009 revenues were $12.1 billion, down 16% from 2008, principally driven by adverse economic conditions throughout the company's sales territories. However, gross profit improved 3.5% during the quarter due to a 9.6% decrease in the cost of goods sold. During full year 2009, gross profits fell 15.3% despite a 16.6% drop in the cost of goods sold.

Survivor: Office Depot Strengthens Itself for Office Supplies Showdown

Is Office Depot about to turn around? That's a fair question, now that the struggling retailer reported better-than-expected results during its fourth quarter. Though the company posted a loss of $77 million, it was a major improvement over the $1.5-billion dive during the same year-ago period, and management expects a profit in the current quarter. An Office Depot bounce back could mean that big-box chains in the office supplies space might see a different fate than in other retail sectors where only one national leader remains. After Circuit City went away, Best Buy is the clear-cut electronics leader. The demise of Linens 'n Things made Bed Bath and Beyond the dominant large-format home-furnishings chain.

Restaurants/Food Service

Mark Boucher

From Contracts to Cupcakes: A Wall Street Career Change

When David Arrick thought about using skills gained at an elite Wall Street law firm to transition from one job sector to another, real estate development in Dubai was his next logical career choice. When that didn't pan out, it was cupcakes. Mancakes, to be exact. His bakery sells the usual fare, but with a twist. It offers flavors like kahlua-soaked vanilla cake with Bailey's Bavarian cream, brandy-soaked lemon cake with orange-infused chocolate ganache filling, and chocolate and beer-infused cake with beer buttercream. Not every cupcake is drenched in alcohol: Butch Bakery offers caramel cake with salted caramel filling; and maple cake with milk chocolate ganache and crumbled bacon. Right now, Arrick has a staff of five, including the baker. He runs the operation out of a commercial kitchen space in Queens. There's no storefront yet, but he hopes to open a store downtown in Manhattan this spring. The lesson to be learned from Arrick's jaunt down Pastry Avenue and Whipped Cream Street? First, the skills you pick up on the Street can serve you well anywhere, even in a bakery. And second, if you can't stand the heat on the trading floor, maybe it's time to get in the kitchen.

Papa John's Posts Increase in 4Q Profit

Papa John's International Inc. reported a 7-percent increase in fourth-quarter profit and reaffirmed its outlook for 2010, in which it plans to maintain its franchisee incentives. For the Dec. 27-ended quarter, Papa John's recorded net income of $13.7 million, or 49 cents per share, which included an 8-cent benefit from finalizing certain income tax issues and the consolidation of results from its franchisee-owned purchasing company BIBP Commodities Inc. That result marked an improvement from a year earlier, when it posted fourth-quarter net income of $12.8 million, or 46 cents per share, which had a 2-cent negative impact from the noted items. Revenue in the latest fourth quarter rose slightly, to $280.5 million from $279.6 million last year, and reflected the sale of 62 underperforming restaurants to franchisees, Papa John's said. Domestic same-store sales dipped 0.5 percent for the fourth quarter.

Benihana Shareholders Approve Merger

Benihana Inc. stockholders on Monday gave the Japanese-themed restaurant company's management the green light to merge with a subsidiary and issue 12.5 million new shares. The proposed merger was opposed by members of the late Benihana founder Rocky Aoki's family, which holds about 38 percent of shares in the Benihana of Tokyo trust, and hedge fund Coliseum Capital Management LLC. Both groups said the merger of Miami-based Benihana Inc. into subsidiary BHI Mergersub and a planned increase in shares would dilute their holdings.

Those are the latest headlines. Thank you for reading.

Sincerely,

The Team at Consensus

The Weekly Consensus

In This Issue

The Weekly Consensus: Week of March 1, 2010

The Big Story: Cleaning Up

Apparel/Swimwear/Intimates

Athletic & Sporting Goods

Banking & Lending

Catalog & Internet

Consumer Electronics/Video/Audio

Cosmetics & Pharmacy

Department & Discount Stores

Energy Alternatives

Footwear

Gifts/Accessories/Luggage/Pets

Grocery/Healthy Foods/Snacks/Confectionery

Home Improvement/Auto Repair

Housewares/Furniture

Intellectual Property & Multi-brand Companies

Jewelry/Mining

Office/Crafts & Hobby/Flowers/Party

Restaurants/Food Service