The Weekly Consensus: Week of March 8, 2010
The Big Story: Acropolis Now
Christopher Ellis
We have been hearing a great deal about the Greek budget deficit this year, as if it was news. It is projected to be a shade below 13% of 2010 GDP. It was rapidly approaching this monstrous level in 2002, when Goldman Sachs and one or two other investment banks helpfully stepped in and arranged for a series of swaps contracts to provide billions in off-balance sheet financing, allowing Greece to appear to EU regulators in better shape and less grey-haired than in fact they were.
The problem began when Greece fudged their numbers in order to qualify to join the Euro. Once they were in, the spending spree accelerated, presumably under the not-unreasonable assumption that Brussels would pick up the tab. The fact that the rules of the Euro-zone specifically prohibit running deficits in excess of 3% of GDP creates something of a knotty problem for all concerned. On the one hand, leaving Greece to default on its obligations, which she surely will without assistance from Brussels, creates a grave risk for the Euro experiment and would put a large dent in its aspiration to be considered an alternative reserve currency. On the other hand, throwing away the rule book to paper over the cracks appearing courtesy of this most Easterly member of the Euro would cause a blemish of at least equal size, possibly even larger.
The problem doesn't end there. Portugal, Ireland, Greece and Spain (rather fetchingly known as the PIGS) are all sporting supersize deficits, with Ireland running a close second to Greece at about 12.5%. Not surprisingly perhaps, a significant part of these excesses of spending can be found in the budget surpluses of the wealthier members of the Euro-zone, Germany in particular. Because of the diversity found within Europe, with a couple of dozen different federal-level tax regimes and budget setting governments, simply printing more Euros or raising interests rates to 'solve' for the deficit economies isn't an option; the voters of the successful economies wouldn't stand for it.
For better or worse, these conundrums don't apply in the United States. There is only one federal borrower, and it owns the printing presses. The Congressional Budget Office's estimate released on Friday of a 2010 budget deficit in the US of over 10% of GDP will no doubt cause the presses to get a jolly good oiling in anticipation of some seriously busy days of printing in the foreseeable future. All of the consequences of this are a subject for another day.
Apparel/Swimwear/Intimates
Betsy White
Hilfiger's in Play
Phillips-Van Heusen is in exclusive talks to buy Tommy Hilfiger in a deal that could shake up the global apparel business. New York-based PVH -- whose $2.4 billion portfolio of clothing brands includes Izod and a global license for Calvin Klein -- is negotiating to buy Hilfiger, now based in Europe, in a cash-and-stock deal that values the fashion house at roughly $4 billion including debt, sources said. PVH could close the purchase "within a week or two," according to a source close to the talks, and is lunging to buy Hilfiger partly to head off an initial public offering that was being planned for this year to fund a recapitalization of the company. Hilfiger's private-equity owner Apax Partners, which bought Hilfiger in 2005 for $1.6 billion, had been planning to list the company on Amsterdam's Euronext stock exchange after shelving similar plans in early 2008. But last month, Apax made a round of phone calls to a handful of potential buyers, telling each to make an offer or "forever hold your peace," according to one source. Under terms currently being discussed with PVH, Apax will unload the majority of Hilfiger while retaining a stake of about 30 percent.
Feeling Strong, Chico's Goes for Growth
Apparel retailer Chico's FAS looks like it bounced back from the recession, and management is ready to resume new-store growth. Only we won't see too many more new locations of its namesake stores. Instead, the company will focus on growing its smaller, offshoot concepts-a decision that puts Chico's at odds with the general trend. Chico's is planning to expand its two smaller chains, White House/Black Market and Soma. Chico's acquired White House/Black Market, which targets women in their 30s and 40s, in 2003 and grew it from 107 stores to its current 333 units. Management revealed during a recent investor meeting that it will open 16 to 20 of those stores this year, including outlets, and sees potential for 550 to 600 locations. Meanwhile, Chico's launched Soma, its intimate-apparel line in 2004 with 10 stores; there are now 90, and the company wants to open more than 40 this year. The final goal is ambitious: 575 to 620 Somas. Why is it deciding to do this now? For one thing, management believes that, with 650 stores, Chico's is near its natural limits. For another, it's looking strong. In the fourth quarter, Chico's posted a net income of $17.5 million, up from a $40.5-million loss a year ago. Sales at stores open at least a year shot up 14.6 percent, compared to a 13-percent plunge in the same year-ago period.
Urban Outfitters to Start a Wedding Brand
Aiming to maintain the growth that led to record 2009 sales and profit, Urban Outfitters Inc. disclosed plans to start another retail brand next year, this one aimed at the $60 billion wedding industry. The Philadelphia specialty retailer, whose Urban Outfitters and Anthropologie stores target an upscale clientele, said it planned to launch the as-yet-unnamed bridal business by Valentine's Day 2011, first online and later with a store opening. "We think this is going to be a meaningful business," Glen T. Senk, chief executive officer, told analysts today while reviewing the company's 2009 earnings, which included record sales of $1.9 billion and record profit of $220 million. "Anybody we talk to about this goes, 'Wow, that's exciting,'" he said.
Athletic & Sporting Goods
Michael O'Hara
Big 5's Q4 Profits Surge 77.8%
Big 5 Sporting Goods Corp. reported earnings vaulted 77.8% in its fourth quarter. Sales advanced 8.2% to $237.6 million from $219.6 million with comps inching up 0.1%. The sporting goods chain also said it expects first-quarter earnings to range between 17 cents to 23 cents a share, which was above Wall Street's consensus estimate of 17 cents. Gross profit for the fiscal 2009 fourth quarter was $80.8 million, compared to $71.3 million in the fourth quarter of the prior year. The Company's gross profit margin was 34.0% in the fiscal 2009 fourth quarter versus 32.5% in the fourth quarter of the prior year. The increase in gross profit margin was driven primarily by an increase in merchandise margins of 89 basis points and lower distribution costs as a percentage of net sales.
Twins Enterprise Becomes Forty Seven Brand
Twins Enterprise, Inc., parent company of Twins '47 headwear and Banner '47 apparel, announced the completion of its brand transformation. The company will now be known as Forty Seven Brand. Forty Seven derives from the year 1947 when twin brothers Arthur and Henry D'Angelo began selling souvenirs and felt pennants outside of Fenway Park in Boston. Forty Seven Brands new circle logo will be the primary company ID supported by both stacked and linear word marks. The company's web/e-commerce site will be 47brand.com. Forty Seven Brand is a privately owned licensed products company and is a license partner of Major League Baseball, the NHL, the NBA and over 600 college programs. Forty Seven Brand is also a supplier to US Open Tennis, The 2010 US Open Golf Tournament at Pebble Beach. Forty Seven Brand's flagship retail store is located on famed Newbury St. in Boston.
Banking & Lending
Douglas Stebbins
Consumer Credit in U.S. Rises for First Time in Year
Borrowing by U.S. consumers unexpectedly rose in January for the first time in a year, led by auto loans and a sign Americans are gaining confidence in the economy. Consumer credit increased $5 billion, or 2.4 percent at an annual rate, the Federal Reserve said today in Washington. Borrowing dropped $4.6 billion in December, more than first estimated. The figures track credit card debt and non-revolving loans, including those for automobile purchases. "Spending is holding up," said David Wyss, chief economist at Standard & Poor's in New York. "People are feeling a little bit more comfortable. They're sticking their heads out of the shell a little more."
Fannie, Freddie Ask Banks to Eat Soured Mortgages
Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks. The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.
Banks Goose Credit Card Rewards to Push Card Use
Not every letter from a credit card company is bad news these days. While millions of card users received notices of interest rate hikes and new fees in recent months, a select portion learned they're getting new perks. Citigroup Inc., for example, let certain customers with cards that carry the American Airlines logo know they now get 1.2 miles for each dollar they spend, up from a 1-mile-for-$1 ratio. JPMorgan Chase & Co. similarly upped the miles-to-dollars ratio for their British Airways card by 25 percent, to 1.25 miles for each $1 spent. Chase also boosted the ability to rack up rewards on Marriott cards. It may seem like odd timing for banks to expand some rewards programs, after trimming many of them in the months leading up to the credit card reforms that kicked in last week. But the reason behind the enhancements is simple: those reforms cut into banks' credit card profits by restricting tactics like over-the-limit fees and interest rate increases. Now, they're looking to replace some of those earnings.
Catalog & Internet
Christopher Ellis
Independent Artisans are Crowding Onto the Web
The online indie craft scene is getting crowded as home-based entrepreneurs move beyond craft fairs or networks of friends to tap customers from around the globe. Merchants offering handmade items are flocking to online websites such as Etsy, ArtFire and 1000 Markets to find buyers. Etsy said last week that it now has about 400,000 active online shops. They offer items ranging from the kitschy to the sublime. Most sellers, some who own more than one online store, don't typically make a living from their handiwork, whether that's hand-painted silk scarves or handpainted cow skulls.
Levi, P&G, Mattel Tackle E-Tailing
Move over, Amazon. Consumer-products makers, squeezed by private-label goods at retailers like Wal-Mart, are hawking their wares directly to buyers online. To attract more customers, San Francisco-based Levi Strauss has taken steps to spruce up its Web site. A growing number of consumer-products companies, including Procter & Gamble, Mattel, and Columbia Sportswear, are beefing up online retail operations to cater to budget-conscious buyers. These companies, some of them newcomers to online retail, are also fending off a rising threat from often cheaper private-label products crowding shelves at retailers such as Target and Wal-Mart Stores.
Consumer Electronics/Video/Audio
Douglas Stebbins
Microsoft Courier - Two-Panel Pen Device Could Compete with iPad
Several photographs of Microsoft's not-yet-announced Courier tablet device have been leaked to Engadget. The photos of what could be Microsoft's answer to Apple's iPad show a two panel device that folds shut like a book that is reliant on pen-based input. These photos are in keeping with previous leaked images of Courier, and show a more refined product than was seen in photos leaked in the Fall of 2009. The images also offer some perspective and context for the size of the device, as seen in the photo below republished with permission from Engadget.
Walmart v. Best Buy: The New Battle of the Geeks
Best Buy and Walmart are fighting on a new front: trying to become a place for high-tech consumers to shop for futuristic electronics. Sure, Walmart will tend to battle on price, but it is also trying to boost its geek quotient with its recent purchase of the VUDU home entertainment service, for example. At the same time, Best Buy is scoping out its own territory, taking a small but significant pace forward on the hardware side: opening its first Magnolia Design Center in southern California. An interesting element in all this is that the higher-end home theater equipment is just the kind of thing that Walmart wants to hook up to its VUDU service and Best Buy wants to tap with its home entertainment partner Sonic Solutions (SNIC). The contest, by the way, isn't for the super techie who knows so much about home theater equipment that buying on line is the best bet, but for the person who is stepping up to elite status and needs to see and hear the equipment. So the adversary is Walmart, with its VUDU purchase and expansion of high-end flat-screen televisions, and Sears, too, to some extent, which has also been investing in TV and electronics services.
Cosmetics & Pharmacy
Billy Busko
Nestlé-L'Oréal Speculation Arises
Talk about Nestlé's participation in L'Oréal has bubbled up again here. But Françoise Bettencourt Meyers, granddaughter of the French beauty giant's founder, has helped squelch the conjecture by reiterating her family's support for L'Oréal. A report on Monday referred to gossip involving Nestlé speaking informally to Liliane Bettencourt, L'Oréal's largest shareholder with 30.8 percent of its capital and daughter of its founder, about an acquisition of her stake in the company. "Traders believe Liliane Bettencourt...has asked Nestlé to put its offer in writing before she makes a decision," the newspaper reported. Bettencourt Meyers on Wednesday published a statement with her husband, Jean-Pierre Meyers, through her lawyer, Olivier Metzner, reiterating the existing agreement that states Nestlé (which has an approximately 30 percent stake in L'Oréal) is committed to not increasing its share in the company until six months after Bettencourt passes away.
Global Expansion of Coach Beauty
Coach, Inc., a leading marketer of modern classic American accessories, and BeautyBank in a combined effort with Aramis & Designer Fragrances, divisions of The Estée Lauder Companies Inc. announced their expansion plans for Coach Beauty. The companies plan to increase their existing fragrance and beauty line globally, with immediate plans to enter North American department stores and specialty retailers, followed by a launch in global markets. Previously, Coach Beauty was available exclusively in Coach freestanding U.S. stores. The North American rollout will begin in March 2010 with the global launch to follow. The global expansion will begin in March 2010 with the launch of the Coach Signature Fragrance in Bloomingdales, Nordstrom, Macy's, Dillard's, Lord & Taylor, Von Maur, Bon Ton, Belk and Sephora stores nationwide. The launch will be supported by an integrated marketing and communications campaign, including widespread national print and web, among other media.
Beiersdorf Net Falls 32.8 Percent
Net profits at Beiersdorf AG fell 32.8 percent last year to 381 million euros, or $531.4 million. The Hamburg, Germany-based cosmetics and adhesive maker's earnings before interest and taxes decreased 26.3 percent in 2009 to 587 million euros, or $818.6 million. The EBIT margin was 10.2 percent. Sales at the company slipped 3.7 percent to 5.75 billion euros, or $8.02 billion. On a like-for-like basis, revenues dipped 0.7 percent.
Department & Discount Stores
Mark Lenz
JC Penney to Focus on Exclusives, Sees Malls Return
The need to avoid what industry analysts have derided as "the sea of sameness" of department stores' product assortments and layout has prompted leading retailers to beef up their big-name exclusives in recent years to win shoppers. But the battle for a bigger share of a pie that does not seem set to grow again for some time has lent those efforts even more urgency. "There are too many department stores that are the same," Ullman told Reuters on the sidelines of Penney's spring fashion show at New York's Lincoln Center on Tuesday, a glamorous event that featured names such as supermodel Cindy Crawford, designer Nicole Miller and Mary-Kate and Ashley Olsen.
Wholesale Clubs' Profit Grows as Grocery Supermarkets Slide
A steady stream of shoppers looking for deals on necessities has helped wholesale club operators Costco Wholesale and BJ's Wholesale Club deliver profit gains while many of their grocery competitors struggle. Costco and its smaller competitor, BJ's, both reported Wednesday that traffic, profit and sales trends improved at their stores during the quarter. It's a marked difference from many of its grocery competitors like Kroger, Walmart Stores and others, where food sales that once buoyed business are starting to sink profits thanks to the continued drag of the weak economy and increased price competition.
Macy's CMO Takes Unconventional Approach: "We Don't Need to Get New Customers"
Before Macy's CMO Peter Sachse spoke at our Retail Innovation & Marketing Conference about creating a consistent, creative customer experience, I was prepared to hear many of the same great stories and examples that have been told like folklore in countless meetings and conferences I've attended for the last year. Company Chairman and CEO Terry Lundgren, who is also the Chairman of NRF's Board of Directors, visited our office last week and was very candid with our staff about Macy's goals and objectives. I'd also watched Lundgren speak at Shop.org's Annual Summit last year and heard Macy's used as a case study a number of times during our Annual Convention. I wasn't going to blame them if much of what I'd heard was a repeat. It wasn't.
Department Store Gift-Wrapping May Become a Thing of the Past
The legacy of the department store as an oasis of customer service fell another notch this week when Macy's Inc. disclosed it is shutting down its gift-wrap department. The retailer, like most these days, has been under pressure to cut costs. Staffing stores with clerks to cut paper and fold ribbons doesn't come cheap. Department store services have been fading away for years. So it's no surprise that one more vestige of the traditional department store is going the way of coat checks, tea rooms and hair salons. Still, there is something ironic in eliminating gift-wrapping in a culture where shoppers, even those on a budget, are short of time and looking for convenience.
Energy Alternatives
Christopher Ellis
ProLogis to Develop 2.4-MW Rooftop Solar Project in Oregon
ProLogis announced a second solar project in Portland, totaling 2.4 megawatts (MW). Once completed, this project will be the largest rooftop solar system in the Pacific Northwest. ProLogis has signed an agreement with Portland General Electric (PGE) and the project will cover seven buildings and total 2.4 MW. This is the second rooftop solar project between the two companies, bringing ProLogis' total partnership with PGE to 3.5 MW of solar energy capacity. ProLogis now has solar projects installed or under construction on 27 buildings throughout France, Germany, Japan, Spain and the United States.
Porsche Hybrid Shows Green Gap in $90,000 Luxury Cars
Porsche AG, Mercedes-Benz and makers of the world's priciest autos are showing their first hybrids, testing the popularity that combination gas-and-electric motors can win in the market for $90,000 cars. At the Geneva auto show this week, Ferrari SpA displayed its first hybrid concept car and Mercedes-Benz touted a hybrid S400 that gets more than 25 miles per gallon, roughly the same as a diesel S350. Porsche introduced a Cayenne that offers the performance of a V8 engine, though its fuel efficiency matches that of a gasoline-powered V6. The cars may turn out to be better marketing tools than environmental remedies. Most of the luxury automakers are making small steps, with hybrids that still use gasoline, as they chase a public relations lift and try not to damage their reputation for elegance and power. Premium carmakers, under pressure from customers concerned about global warming, say the hybrid efforts are sincere and that drivers who demand a lighter environmental touch still want speed, noise and sex appeal. BMW is presenting a concept for a 5-Series hybrid and has said it will introduce a 7-Series this year that's a "mild hybrid," meaning that unlike the X6, it can't move on electric power alone. The models boost fuel savings by about 10 percent.
Footwear
Michael O'Hara
Reebok on the Rebound
There's finally a glimmer of good news for Reebok International, if not the turnaround promised four years ago. Total fourth-quarter sales dropped 1.1 percent for company, but sales in the key North American market inched up 4 percent on the strength of Reebok's new muscle toning and conditioning sneakers for women. It was the first increase since Germany's Adidas Group purchased the off-kilter athletic footwear brand in 2006 and promised a turnaround that same year. North American sales account for roughly one-third of Reebok's approximately $2.7 billion in annual sales. In toning, Reebok found a niche product that's generating a lot of buzz and consumer interest, he said. Reebok expects to sell 5 million pairs of the sneakers this year, which equates to about $325 million to $375 million in sales.
Brown Shoe Q4 Returns to the Black, Famous Footwear's Comps Surge 9%
Brown Shoe reported earnings in the fourth quarter were $5.0 million, or 12 cents a share, versus a net loss of $153.0 million, or $3.68 a share, in the year-ago quarter. On an adjusted basis, excluding charges and recoveries, earnings were $8.1 million, or 19 cents, compared to a net loss of $11.5 million, or 28 cents, a year ago. Fourth quarter of 2009 net earnings included after-tax charges of $2.8 million, or 7 cents per diluted share, related to the company's organizational changes announced in November of 2009 and $1.4 million, or 3 cents, related to its information technology initiatives. Net sales were $566.0 million in the fourth quarter of 2009, an increase of 8.6%, compared to $521.0 million in the fourth quarter of 2008. -- Famous Footwear net sales in the quarter were $342.7 million, a record fourth quarter result and an increase of 9.7% from the fourth quarter of last year, driven by a 9.0% same-store sales increase. Net sales at the company's Wholesale division were $151.1 million in the fourth quarter of 2009, an increase of 5.8% versus the same period last year; Net sales in the company's Specialty Retail division during the fourth quarter of 2009 increased 9.5% versus the same period last year to $72.2 million, reflecting a 7.6% same-store sales increase during the quarter.
Genesco Sees 6% Q4 Profit Gain on Flat Comps
Genesco Inc. reported fourth-quarter sales increased 6% to $479 million from $452 million a year ago. Comparable store sales were flat. Comp's at Hat World Group increased by 6%, the Journeys Group decreased by 3%, Underground Station decreased by 2%, and Johnston & Murphy Retail increased by 2%. Earnings from continuing operations rose 11.2% to $25.8 million from $23.2 million a year earlier.
Ecco USA's President and CEO to Retire
Ecco USA's President and CEO Tom Nelson will retire, effective June 1. Current COO Dave Quel will assume the role of acting president. Quel was promoted to become the footwear company's first COO in August 2009. Nelson will continue to serve on the USA and Canada Ecco board of directors and act as an adviser to both segments.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Better Traffic, Strong Holiday Bolster Petsmart Sales
Petsmart Inc. reported it performed better than it expected in the fourth quarter, as improvements in store traffic and a strong holiday season bolstered its financial results. Comp store sales grew 1.5 percent for the quarter and 1.6 percent for the year. Service sales increased 8.3 percent to $141.6 million for the quarter and 9.2 percent to $575 million for the year. Petsmart's rapid services growth may taper slightly this year. Petsmart also plans to spend up to $135 million on capital expenditure projects, growing its square footage by 3 to 3.5 percent. For its fourth quarter ended Jan. 31, 2010, Petsmart reported net income of $75 million on sales of $1.41 billion, compared to net income of $78.4 million on sales of $1.36 billion. For the year, Petsmart posted net income of $198.3 million on sales of $5.34 billion, compared to net income of $192.7 million on sales of $5.07 billion in the previous year.
Supervalu Launches Pet-Supplies Line
Supervalu Inc. is launching a store-brand line of pet food and supplies featuring nearly 100 cat and dog products. The Eden-Prairie grocery store operator and distributor said that the WholeCare Pet brand will replace former in-store brands Happy Tails and NutriPlan. The line will be available at Supervalu stores and select grocers supplied by the company. Those stores include Albertsons, Cub Foods and Hornbacher's.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
New Chocolate Bar Bubbles Up
A Salem, MA company has hit upon a sweet idea: making money from air. Bubble Chocolate - chocolate infused with air bubbles - is looking to make its mark as the first successful aerated chocolate bar to hit the American market. Bubble Chocolate, launched last year and nudging its way onto stores shelves across the country, is led by Paul Pruett, the man who helped turn ZonePerfect nutrition bars into a dietary sensation a decade ago. This time, Pruett is banking on the growing demand for premium chocolate and Americans' increasingly sophisticated cocoa palate to make his all-natural bars a sweet success. Bubble Chocolate is the first new aerated chocolate bar to hit the American market in decades. Previous attempts by other companies to bring this light, airy confection to the US consumer have largely flopped - despite the huge popularity of Nestle Aero bars and other aerated treats in Europe and around the world. The Salem company sees early signs of success. Whole Foods has begun stocking its shops with Bubble Chocolate, and Duane Reade recently signed an agreement to carry the company's two flavors: milk and dark chocolate.
Tops Selling 6 Stores to Price Chopper
Tops Markets, LLC announced that it would sell six recently acquired stores to Schenectady, N.Y.-based Price Chopper Supermarkets. Five of the six stores are in the northern upstate New York towns of Canton, Gouverneur, Massena, Potsdam, and West Carthage. The sixth store is in Lincoln, N.H. The deal is expected to close in about 30 days. Terms of the sale were not disclosed. With over 10,000 associates, Tops operates 76 full-service supermarkets - 71 company-owned and five franchise locations - western New York; central New York, including Rochester; and Northwestern Pennsylvania.
Stop & Shop Posts Q4 Profit Gains
Ahold announced that fourth-quarter operating income at the company's Quincy, Mass.-based Stop & Shop/Giant-Landover division rose 15%, to $238 million, and full-year operating income at the division rose 24%, to $869 million. As previously reported, sales for the year were up 4.6% at the division, to $17.9 billion, including an extra week of sales in the most recent fiscal year. Adjusted sales rose 2.6%.
Safeway Sees Momentum Building, Deflation Abating
Safeway believes it is well positioned to benefit from an improvement in the economy, given its newly achieved price parity with other conventional chains, its distinct points of differentiation and the condition of its asset base, Steve Burd, chairman, president and chief executive officer, told an investors conference. The company is "continuing to build momentum" through the first quarter, he added, with eight of its nine U.S. divisions showing "a measurable response" to the chain's lower-everyday-pricing program. Burd declined to name the division that is not responding, and company officials declined to indicate if he was referring to the Denver division, which had been been mired in a labor dispute that was not settled until early February.
Whole Foods to Sell Two Wild Oats Stores
Whole Foods Market has found buyers for two of the former Wild Oats stores it must divest by order of the Federal Trade Commission, according to a filing by the FTC. The two stores - one in Kansas City, Mo., and the other in Boulder, Colo. - are the first sales agreements to be announced among the 32 stores that the FTC last year said must be divested to satisfy antitrust regulations following the 2007 merger of Austin, Texas-based Whole Foods and Boulder-based Wild Oats.
Home Improvement/Auto Repair
Billy Busko
Improved Quarter for AutoZone
AutoZone has posted earnings per share of $2.46 per share for the second quarter ended February 13, 2010, beating the estimate of $2.35 per share. The earnings also improved from the year-ago level of $2.03 per share. Net sales in the quarter rose 4% to $1.5 billion. Domestic same store sales increased 1% for the quarter. Gross profit, as a percentage of sales, went up to 50% from 49.7% in the last year's quarter. The improvement in gross margin was attributable to a shift in mix of sales to higher margin product and lower product acquisition costs. AutoZone's inventory increased 3.3% due to the new store openings. Inventory per store was $504 thousand versus $509 thousand last year. However, net inventory decreased on a per store basis to $26,000 from $50,000 last year. During the quarter, AutoZone opened 24 new stores in the U.S. and 9 new stores in Mexico. As of February 13, 2010, the company had 4,289 stores in 48 U.S. states, the District of Columbia and Puerto Rico, and 202 stores in Mexico.
The Home Depot Announces U.S. Store Energy Savings
The Home Depot, the world's largest home improvement retailer, today announced that it has reduced its U.S. store energy use by 2.6 billion kilowatt-hours (kWh) since 2004 and that it will achieve a 20 percent reduction in kWh per square foot usage in its U.S. stores by 2015. Also, the Company has set a goal to reduce greenhouse gas (GHG) emissions in its domestic supply chain by 20 percent within the next five years. The Company is in the process of calculating its comprehensive carbon footprint based on the World Resources Institute and World Business Council for Sustainable Development protocol, the emerging standard for government and business leaders to understand, quantify and manage greenhouse gas emissions. The results of the findings will be released in one year's time.
Housewares/Furniture
Billy Busko
Tractor Supply Company Initiates Quarterly Cash Dividend Program
Tractor Supply Company, the largest retail farm and ranch store chain in the United States, today announced that its board of directors has declared an initial quarterly cash dividend of $0.14 per share of the Company's common stock. The commencement of the Company's first ongoing dividend program is reflective of the Company's growth and commitment to delivering shareholder value. The declared $0.14 per share cash dividend will be paid on March 29, 2010 to stockholders of record as of the close of business on March 15, 2010. Tractor Supply Company expects quarterly dividends to be paid in March, June, September, and December. The Company anticipates a total annual dividend of $0.56 per share of common stock, or approximately $20 million in 2010 based on the current number of outstanding shares.
Analyst Downgrades Helen of Troy
Shares of Helen of Troy Ltd. slumped Wednesday as an analyst downgraded the maker of personal care and consumer products, saying gross margin will be pressured by rising plastic resin prices. Most of Helen of Troy's products are made with plastic resin. Spot prices for the material have declined through the peak of the economic downturn but stabilized after that. Now that economic conditions are beginning to improve, it's likely plastic resin prices will start to rise. In January, Bermuda-based Helen of Troy reported its third-quarter revenue climbed on strong sales of its OXO branded houseware items, particularly new products for dry and wet food storage.
Intellectual Property & Multi-brand Companies
Douglas Stebbins
With SKU Reductions Underway, Which Will Survive?
Americans have an ongoing love affair with brands. Threaten to take away their Dawn dishwashing detergent or their Kleenex and you'd better be ready for a knock-down, drag-out fight: Those items, along with Bounty paper towels and Crest toothpaste, are among the products shoppers choose most often when they roll their carts up and down the supermarket aisles. While there are undeniable brand favorites in some categories, it's not as straightforward to pick a winner in others. A nearly equal percentage of shoppers claim to purchase Kellogg's and Cheerios (made by General Mills) when asked about their breakfast cereal preference. And there's no clear frontrunner in the "bottled water" or "dinner entrees" categories, either.
Billabong Signs Ten-Year License Deal with Plan B
Billabong International Limited has entered an exclusive 10-year agreement to license the California-based skateboard brand Plan B. Plan B will unite with Element, operating out of the brand's Irvine, California-based headquarters. According to Element Founder Johnny Schillereff: "The Billabong group's unwavering support has helped Element blaze the trails we've always dreamed of. Plan B is iconic and deep within the fabric of skateboarding and we couldn't be happier to unite with them. "
Jewelry/Mining
Mark Lenz
Perils of Investing Bite Ex-Regulator
Richard C. Breeden built a career playing referee to corporate America. Now, as a player, he's finding the game to be pretty rough. As chairman of the Securities and Exchange Commission from 1989 to 1993, Mr. Breeden pushed to crack down on cozy boards and overpaid executives. He later served as a court-appointed monitor of scandal-tainted companies such as telecommunications giant WorldCom Inc. and accounting behemoth KPMG. He wrote a scathing report that characterized Conrad Black's Hollinger International Inc. as a "corporate kleptocracy." For two years he has been the largest shareholder and most influential director at Zale Corp. Once America's largest jewelry retailer, Zale now is struggling. Its sales have been sinking, it has run short on cash and credit, and it fired its chief executive and his top two lieutenants in January.
Zale Puts 12 Leases on New York Stores Up for Sale
Zale Corp is looking to sell the leases on as many as 12 of its New York City jewelry stores in an apparent move to shore up its finances. The leases include Zales stores in prime locations such as Manhattan's Herald Square and along Fifth Avenue, as well as two stores apiece in the Bronx, Brooklyn and Queens, according to a listing on the website of New York-based advisory firm RCS Real Estate Advisors. Zale's treasurer declined to comment and the RCS agent overseeing the sale did not return calls for comment on when these leases were put up for sale. It was not clear whether Zale was solely trying to reduce some of its lease obligations or whether the jeweler would consider leaving some of these store locations.
Polished Diamond Prices Up Significantly in February
Polished diamond prices rose a sharp 2.3 percent in February, according to the IDEX Online Global Polished Price Index. There are three key factors pushing polished diamond prices higher: rough diamond prices are rising; the global economic recovery has begun, led by exceptional strength in the U.S., the largest market for diamonds; and anticipation of re-stocking in the diamond pipeline, especially at the retail level. The IDEX Online Polished Diamond Price Index averaged 112.6 during February 2010, up over 2 percent from the average of 110.1 for January. This was the third consecutive month that polished diamond prices have risen, after languishing for most of 2009 at around 108, and the IDEX Online Polished Price Index started the month at 111.4 and ended the month at 113.2. It showed steady gains throughout the month.
Fate of Carlyle and Co. Sale Lingers in Court
Nearly four months after it was auctioned off in a bankruptcy sale, the fate of the Carlyle and Co. jewelry chain is still in question, as the parties involved battle it out in federal court. Documents filed March 1 in U.S. Bankruptcy Court for the Southern District of New York show that a suit filed by Carlyle and Co. along with its debtors and debtors in possession, is aiming to get Adamas Partners LLC to make good on an agreement to buy what remains of the Carlyle and Co. business, which was liquidated after parent company Finlay Enterprises went bankrupt. The suit names Adamas and its principal Russell Cohen, a member of the family that founded Carlyle and Co., and who also served as its owner prior to its 2005 acquisition by Finlay. Cohen remained as chief executive officer after Finlay bought the chain.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Staples 4Q Income Down 18%
Staples announced that total company sales for the fourth quarter 2009 increased 4% to $6.4 billion compared with the fourth quarter of 2008. Net income for the fourth quarter 2009 declined 18% year over year to $234 million, and diluted earnings per share, on a GAAP basis, decreased 20% to 32 cents from the 40 cents achieved in the fourth quarter of last year. For the full year 2009, total company sales increased 5% to $24.3 billion compared to the full year 2008. Net income decreased 8% year over year to $739 million, and diluted earnings per share, on a GAAP basis, decreased 10% to $1.02 from the $1.13 achieved last year. Staples North American retail segment reported a comparable-store sales increase of 3% for the fourth quarter and a decrease of 2% for the full year.
Paper Goods Retailer Swoozie's Files Bankruptcy
Swoozie's, a U.S. retailer of gifts and stationery products, filed for bankruptcy protection on March 2, saying it was hurt by underperformance of recently acquired stores in the Northeast. The company, which voluntarily filed for Chapter 11 in a Georgia court, is seeking to sell its assets to a buyer or liquidator by March 27, according to court documents. Swoozie's had acquired 13 stores out of the bankruptcy of stationery retailer Blue Tulip, but said the stores had underperformed as they were forced to "go dark" for a month prior to their re-openings under the Swoozie's brand and fewer customers than expected returned to the new stores. Sales also dropped in late 2009 as consumers pulled back on paper products, invitations, party goods and home accessories, Swoozie's said in court papers. Swoozie's, which was founded in 2001, operates 43 locations in 15 states and has 350 employees. The company said it has had "in-depth discussions" with at least nine strategic buyers starting in late 2009, and that it has contacted over 40 possible investors, liquidators, private equity firms and possible industry buyers about a possible deal.
OfficeMax Lays Out Plan to Boost Sales
OfficeMax Inc. laid out a plan for increasing its sales in coming years by offering more in-store services, targeting women and taking its goods beyond its own stores. The nation's third-largest seller of office supplies aims to increase sales by a mid-single digit rate and to return to margin levels comparable to their peak in 2007, in the five year period starting 2011, it told investors on Thursday. The company is now entering "growth mode" from "turnaround mode," Chief Executive Sam Duncan said. Office-supply retailers, which saw corporate clients and other shoppers tightening their belts in the recession, are taking steps to improve their services amid early signs of a recovery in spending as the economy improves.
Restaurants/Food Service
Mark Boucher
Alizadeh's 66 Jack-in-the Box Restaurants Auctioned for $39 Million
Abe Alizadeh's 66 Jack-in-the Box Restaurants were sold at auction on February 24th in Sacramento for approximately $39 million, an average of $591,000 per location. There was no real estate involved. The restaurants were located in Sacramento, Fresno, Chico and Eureka California. Alizadeh's companies-Kobra Associates, Sierra Valley Restaurants and Foodservice Management-filed for bankruptcy on September 18, 2009. The restaurants are now operated by a U.S. Trustee, Beverly N. McFarland. Alizadeh had been a franchisee in the Jack-in-the-Box system for over thirty years. National Franchise Sales of Irvine, California conducted the auction.
Thomas H. Lee Partners to Acquire CKE
CKE Restaurants, Inc. ("CKE"), owner of Carl's Jr. and Hardee's quick-service restaurant chains, and Thomas H. Lee Partners ("THL") announced that they have entered into a definitive merger agreement under which THL will acquire CKE for approximately $928 million, including the assumption of approximately $309 million of net debt. Under the terms of the agreement, CKE stockholders will receive $11.05 in cash for each share of CKE common stock they hold, representing a 24% premium to the Company's closing share price on February 25, 2010 and a 29% premium to the Company's volume weighted average closing share price of approximately $8.60 during the 30 trading days ended February 25, 2010.
Famous Dave's Swings to Profit in 4Q
Famous Dave's of America said effective promotions and operational execution helped improve results in the fourth quarter and full fiscal 2009. The operator or franchisor of the 176-unit Famous Dave's barbecue chain said fourth-quarter net income was $774,000, or 8 cents per share, compared with a net loss of $2 million, or 22 cents per share, in the fourth quarter of 2008. Revenue fell slightly to $32.6 million for the Jan. 3-ended fourth quarter, from $32.8 million a year earlier. Same-store sales for the fourth quarter declined 3.4 percent at company-owned restaurants and 8.5 percent at franchised units. Sales declines were offset slightly by weighted average price increases of about 2.3 percent since December 2008, the company said, adding that promotions like a 12-ounce smoked rib eye and a limited-time meatloaf entree were rolled out to spur sales.
Morton's 4Q Loss Grows on Charges, Slow Sales
Morton's Restaurant Group reported a wider net loss in the fourth quarter on impairment charges and declining sales at its high-end steakhouse chain. For the Jan. 3-ended quarter, Morton's recorded a net loss of $66.9 million, or $4.21 per share, which reflected charges related to impaired assets, the settlement of wage-and-hour claims, and severance for former chief executive Thomas J. Baldwin, who resigned Feb. 2. In last year's fourth quarter, Morton's posted a net loss of $7.6 million, or 48 cents per share. Fourth-quarter revenue fell 9.4 percent to $79.2 million, due in large part to an 11.6-percent decrease in same-store sales. Adjusting for the extra week in the year-ago fourth quarter, same-store sales would have decreased only 5.3 percent. During fiscal 2009, Morton's closed six steakhouses and one Bertolini's restaurant, while selling the one remaining Bertolini's unit it owned. The company opened two steakhouses and entered into a lease agreement for another.
Wendy's, Arby's Parent Cuts 4Q Loss
Wendy's/Arby's Group Inc. significantly cut its net loss in the fourth quarter on fewer charges, but it continued to struggle with falling sales at Arby's. The company reported a net loss of $13.6 million, or 3 cents per share, for the quarter ended Jan. 3, compared with a loss of $393.2 million, or 84 cents per share, for the same quarter a year earlier. After-tax charges totaled 10 cents a share in the latest fourth quarter, compared with 89 cents a share in charges in the year-ago period. Fourth quarter revenue rose slightly to $900.9 million and reflected the impact of an additional week, Wendy's/Arby's said. Wendy's continued to outperform Arby's in sales, posting a 3-percent decline in North American same-store sales, compared with a 11-percent drop at Arby's. Wendy's sales were aided by value offerings, including $2.99 Deluxe combo meals and 99-cent spicy chicken nuggets.
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The Team at Consensus
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