The Weekly Consensus: Week of March 15, 2010
It's the Technology, Stupid
Michael O'Hara
A goal of The Big Story is to relate a major news event from the prior week to the retailing and consumer products universe. For the past two years, the gravity of the global financial crisis has presented countless opportunities to explore the impact of macroeconomic trauma on the businesses with whom we work and upon which we focus. For example, last Thursday, the court overseeing the Lehman Bros. bankruptcy released the 2,200 page report of the court appointed examiner detailing the causes of the giant investment bank's collapse. Frankly, this subject is getting boring.
While we have obsessed on the drama of the financial crisis, another force has been cutting a swath through the retailing and consumer products landscape: paradigm altering technology. Last week's technology news focused on the introduction of 3-D television, with the epicenter of the story being at Best Buy's Union Square store in New York City, where Panasonic's HD 3D1 home entertainment system was unveiled to the public. This event was one in a long line of recent communication and entertainment breakthroughs that has included the iPod, iPhone and iPad, satellite radio, flat screen and high-definition televisions, the Kindle, video on-demand, Skype, social networking, private sale retailing, affordable global positioning satellite systems and wireless everything (including wireless power through products like PowerMat). These innovations and extensions have impacted both what is selling at retail and how things are sold in revolutionary ways.
And while the receding tide of economic turmoil lowers all boats, the technology tsunami of recent years has been more discriminate: it has made great winners of some and big losers of others.
For example, Amazon's net sales in 1996 were only $15.7 million. By 1998, its sales had grown to nearly $610.0 million. For the year ended December 31, 2009, Amazon's sales were in excess of $24.5 billion. Their success mirrors the growth of the Internet and, in particular, the expansion of broadband. During this same time, while Borders Group's superstore sales have increased meaningfully, their average sales per superstore have dropped from $6.24 million in 1997 to $5.1 million per store last year. Borders still offers an excellent experience to the customer, but there is no doubt that it is swimming against a strong current that threatens its viability. (We think their strategy needs to further emphasize the benefits of the in-store experience, such as showing independent films and documentaries and expanding their coffee and food offerings.)
Apple's iTunes Music Store opened on April 28, 2003. For the year ended September 26, 2009, Apple reported that sales for the iTunes division exceeded $4.0 billion. In contrast, consider the fortunes of Trans World Entertainment. The owner of F.Y.E. and Coconuts music and video stores had sales of $1.33 billion for the year ended January 31, 2004, or roughly $1.5 million per store. Five years later, TWE's sales dropped to $814.0 million, and sales per store dropped to $1.2 million. TWE surely did not anticipate the success of iTunes when it invested in its store real estate.
Video rental stores, perhaps more than other retailers, have been forced to fight the war on many new fronts. Coinstar Inc., for example, now operates more than 22,400 Redbox and DVDXpress self-service DVD rental kiosks at grocery stores, mass retailers, drug stores, restaurants and convenience stores. Sales doubled from $388.5 million in 2008 to $773.5 million in 2009. Cable company on-demand has also exploded in the latter half of this decade. Comcast, for example, reports that it has had over 11.0 billion views for its on-demand video services since it launched the feature six years ago. That number, 11.0 billion, is approximately the same number as the videos watched on YouTube in April 2009. Add to this NetFlix, the mail-order DVD service, which tripled the size of its business from $506.2 million in sales in 2004 to $1.7 billion in 2009. Last year, NetFlix expanded its business innovatively by offering product free to subscribers online and through certain gaming systems, reducing its reliance on the postal system and speeding its delivery times. Against these new forces, video rental stalwart Blockbuster's sales dropped from $6.1 billion in 2004 to $4.1 billion in 2009, giving up nearly one-third of its business in five years.
There seem to be two common threads to these stories. Industry leaders in these sectors were focused on execution at the expense of strategy, and they ceded technological advantage to newcomers who they could have bested if they were properly attentive. Additionally, investment in physical stores can one one-hand build the brand in the consumer's mind, but also add expense that e-commerce companies don't have. Even a marginal free-riding Internet-based business can take enough sales from a brick-and-mortar store to make it unprofitable. Value-added e-commerce competitors such as Amazon, Apple and NetFlix can make this investment in real estate suffocating. For many retailers in 2009, technology was the big story, not the economy. In 2010, CEOs and boards focused on cutting inventories and costs would be wise to keep one eye on developing technologies in their markets.
Apparel/Swimwear/Intimates
Betsy White
Burberry Accuses TJX of Selling Counterfeit Goods
Burberry Group Plc, a maker of high-end apparel, scarves and handbags, has sued TJX Cos, accusing the operator of the off-price TJ Maxx, Marshalls and HomeGoods stores of selling counterfeit goods. The trademark lawsuit was filed in Manhattan federal court on March 3, the same week the handbag and briefcase maker Coach Inc filed a similar complaint against discount retailer Kmart Corp, a unit of Sears Holdings Corp. In its lawsuit, Burberry accused TJX of selling various trademark-infringing products such as jackets, picture frames, polo shirts, scarves and luggage, over the past four years. By selling counterfeit goods, Burberry said, TJX stores are trying "to attract their target customer base and profit at Burberry's expense."
Abercrombie Will Keep Discounting
Abercrombie & Fitch Co. said Wednesday that it will continue its uncharacteristically high levels of discounting through the spring in order to boost store sales. Jonathan Ramsden, chief financial officer of the New Albany, Ohio, teen clothing retailer, said it is willing to sacrifice margins if necessary to improve sales. Average unit prices, which were down 14% in February on higher discounting, will continue to be "down quite significantly" for the first half of the year, Mr. Ramsden said. The company will accept some "gross margin erosion for the season" so long as it is "effective in increasing productivity," Mr. Ramsden said at a Bank of America investors' conference. Abercrombie, which also operates the Hollister and Gilly Hicks brands, reported sales at stores open at least a year declined dramatically in 2009. After a string of double-digit monthly decreases, the company is focused on posting sales increases this year. Mr. Ramsden said it hopes to report same-store sales increases for the entire year, as well as on a monthly basis, but warned the road to recovery could be choppy.
American Eagle Shutting Down Martin + Osa Chain
Ending months of speculation, South Side retailer American Eagle Outfitters Inc. this afternoon announced it is giving up on its experiment in clothing an older clientele. The Martin + Osa chain, which had grown to include 28 stores and an online business, will be shut down by summer. The official statement said that the project generated an after-tax loss of about $44 million in the most recent fiscal year, which ended in January. The brand wasn't reaching the performance goals that would justify more investment, the company said.
Athletic & Sporting Goods
Michael O'Hara
Dick's SG Posts Modest Q4 Earnings Rise on 2.5% Comp Gain
Dick's Sporting Goods, Inc. reported an 8.3% gain in fourth-quarter earnings. Sales increased by 10.7% to $1.3 billion due primarily to a 2.5% increase in comparable store sales, the opening of new stores and the addition of e-commerce sales. The 2.5% consolidated same store sales increase consisted of a 2.4% increase in Dick's Sporting Goods stores and a 5.9% increase in Golf Galaxy stores. For the first quarter, it expects earnings between 12 to 13 cents a share, which compares with 11 cents a year ago. Comps are expected to rise 2% to 3%.
Fortune Brands Inc. Sells Cobra Brand to Puma, Stock Price Soars
Following a strong expansion of net income during the fourth quarter of 2009 and Wednesday's sale of the Cobra golf brand to PUMA AG, the stock of Chicago-based Fortune Brands Inc. rose to a new 52-week high. Fortune Brands, headquartered in northwest suburban Deerfield, Ill., is a consumer goods company specializing in three unrelated product categories: home and security, premium spirits and golf. The company markets prominent brands including Jim Beam bourbon, Titleist golf equipment, Moen faucets and Master Lock padlocks. The company sold Cobra in order to focus on its two leading golf brands, Titleist and FootJoy. "With Titleist and FootJoy, we will continue to have the leading worldwide position in the attractive golf consumer products category, and we are very well positioned to drive growth as the market stabilizes in 2010 and recovers in the years ahead," CEO Bruce Carbonari said in a release.
Catalog & Internet
Christopher Ellis
Amazon Cut Ties With Affiliates in Yet Another State Over Taxes
The ongoing debate about whether or not to levy sales tax on online purchases got another talking point yesterday, as Amazon.com reacted to one such law in Colorado by completely dropping all of its affiliates in the state. The Colorado state legislature had enacted the law, which went into effect last week, as an attempt to earn sales tax from Colorado-based businesses using Amazon to connect with buyers around the world. Unlike other states, Colorado gave merchants two options: Either add the sales tax to their goods or send customers an annual accounting of how much each customer owes the state in sales tax. However, Amazon decided that the new laws were too burdensome and Byzantine, and so decided - just as they did in North Carolina and Rhode Island - to end their relationship with affected affiliates.
For The First Time, More Money to be Spent on Digital Ads than Print in US
You may have thought that this had already happened, but at long last, the digital slice of the US advertising market is set to become greater than print's share in 2010. 2010 is therefore a watershed year for the entire digital economy, taking a proud place at the front of the advertising bus. In terms of total percentages, digital ads are expected to net 32.5% of the $368 billion dollar projected ad spend. This covers total US and B2B advertising. Print is set to garner 30.3% of the total. In dollar terms, digital is set to be a little over $8 billion more than print. While they are close, the trends up and down are quite clear.
E-Commerce Growth Slows, but Still Outpaces Retail
Shopping continues to shift to the Web, but the years of torrid expansion are coming to an end. In 2009, e-commerce in the U.S. managed to buck the recession that dragged down the rest of retail, gaining 11% to reach $155.2 billion. Just a few years ago, online shopping was increasing at more than 20% per year. But today, that trend is stabilizing, as shopping habits have shifted to make buying online a more regular occurrence for many types of products. Already, 52% of all computer hardware, software and peripherals are bought online, and increases in online sales of those products is likely to slow considerably in the coming years. In 2010, e-commerce will likely account for 7% of all U.S. shopping, excluding auto, travel, and prescription drugs.
Consumer Electronics/Video/Audio
Douglas Stebbins
Panasonic to Tie Up with Best Buy on Sale of 3-D TVs in U.S.
Panasonic Corp. plans to join hands with leading U.S. electronics retailer Best Buy Co. on the sale of televisions capable of projecting three-dimensional images, company sources said Sunday, according to Kyodo News. With the tie-up, the Japanese appliance manufacturer, which is set to put on sale a 3-D TV in the U.S. market next Wednesday ahead of its launch in Japan, wants to beat competitors such as South Korea's Samsung Electronics Co., they said. Under the deal, Panasonic will create a 3-D DVD compilation of famous scenes from popular movies, and Best Buy will show it at some 300 of its outlets across the U.S., rising to about 1,000 outlets by the end of the year, they added.
Blockbuster Hits
Depending on whom you ask, beleaguered video-rental chain Blockbuster needs a strategic partner -- or a lifeline. A large bank has started to hit up private-equity firms to help the once-popular retailer, saying it is on the verge of running out of money. According to a source who has reviewed materials the bank is distributing, Blockbuster this year must pay off $213.5 million in loans and interest, and after that will have just $85 million to satisfy a similar amount of interest and principal payments due in 2011. The documents say that while Blockbuster currently has $211 million in cash, estimates are it will have a $126 million net cash loss for 2010. The company is in the process of selling its European assets, and potential sales proceeds are not factored in the numbers. Blockbuster CEO Jim Keyes said, "All your numbers are wrong. They bear no resemblance to any materials we have in the market."
Has iTunes Killed the Classic Album?
What's your favorite album of all time? I'll bet there were songs that didn't hit you immediately, songs that you only grew to love over time. Now imagine you'd bought that album post-iTunes, with the option to preview and purchase individual tracks. Would you have bought every song? Honestly? Or would you have just cherry-picked the ones that sounded good on first listen? It's an old argument, all a bit Word Magazine - but it's been yanked abruptly back into focus by (sorry, there's just no way to make this sentence interesting) Pink Floyd's decision to sue their record label EMI in a dispute over online royalty payments. Their beef? Pink Floyd don't want their albums parceled up into individual track downloads.
Cosmetics & Pharmacy
Billy Busko
Helen of Troy to Acquire Pert Plus, Sure Brands
Helen of Troy has entered into an agreement to purchase the Pert Plus hair-care brand and the Sure anti-perspirant and deodorant brand from Innovative Brands. The purchase price was not disclosed in a statement released this morning by Helen of Troy, and the company said it expects the transaction to close at the end of this month. Gerald Rubin, the company's chairman, president and chief executive officer, said the two brands will underscore the company's position in the hair-styling and personal-grooming markets. He added that Helen of Troy will integrate Pert Plus and Sure into its Idelle Labs division, which markets hair-care and skin-care products. Rubin said the two brands are expected to generate about $65 million in annual sales for the division.
Physicians Formula Reports 4th-Qtr. Loss
The problem-solution cosmetics company Physicians Formula Holdings Inc. reported a fourth-quarter net loss of $2.5 million, or 18 cents a diluted share, compared with an impairment-elevated loss of $24.5 million, or $1.80 a share, in the year-earlier period. The company attributed the loss to its effort to trim older, slower-moving products from the assortment. The initiative, completed in late December after 2010 retail plan-o-grams were finalized, resulted in the discontinuation of about 28 percent of the Physicians Formula assortment. Sales during the three-month period ended Dec. 31 declined 20.9 percent to $22.3 million from $28.2 million in the year-ago period, due largely to the loss of a major retail customer. Physicians Formula did not name which retailer it lost, but WWD previously reported Walgreen Co. stopped placing orders with the beauty firm as part of a storewide stock-keeping rationalization effort.
Ulta's 4th-Qtr. Net Up 64.6%
Ulta Salon, Cosmetics & Fragrance Inc. built on higher sales and margins to lift fourth-quarter earnings 64.6 percent. In the three months ended Jan. 30, the Bolingbrook, Ill.-based beauty retailer generated net income of $20.2 million, or 34 cents a diluted share, above the 30 cents expected by analysts polled by Yahoo Finance and the $12.3 million, or 21 cents, registered in the prior-year period. Revenues rose 16.1 percent, to $396.4 million from $341.4 million, and were up 6.2 percent on a same-store basis. Gross margin rose to 31.4 percent of sales from 29.7 percent.
Inter Parfums Profit Rises 13.9%
New York-based Inter Parfums Inc. posted a 13.9 percent gain in fourth-quarter profits, which rose to $7.5 million from $6.6 million in the same period a year ago. Revenues at the firm reached $112.9 million for the quarter ended Dec. 31, a 12.5 percent increase from $100.4 million in the year-ago period. For the full year, net income was up 0.1 percent to $30.2 million, from $30.1 million, on annual sales that were off 8.2 percent to $409.5 million from $446.1 million in 2008. Meanwhile, the firm's Paris-based Inter Parfums SA subsidiary reported net profits in 2009 gained 7.2 percent to reach $31.5 million. Operating profits at Inter Parfums SA dipped 1.7 percent to $47 million. Operating margin reached 13 percent, a slight improvement on 2008's 12.9 percent. The company's sales declined 2.2 percent to $361.5 million.
Department & Discount Stores
Mark Lenz
Perry Ellis Makes Deal with Sears
Perry Ellis International announced it had cut a deal with Sears Holdings Corp. to sell golf apparel under the Top-Flite brand at 800 U.S. Kmart stores. The first shipments start this month. The brand belongs to Callaway Golf and is licensed for apparel to Perry Ellis. "Perry Ellis International's unparalleled expertise in golf apparel has opened a new avenue of growth with a great retail partner, Kmart," President and COO Oscar Feldenkreis said in a news release about the deal. "We are thrilled about the new opportunities that this relationship brings to both companies."
Neiman Marcus CEO Says Luxury Shoppers Returning as Chain Posts a Profit
Neiman Marcus Inc. swung to a profit in its fiscal second quarter on lower expenses and higher holiday sales, and management said Tuesday that upscale shoppers are slowly making a comeback. While customers aren't spending at pre-recession levels, they're responding to promotions and the rebound in the stock market, chief executive Burt Tansky told analysts during a conference call Tuesday. Limited midday Internet shopping events, in-store designer visits and a daily iPhone app deal featuring exclusive shoes from Bergdorf Goodman are popular, Tansky said.
New Plan for Mall Operator to Exit Bankruptcy
The largest shareholder and the largest unsecured creditor in the mall operator General Growth Properties intend to enhance the company's reorganization plan to emerge from bankruptcy as an independent company, the company confirmed Monday night. The mall operator has been fending off an unsolicited $10 billion takeover offer from a major rival, Simon Property Group. General Growth's own proposal to emerge from bankruptcy has raised questions about its ability to pay off unsecured creditors in cash. Under the deal now proposed, Fairholme Capital Management, the company's largest unsecured creditor, and Pershing Square Capital Management, its largest shareholder, would invest about $3.93 billion in partnership with Brookfield Asset Management, General Growth said.
Economy-Minded, Consumers Shift Their Priorities
Time-starved shoppers may be losing their importance in retailers' pecking order. More than a year after the fallout of the financial markets that led to a near 10% unemployment rate, American consumers, in a fundamental behavioral change for the first time in at least 10 years, are willing to trade their time and service and be inconvenienced just to get a product that they perceive offer them so called value, according to a fourth-quarter survey of 8,000 shoppers by advisory firm Alix Partners, which has conducted similar studies on consumer mindsets since 1999. For the first time, service, whether it's shopping in channels from department stores and electronics retailers to shoe stores and discounters, became the least important while product and price surged to the top and became even more important, the survey showed.
"Because It's the Right Thing to Do."
In 1984, Richard Galanti was a young investment banker at Donaldson, Lufkin & Jenrette when a Seattle-area start-up retailer invited him to become its vice president of finance. He is now starting his 27th year as finance chief of Costco Wholesale Corp., which has become the nation's third-largest retailer, with fiscal 2009 revenues of $71.4 billion. Costco is a warehouse club; some 55 million people pay an annual fee to shop at its 566 locations in the United States and abroad. They buy goods, frequently in bulk, ranging from apparel and appliances to food, electronics, jewelry, and more. But Galanti, who turns 54 in March, isn't the only old-timer at Costco. Co-founders Jim Sinegal and Jeff Brotman, for example, are still at the helm as CEO and chairman, respectively. Indeed, turnover is generally low among Costco's 147,000 employees. That's because the company's compensation and benefits are far more generous than those of its main rivals, Sam's Club and BJ's Wholesale Club.
Energy
Christopher Ellis
Solar Leadership Shakeup: Q-Cells & SkyFuel Lose CEOs
The last few weeks have seen two big leadership changes in the solar industry. This week, the Q-Cells SE Supervisory Board has accepted the resignation of CEO Anton Milner. Milner resigned from the company's Management Board with immediate effect but will serve as an adviser to the company. Nedim Cen, currently CFO and member of the Management Board, has been named CEO and will hold both positions. On the other side of the Atlantic, CSP firm SkyFuel Inc. announced that Dr. Arnold Leitner, the founder and CEO since the company's inception is leaving the company to pursue other interests.
US Senate Votes to Reinstate Crucial Biodiesel Tax Credit As Part of Jobs Bill
The U.S. Senate this week passed a bill containing the reinstatement of the biodiesel blenders' tax credit, a critical piece of policy for the industry that had been allowed to expire at the end of 2009. The American Workers, State and Business Relief Act, included H.R. 4213, the Extenders Package which contains the extension of the US $1 per gallon biodiesel production tax credit. The bill calls for the tax credit to be retroactive to January 1 and runs out on December 31, 2010. The House passed a similar bill earlier this year and now both bills will need to be reconciled in conference. Timing for final passage and presidential signature remains uncertain. This passage follows a tumultuous few months for the biodiesel industry that have seen production drop off and new investments grind to a halt. According to the National Biodiesel Board, further delay addressing the tax credit is certain to make the job loss situation worse and imperil the 23,000 green jobs the industry currently supports.
Footwear
Michael O'Hara
Payless Embarks on a Beauty Venture
Payless ShoeSource announced an alliance with Maesa Group to create a collection of new beauty and body care products to be available exclusively in about 1,500 Payless ShoeSource stores this fall. Payless said it expects to expand the new product offering beyond the initial 1,500 stores to additional stores in the future and the new lines will be sold under two brand names: Zoe & Zac and Unforgettable Moments. The forthcoming new products will include a range of body care and beauty items such as lotions, creams, butters and shower gels for body, hands and feet; fragrances and mists; color for eyes and lips; as well as nail polishes, among others, starting at $2.99 an item.
Is Toning Footwear a Trend or Fad?
Is it another Heely's, another Crocs, or is it another Reebok Freestyle? That's the question many in the market are asking as they attempt to assess the long-term upside the the toning footwear category. Excitement around the category was the buzz on the conference calls last week for Foot Locker, Genesco and Brown Shoe Co., the owner of Famous Footwear. At Famous Footwear, women's footwear reported out a whopping 18% comp gain, driven by a strong increase in women's athletics, particularly toning products. The men's toning business at Famous Footwear is "small" but the company has "seen an increasing momentum in the men's toning product and [believes] this opportunity will continue to grow." On Foot Locker's analyst call, company chairman and CEO Ken Hicks listed toning along with men's and women's technical footwear as the "two important fashion trends' emerging for the company. On Genesco's conference call, Bob Dennis, president and COO, noted that the footwear industry this past season was driven by two categories: women's boots and toning. And while Journeys capitalized on the strong boot business, the "chain did participate in the enormous success of the toning category" and will be testing the waters.
Foot Locker Sets Strategic and Financial Goals to Improve Business
Athletic shoe and clothing chain Foot Locker Inc. set a series of strategic and financial goals on this week that it said will help it grow and build on recent improvements to its business. The company said it plans to reach annual sales of $6 billion and net income margin of 5 percent over the next five years. Foot Locker executives plan to appeal to more consumers, grow internationally and pursue acquisitions.
Gifts/Accessories/Luggage/Pets
Mark Boucher
High-End Retailers Ditching East Hampton
You know it's expensive when Gucci can't afford it. With sky-high rents and a dazed economy, even the most luxurious retailers are having a difficult time surviving along East Hampton's embattled commercial strip. The iconic Italian brand, along with Brooks Brothers, Cole Haan and Calypso Home are among the retailers who have abandoned the tony village before the summer season. With some landlords demanding rents of up to $200 a square foot -- which can add up to more than $200,000 a year -- maintaining a coveted East Hampton address has become increasingly tough.
New Face Behind Those Foster Grants: Raquel Welch
Eyewear designer Foster Grant is revitalizing its tagline, "Who's that behind those Foster Grants?," with a classic spokeswoman. Hollywood icon Raquel Welch, who served as spokeswoman for the brand in the 1960s in a national advertising campaign, is back in FGXI's television campaign that kicks off April 12.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Kroger Reports Positive Q4 Results
Fourth-quarter sales for Kroger increased 7.2% to $18.6 billion, compared with the year-ago period, the largest traditional grocery retailer announced. Kroger -- which boasts itself as having several banners across 31 states -- said that excluding fuel sales, total sales for the quarter increased 2%, while same-store sales increased 1.2% over the prior year. Meanwhile, quarterly net earnings dropped to $255.4 million, or 39 cents per share, from $349.2 million, or 53 cents per share. For fiscal 2009, total sales for Kroger increased 0.8% to $76.7 billion, compared with fiscal 2008. Excluding fuel sales, total sales for fiscal 2009 increased 2.9%, and identical supermarket sales rose 2.1% compared with the prior fiscal year.
Whole Foods Divests Another Wild Oats
Whole Foods Market has agreed to sell a Wild Oats location here to Trader Joe's East, according to a filing by the Federal Trade Commission Wednesday seeking comment on the proposed divestiture. The FTC previously mandated that Whole Foods sell 32 stores following the 2007 acquisition of Wild Oats to satisfy antitrust concerns. Earlier this month the FTC said Whole Foods had agreed to sell Wild Oats locations in Kansas City, Mo., and Boulder, Colo. None of the terms of the proposed sales have been disclosed.
Ingles OKs 1M Share Buyback
The board of directors of Ingles Markets here has authorized the company to buy back up to 1 million shares of its Class A and Class B stock. Ingles' Class A stock, traded on the NASDAQ exchange, has been down over the last six months as the retailer experienced slower sales and lower profits in the down economy. Its Class B stock are not publicly traded and held primarily by insiders and by Ingles' profit sharing plan.
Shopping Behavior to Shift in New Marketplace
With new shopping behavior data and demographic trends heralding a lasting shift in the wake of the recent recession, retailers and suppliers will have to adapt to consumers' new shopping patterns to thrive in the marketplace currently and during the post-recession recovery. A study further found that retailers should make promotion and savings-related information more easily accessible across all shopper touch points. Additionally, the widespread availability of online resources and mobile phone shopping apps has made it easier than ever for consumers to locate specific items, necessitating optimized retail and manufacturer search engines and paid-search vehicle activities.
Home Improvement/Auto Repair
Billy Busko
True Value Earnings Up, Sales Down
Chicago-based True Value has announced its year-end earnings at $65.4 million, up 1.9% from $64.2 million as reported for 2008. Sales for the year were $1.82 billion, down 9.4% from $2.01 billion as reported for 2008, which was a 53-week year for the co-op. Excluding the 53rd week, the decrease was 8.5%. "Clearly the recession made 2009 a challenging year," said Lyle Heidemann, president and CEO. "High unemployment and increased savings rates reduced consumer spending. The weak housing and construction industries slowed contractor purchases. In addition, our retailers managed their inventories and cash flow tightly. All of these factors put downward pressure on our revenue." Heidemann added that the company was able to increase net profit through expense control and inventory management, which also reduced the company's debt by approximately 14%.
Weak Economy Favors Auto Parts Stores
"Cost-awareness amongst automobile consumers have lead many to invest in servicing and repairs of their already owned car rather than purchasing a new one, due to the effect of a weakened global economy," says Rothman Research. This means bigger gains to services sector stocks. O'Reilly Automotive Inc. and AutoZone Inc. are two examples of stocks doing better despite the weak economy since last year. O'Reilly Automotive Inc. is a publicly traded chain of Auto Parts stores that started with one store in Springfield, Missouri in 1957. It has since grown to more than 3,400 stores in 38 states. The corporate headquarters of O'Reilly is located in Springfield. AutoZone Inc. operates as a specialty retailer and distributor of automotive replacement parts and accessories. Its stores offer various products primarily to do-it-yourself customers for use in cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products.
Clunkers Program Didn't Hurt Future Sales, Study Says
Last year's cash-for-clunkers program increased U.S. sales without damaging the number of future automobile purchases, as previously feared by critics, according to a study by Maritz Automotive Research Group. Maritz compared its consumer data with the federal government's data on total clunker sales, finding that about 542,000 consumers bought vehicles during July and August 2009 specifically because of the program. The study also estimated that 223,000 vehicles sold were "halo sales" -- cars purchased by consumers who wanted to participate in the incentive program but did not qualify, yet bought or leased a new vehicle anyway. The study suggests the clunkers program met its objective of creating jobs while replacing older, less-fuel-efficient automobiles with better-mileage, lower-emission vehicles.
Housewares/Furniture
Billy Busko
Williams-Sonoma to Close Additional Stores in Large Markets
Williams-Sonoma Inc. will continue to close stores in large, multi-store markets as it seeks to return its bricks-and-mortar operations to past levels of profitability, Chief Financial Officer Sharon McCollam said Thursday. Over the next three years, 25% of the leases on the stores in the company's stable of brands, including Pottery Barn home furnishings stores and Williams-Sonoma kitchen stores, will be coming to an end. Williams-Sonoma sees that as a major opportunity to negotiate more favorable lease costs or terms or to relocate or close stores entirely, executives said. That should help it return to historical levels of profitability for its retail stores.
Interface Redeems $25 Million of its 9.5% Senior Subordinated Notes due 2014
Interface, Inc., a worldwide floorcoverings company and global leader in sustainability, today announced that it has completed the previously announced redemption of $25 million in aggregate principal amount of its 9.5% Senior Subordinated Notes due 2014 at a price equal to 103.167% of the principal amount of the Notes, plus accrued interest to the redemption date. An aggregate of approximately $26 million, which includes interest that has accrued through the redemption date, was required to redeem the Notes. US Bank National Association (as successor in interest to SunTrust Bank), trustee in respect of the Notes, processed the transmittal of the redemption notice to the holders of record of the Notes that were redeemed.
Kirkland's Reports Fourth Quarter and Annual Results
Kirkland's, Inc. reported financial results for the 13-week and 52-week periods ended January 30, 2010. Net sales for the 13-week period ended January 30, 2010, increased 6.9% to $142.8 million compared with $133.6 million for the 13-week period ended January 31, 2009. Comparable store sales for the fourth quarter of fiscal 2009 increased 10.2% compared with an increase of 5.3% in the prior-year period. The Company opened 3 stores and closed 20 stores during the quarter to end the period with 279 stores. Net sales for the 52-week period ended January 30, 2010, increased 3.8% to $406.2 million compared with $391.3 million for the 52-week period ended January 31, 2009. Comparable store sales for the 52- week period ended January 30, 2010, increased 8.4% compared with an increase of 3.6% in the prior-year period. The Company opened 18 stores and closed 38 stores during the 52-week period. The Company reported net income of $22.1 million, for the 13-week period ended January 30, 2010, compared with net income of $15.0 million for the 13-week period ended January 31, 2009. For the 52-week period, the Company reported net income of $34.6 million, compared with net income of $9.3 million, or $0.47 per diluted share in the prior-year period.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Wal-Mart Restores Some Brands to Shelves after Shoppers Defect
Wal-Mart Stores Inc., the world's biggest retailer, is bringing back some products it had removed from shelves last year as shoppers turn to competitors for a wider selection of merchandise. The company met with suppliers about reinstating items to keep customers from going to other stores. Wal-Mart said it frequently assesses product assortment. The retailer said last month its U.S. stores recorded a drop in sales and had a "slight decrease" in customer traffic in the quarter that ended in January. "Wal-Mart cut too deep and now they're going back to manufacturers," Michael Kantor, chief executive officer of the Promotion Optimization Institute, said.
Madonna, Iconix Form Joint Branding Venture
Iconix Brand Group Inc. and an entity controlled by Madonna and the pop singer's manager Guy Oseary are forming a joint venture to develop and acquire brands. Iconix, a brand manager whose holdings include Candie's and Roca Wear, said the MG Icon venture entered into an exclusive license and services agreement that allows the use of Madonna's name and personality in connection with apparel, footwear and other products. The entertainer agreed to provide creative services related to development and promotion of the venture's brands. Separately, MG Icon reached a direct-to-retail agreement with Macy's Inc. for the "Material Girl" junior collection set for introduction during the back-to-school season at about 200 Macy's stores and online. The "Material Girl" collection of apparel, footwear, handbags and jewelry is expected to retail at $12 to $40. Growth plans include fragrance, starting next year, as well as expansion into additional Macy's stores.
Jewelry/Mining
Mark Lenz
Swatch Group in Talks to Stop Supplying Rivals
Watchmaker Swatch Group has taken a key step in its plan to stop selling watch components to rivals, potentially undermining the Swiss watch industry by forcing other makers to source parts from Asia. Swatch Group, which supplies the bulk of watch parts to Swiss watchmakers, including Richemont, has started talks with Switzerland's competition watchdog, Chief Executive Nick Hayek said at the group's annual results on Thursday. The world's largest watchmaker's move to cut supplies to rivals, forcing them to get parts from Asia, may undermine the "Swiss made" seal, which is seen by many as a guarantee of quality that underpins the industry. Industry experts believe Switzerland's watch brands have become too dependent on Swatch Group and have not invested enough in engineering, preferring instead to splash out on fancy marketing campaigns featuring famous sports stars and actors.
Low Zale Credit Card Sales May End Citi Deal Early
Jewelry store operator Zale Corp. is mulling whether to pay Citigroup Inc. a $6 million penalty for low sales made through the credit cards it issues, or face the early end of an arrangement that finances about 40 percent of its U.S. sales. If Zale cannot help shoppers find alternative sources of credit and it loses all sales that would have been financed under its Citibank agreements, it may struggle to keep operating, Zale said in a filing on Thursday with the U.S. Securities and Exchange Commission. Citibank, which issues private label credit cards to Zale shoppers, warned the company in a letter received on Monday that it would end their deal in 180 days if Zale failed to pay the fee, the retailer said.
De Beers Holds Sales Volumes Down
De Beers increased some of its rough diamond prices during the latest sight held in mid-February, but the group is still holding back on sales volumes. That's according to RBC Capital Markets analyst Des Kilalea, who estimated the size of the February sight at about $530m. This brings the total for the year to date to $1.1bn. De Beers markets diamonds to the trade at 10 sights held in London during the course of the year. The next sight is scheduled for between March 22 and 26. Kilalea pointed out the $1.1bn total is much higher than for the comparable period of 2009. However, this "is still the second-lowest two-sight total in our records since 1999.
Weak 2009 Jewelry Sales Batter Bidz.com
Revenues for online retailer Bidz.com fell 46.3 percent in 2009, a decline the company attributes to the drop in consumer spending that has disproportionately affected jewelry. According to a news release issued late Wednesday, Bidz.com's revenues for the 12 months ended Dec. 31, 2009 totaled $110.4 million, compared with $207.4 million for the 12 months ended Dec. 31, 2008. The downturn came as the company's business shifted slightly away from the United States. Domestic and international sales represented 68.3 percent and 31.7 percent of its business, respectively, in 2009, compared with 76.1 percent and 23.9 percent, respectively, in 2008.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Barnes & Noble: A Besieged Giant
The story line for bookstore giant Barnes & Noble Inc. is growing ever more dramatic, with falling store sales, increasingly stiff competition and a fierce battle over the company's shares led by a billionaire Los Angeles investor. Barnes & Noble changed the face of book retailing in the 1990s with its aggressive rollout of hundreds of superstores nationwide. Today, the New York company sells about 300 million books a year and accounts for roughly 18% of U.S. book sales, making it the world's largest bookseller. But its fortunes may be changing after years as the undisputed king of books. That vulnerability has attracted the attention of Ron Burkle, a shrewd businessman and Democratic fundraiser who built his fortune buying and selling supermarket chains but is better known for his friendships with politicians such as Bill Clinton and Hollywood celebrities.
Jo-Ann Stores Inc.'s Profit Nearly Doubles in Fourth Quarter
Jo-Ann Stores Inc., the Hudson craft retailer, saw its profit nearly double during its fiscal fourth quarter that ended Jan. 30, as sales and profit margins increased. Jo-Ann reported a profit of $37.1 million, or $1.36 per diluted share, compared with a profit of $20.4 million, or 79 cents a share during the same quarter a year earlier. Sales rose 5.3 percent to $602.2 million from $571.9 million.
Staples Hikes Dividend
Staples Inc., the global leader for the supply of office products, recently boosted its quarterly dividend by 9%. The Board has approved an increase in annual dividend to 36 cents (or 9 cents quarterly) from 33 cents a share (or 8.25 cents quarterly). Framingham, Massachusetts-based, Staples, said that the higher dividend will be paid on April 15, 2010, to shareholders of record as on March 26, 2010. Staples' strong liquidity provides financial flexibility to drive future growth and reward shareholders.
Restaurants/Food Service
Mark Boucher
Other Buyers Interested in CKE?
CKE Restaurants' $928 million buyout offer last month from a private-equity firm has sparked speculation that more suitors will line up for the Hardee's and Carl's Jr. parent, according to sources familiar with the restaurant M&A environment. One prominent name already being thrown around as a potential bidder is Nelson Peltz, the non-executive chairman of Wendy's/Arby's Group and a well-known activist investor. Under its deal with Thomas H. Lee Partners, CKE will consider additional acquisition offers through April 6. The $928 million deal includes the assumption of $309 million in debt, and a per-share cash price of $11.05 per CKE share.
NYC Wins Tavern on the Green Name
New York City owns the rights to the Tavern on the Green name, a U.S. district judge ruled. The ruling in the case, which pitted the city against the heirs of Warner LeRoy, former operator of the restaurant, ensured that the 76-year-old Central Park icon, could continue to trade under its famous name. "Because the undisputed facts show that the city established and continuously maintained a restaurant under the name Tavern on the Green at the same location in New York's Central Park since 1934, the city has a protectible interest in that name under the law of New York," Judge Miriam Cedarbaum said in her ruling. Ownership of the restaurant's name and intellectual property, which the LeRoy family said was valued at about $19 million, was the subject of bitter dispute between the family and the city.
Domino's Opens 9,000th Store
Domino's Pizza celebrated hitting the 9,000-store milestone with the openings of two units on opposite sides of the world. Franchisee Jubilant FoodWorks opened its 300th unit, and Domino's 8,999th, in New Delhi, India, and then RPM Pizza opened its 135th unit, Domino's 9,000th, in a New Orleans neighborhood that had been devastated by Hurricane Katrina. In explaining the symbolic importance of the two locations, Domino's said India is the company's fastest growing international market and that the new restaurant in New Orleans is "hurricane ready." The Louisiana restaurant has its own generators and an extra-large cooler and is intended to be able to reopen quickly after storms in order to serve the community, the company said.
Popeyes Parent Posts Jump in 4Q Profit
AFC Enterprises Inc. reported a jump in fourth-quarter profit on cost cutting and improved sales at its Popeyes chicken chain. The company posted net income of $4.0 million, or 16 cents per share, for the Dec. 27-ended fourth quarter, compared with profit of $2.4 million, or 10 cents per share, in the same quarter a year ago. Revenue for the quarter fell 9.5 percent to $32.5 million from $35.9 million last year. Domestic systemwide same-store sales declined 1.0 percent, compared with a 2.8-percent decline in the year-ago quarter. For the full year, AFC earned $18.8 million, or 74 cents per share, compared with $19.4 million, or 76 cents per share, in 2008. Revenue dropped 11.3 percent to $148 million, which the company attributed to the refranchising of 27 company-owned stores in the Atlanta and Nashville, Tenn., markets. Domestic same-store sales rose 0.6 percent in fiscal 2009, compared with a 2.2-percent decline in 2008.
Landry's Posts 4Q Net Loss
Landry's Restaurant Inc. announced that interest expenses and debt-refinancing costs dragged the company to a fourth-quarter net loss. The hospitality company, which owns such casual-dining restaurants as Landry's Seafood House, Rainforest Café and Chart House and is considering a buyout offer from chief executive Tilman Fertitta, reported a net loss of $35.6 million, or $2.20 per share, for the quarter ended Dec. 31, compared with a profit of $4.6 million, or 28 cents per share, in the same quarter a year earlier. Latest-quarter revenue fell 3.3 percent to $245.3 million. Same-store sales fell 5 percent among the company's restaurants and 8 percent at its gaming operations, which including the Golden Nugget Hotels and Casinos in Las Vegas and Laughlin, Nev.
Banking & Lending
Douglas Stebbins
Apax, Private-Equity Firms Say Retail LBOs Return with Recovery
Private-equity firms looking to buy retail and consumer companies said they're now able to finance deals and pay reasonable prices after the credit crisis and global recession triggered a buyout slump. Buyout managers are getting back to business after the global credit crisis that began in 2007 froze them out of buying companies or selling what they owned. About $12.9 billion worth of private-equity deals have been announced in the past three months, compared with $2.5 billion in the same period a year earlier, according to data compiled by Bloomberg. Financing from Wall Street banks is returning for some deals after financial institutions suffered losses of $1.7 trillion since the onset of the credit crisis. U.S. comparable-stores sales climbed 4.1 percent in February, topping the 3 percent estimate by researcher Retail Metrics. It was the sixth-straight monthly gain and the biggest in more than two years.
'On the Edge' Banks Facing Writedowns after FDIC Loan Auctions
A Federal Deposit Insurance Corp. plan to auction more than $1 billion in assets seized from failed banks next month, including a loan to build a W Hotel in Atlanta, may trigger writedowns that weaken lenders nationwide. Almost half of the loans were originated by Silverton Bank N.A., whose collapse last May was the biggest in Georgia history. Community banks that joined Silverton in providing $80 million for the 237-room hotel and condominium complex, as well as backing for 39 other projects, could be forced to write down their stakes to reflect sale prices. "Unlike the subprime mortgage problems, which hit mostly bigger financial institutions, the commercial real estate crisis is going to hit mostly smaller and regional banks," Miller said. "It was common for them to make these loans and buy participations. It's a systemic problem that the FDIC has to deal with."
Why Would Barclays Want to Purchase a U.S. Consumer Unit?
British bank Barclays, PLC may be in the market for a U.S. consumer unit. It already has a significant presence in U.S. investment banking, which was much enhanced with its lucrative acquisition of the scraps Lehman left behind. But that's not enough: the bank wants more of a one-stop shop that could serve consumers and businesses alike. If Barclays is serious about buying a U.S. consumer unit, then it needs to be very, very careful. It probably can't afford a big bank, so it will need significant management oversight, as the operation won't be as well-developed as, say, a Citi, Chase or Wells Fargo. That means that it should seek as conservative a U.S. bank as possible.
Bond Spreads at Narrowest This Year Lure GMAC: Credit Markets
Corporate bond yields fell to the lowest this year relative to benchmark government securities, luring GMAC Inc. to sell its longest-maturity notes since 2004. GMAC, the Detroit-based auto and home lender bailed out by the U.S. after credit markets froze in 2007, sold $1.5 billion of 10-year, 8 percent notes, according to data compiled by Bloomberg. Its second offering in a month was priced to yield 4.532 percentage points more than similar-maturity Treasuries. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 159 basis points, or 1.59 percentage point, the lowest this year, from as much as 174 basis points Jan. 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.035 percent. The GMAC sale shows increasing optimism that Greece's budget crisis will be contained and won't spread to corporate borrowers.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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