The Weekly Consensus: Week of April 12, 2010
Business Cycle
Billy Busko
Anecdotally, we hear that private equity is back in action this year. Firms are saying that serious preoccupations and macro headwinds kept them on the sidelines for the past two years, but now they're clamoring for attractive opportunities. What has history taught us and what can we expect going forward?
Since private equity became an important asset class in the 1980s, there have been three boom and bust periods. Each meteoric rise saw a corresponding collapse. In the 1980s, the industry took advantage of the sale of poorly run public companies and corporate divestitures at fire sale prices and financed the transactions with plentiful junk bonds. Shortly thereafter, the high yield market tumbled and the S&L crisis emerged, resulting in a lack of financing and a dormant private equity market for several years. In the 1990s, private equity benefited from high GDP growth and increasing PE multiples during the economy's long expansion. Greater leverage was used and valuations became heady, including IPO prices. This rise was doomed to the technology bubble burst and contracting debt markets. In this decade, the industry capitalized on low interest rates, tremendous supply of institutional equity and extraordinary available credit, including novel securities. This time, the boom ended with the mortgage-led debt crisis and the ensuing recession.
Private equity has reacted to the latest downturn in numerous ways. A recent Bain & Company report cited five actions broadly taken: 1) pressing healthy and distressed portfolio companies to reduce costs and working capital, 2) refinancing to provide operating flexibility, 3) strengthening management capabilities, 4) sharpening sector focus and knowledge and 5) implementing means of making faster decisions.
The underlying principle of private equity investing remains intact. Using value-added ownership, aligned incentives and executable strategies should result in attractive returns. However, because of reduced leverage and the unlikelihood of significant multiple expansion, the fundamental determinant of success will be operational execution. As a result, private equity firms are employing more operational partners and spending more time on operational diligence prior to closing.
According to Prequin, dealflow in the first quarter of 2009 doubled that of first quarter 2009. However, what characteristics are playing out? First, with the lack of large financings, the middle market is seeing the most activity. Approximately 50% of all buyout deals in Q1 globally were valued at less than $100 million. There has also been an increase in secondary buyouts, which reflects private equity firms having pent up needs to monetize older portfolio businesses. There has also been an increase in add-on acquisitions, which is consistent with the prioritization of operational execution. Sector-wise, a Mergermarket poll of where private equity intends to invest in 2010 showed Energy at the high end (50% responded they expected to invest in this sector) and Media/Telecom at the low end (12%). Consumer/Retail fell in the exact middle.
In spite of the ongoing challenges, a Prequin study of limited partners indicated they believe that the top quartile of private equity firms will post returns of 10% to 15% greater than public equities. If so, a fourth cycle may be beginning.
Apparel/Swimwear/Intimates
Betsy White
Something Old, Something from the Mall
And the bride wore...Ann Taylor? Spotting a growing market of brides who dread the idea of buying a traditional bridal gown (which often becomes an event in itself), more national women's-clothing chains are designing and selling wedding dresses. Taking a cue from J Crew's successful bridalwear line, more retailers such as Ann Taylor and Anthropologie are beginning to offer wedding gowns. It's part of a new trend for brides to shop off the rack for the big day. Less expensive and more casual than traditional gowns, with their long trains and layers of princess skirts, these retailers' off-the-rack wedding gowns might be better suited to a beach ceremony than a ballroom. They don't require an appointment several months in advance to shop in a showroom or multiple fittings . Most of the gowns are sold only online, although a few retailers offer them in a few stores in high-traffic locations such as New York City. Ann Taylor Stores Corp. and White House Black Market, a unit of Chico's FAS Inc., recently started selling wedding dresses for under $500. The Limited chain is set to offer two gowns under $300 in June and to add three more styles in January. Urban Outfitters Inc. plans to launch a new, still-unnamed bridal brand, an offshoot of its Anthropologie division, in February 2011. They are taking a page from the playbook of J. Crew Group Inc., which has sold wedding dresses since 2004. Executives at these companies say women have been buying wedding dresses at their stores for years, even though their dresses haven't been marketed as such. They are targeting current shoppers-time-starved, value-conscious women who already have an affinity for the brands.
Changes in Store for Charlotte Russe
Sheeba Fayaz, 27, laughed with her cousin Yasna Sherzi while trying on a pair of glittery heels in the shoe section of Charlotte Russe. The store, which caters to teenagers, is looking to reshape its brand. The main target customer of Charlotte Russe has been from age 15 to 22, but the store is looking to broaden the top age to 29. Retail consultant James Dion says Charlotte Russe has long been known for its inexpensive clothing for young women, but its competition has higher name recognition and is quicker at showcasing trends. At age 78, Alice Myers is hardly someone you'd expect to see shopping at teen retailer Charlotte Russe. But there she was, perusing the store's enticing display of dangly earrings in search of a hip, affordable purchase. "I'm not here for the clothing at all. I come in for the jewelry," said Myers, offering a sheepish grin. "It's always in the store, and the price is always right." As Charlotte Russe looks to reshape its brand after its sale last year to a private investment firm, the San Diego-based chain hopes to broaden its reach to a slightly older young female - though not nearly as old as Myers - while remaining committed to its core demographic, the teen.
JoS. A. Bank's Outlet Plans: Better Late Than Never
JoS. A. Bank Clothiers will make an announcement in the next few weeks regarding outlet stores - which, given its past ambitious expansion plans, likely means that a large store-opening roll out . What's surprising is that it took JoS. A. Bank so long to make a push in this arena, given that we're in a recession. JoS. A. Bank only currently operates seven outlet stores in its portfolio of nearly 475 units, according to the company's annual report. The stores are only scattered through four states: Georgia, Maryland, Pennsylvania and Virginia, all relatively near its home base of Hampstead, Md. Executives were pretty quiet about their outlet plans during the company's fourth-quarter conference call, though R. Neal Black, president and chief executive, did mention it as a "growth initiative" and said that an announcement will be made in the "next couple weeks" It makes one wonder if outlets could be part of the 30 to 40 new stores planned for this year.
Talbots Keeps Offer Open, Analyst Sees Risk of Deal Collapsing
Talbots Inc. again extended its warrants exchange offer and an analyst said there is increasing risk that the deal—crucial to the women's clothing company's reorganization plan—might not go through at all. The offer was originally set to expire on March 26, but Talbots has extended the offer by one day every day since to reach the required 90 percent participation threshold. But the number of warrants tendered has not been increasing each day. On March 29 the company said it had about 87.5 percent of warrants tendered, the same amount it said it had tendered on April 6. In February, shareholders of BPW Acquisition Corp., a special-purpose acquisition company, agreed to be bought out by Talbots as part of a broader reorganization. The deal is part of Talbots' plan to buy out its majority shareholder, lower its debt by about $330 million, and continue a turnaround effort. About 91 percent of BPW shareholders approved the transaction at the time. Under terms of the swap offer, BPW holders can exchange their warrants for shares of Talbots stock or Talbots warrants.
Athletic & Sporting Goods
Michael O'Hara
Gap's Brick-and-Mortar Athleta Stores Face a Big Obstacle: Lululemon
It looks like Gap Inc. will soon test a brick-and-mortar version of its catalog and online-only Athleta women's sports line. Though this brand is well respected, the apparel giant faces an uphill battle against Lululemon Athletica, the leader in this retail sector - especially since Gap stumbled pretty badly the last time it tried to launch a new chain. Gap hasn't yet made public any big-time roll out plans for Athleta. The company plans to open its first location in Mill Valley, Calif., this spring, and a spokesman told the North Bay Business Journal that Gap is "testing a prototype to learn what works best for this athletic customer." Don't expect Gap to just end it there, though. We're talking about a company that operates a global network of more than 3,000 stores. And through customer data collected from the Athleta Web site and catalogs, Gap's management probably already has a good idea of the geographic demand for the brand. During Gap's fourth-quarter conference call, Chairman and CEO Glenn Murphy said there will be more news about the "next level" for Athleta in the fall. Whatever Gap's plans turn out to be, it faces a tough competitor in Lululemon.
SGMA Report Shows $71+ Billion in Retail Sports/Fitness Sales in 2009
According to SGMA's 2010 Manufacturers Sales by Category Report, manufacturers' (wholesale) sales of sporting goods equipment, fitness equipment, sports apparel, athletic footwear, and licensed merchandise in the U.S. totaled $71.8 billion in 2009 - a 4.3% decrease over 2008 when wholesale sales were $75.0 billion. "In many respects, the decline in sales in the sports industry was a mirror image of the struggles in the U.S. economy during the last 12-18 months," said SGMA President Tom Cove. "As the economy begins to improve, Americans will be more likely to spend more money on fitness equipment, sports gear, athletic clothing, and footwear. Overall, sports participation remains strong in the U.S. though activities which are family oriented and 'low-cost-to-participate' are attracting large numbers of participants. This year could easily be a significant year of change for the sports industry as people are posed to play more and, hopefully, spend more." Sporting goods equipment sales dipped slightly - down 2.4% -- from $21.8 billion in 2008 to $20.2 billion in 2009. The five largest categories of sporting goods equipment were firearms/hunting ($3.09 billion), golf ($2.48 billion), fishing ($2.02 billion), camping ($1.70 billion) and optical goods ($1.21 billion).
Catalog & Internet
Christopher Ellis
Groupon Clones Pop Up Like Mushrooms in the United States, Too
Websites offering deals on a daily basis are popping up all over the place. In Russia, the strategy is apparently to copy the entire website design and business model of one of the most promising companies in this space, Groupon, while in Germany Daily Deal battles with City Deal and the UK has more than its share of group buying websites. But it's not like the concept isn't catching on and 'inspiring' opportunistic entrepreneurs in the United States as well - much to the contrary, there's been a surge of new daily deals websites in those parts too over the past couple of weeks alone. The team behind Yipit , which recently launched as a one-stop shop offering a clear, aggregated overview of deals on the Web, have been tracking this space closely. When Yipit launched a little over a month and a half ago, the startup could already identify 30 daily-deal Web services. Today, the company tracks deals from no less than 66 Groupon-like websites across the United States, more than double the number it counted less than two months ago. Needless to say, this makes Yipit's value proposition more attractive, too.
Overstock's Brash CEO Delivers 1st Annual Profit
Internet retailer Overstock.com finally has its first annual profit in nearly eight years as a public company. It's vindication for CEO Patrick Byrne, who has been worried about more than selling designer merchandise at deep discounts. The company's narrow 2009 gain of $7.7 million, Byrne said, proves that those who traded presuming Overstock's weaknesses were wrong and vindicates his tumultuous effort to position the company as a challenger to the Goliaths of Internet retail.
Signature Styles Aims to Rebuild Spiegel.com and Its Sister Sites
The last time Spiegel changed its e-commerce platform was 10 years ago. Since then, the company changed hands several times, filed for bankruptcy and restructured. Now named Signature Styles after Spiegel Brands Inc.'s acquisition in June by Patriarch Partners LLC, a private equity firm that specializes in turning around distressed companies, the company is investing in a new e-commerce platform for its web stores. Spiegel.com and Newport-News.com will be re-launched later this year, although the company hasn't released a specific date or revealed if it plans to use a vendor's e-commerce platform or develop the technology internally. While the company declined to provide specific online sales figures for 2009, Block says that the Internet channel makes up about two-thirds of overall revenue while its catalog channel produces the biggest expense.
Consumer Electronics/Video/Audio
Douglas Stebbins
Apple Launches Ad System for Mobile Devices in Race with Google
CEO Steve Jobs announces the iAd advertising network among features coming this year to its iPhone, iPad and iPod Touch line, aiming to tap into an infant market with huge potential. In a direct attack on Silicon Valley rival Google Inc., Apple Inc. unveiled its new mobile advertising system Thursday and promised to deliver a new generation of compelling interactive ads to its devices. By building an advertising system into its products, Jobs said, Apple is hoping to tap into a nascent but potentially lucrative market: the growing number of consumers who are picking up a cellphone when they want to access the Internet. That has led to Apple and Google racing against one another to build competing mobile advertising platforms. What such marketing campaigns will look like, or how they will let people interact with media-rich ads, is still in the early stages. At Apple headquarters in Cupertino, Calif., Jobs showed some examples of what was possible with ads for the upcoming "Toy Story" movie, Nike Air sneakers and Target: The ads more closely resembled small, touchable multimedia games than traditional static Web ads.
Best Buy to Sell Nook, Target Bags Kindle?
E-reader makers are expanding their retail tentacles. After months of selling the devices directly through their web site, they are turning to retail giants for some help in getting the gadgets into the hands of consumers. Barnes & Noble's Nook e-reader is expected to go on sale at Best Buy stores in the U.S. starting April 19, while Amazon's Kindle might be seen at Target later this month. The launch of the Apple's iPad and the imminent arrival of tablets from companies such as HP and Dell has raised the stakes for e-reader manufacturers. The iPad's color screen, access to the iBooks store and the ability to surf the internet and use apps makes it a multi-purpose device that some consumers are likely to prefer over the black-and-white screen e-readers. The increased competition from tablets may have forced e-reader makers to spread their wings. Since the device's launch in 2007, Amazon has sold the Kindle exclusively through its web site. Barnes & Noble also made its website the biggest channel for Nook though it has been stocking its retail stores with the product.
Bringing You a Signal You're Already Paying For
Faced with withering criticism for its spotty iPhone service, AT&T blames in part a shortage of cellphone towers near homes and businesses. But it has a solution: put a miniature cell tower in your living room. There's a catch, though. You have to pay for it. And that is making some customers angry. The size of a couple of decks of cards, these mini-towers act and look like Wi-Fi hot spots at cafes, and redirect cellphone calls from congested cell towers to home Web connections. "It's a fabulous idea, especially if you can't get service, but to charge for it is insulting," said Christina Zachariades of Manhattan, who already pays $130 a month for iPhone service but cannot receive or make calls in her fifth-floor apartment on the Upper East Side. "How much more do I have to pay to get the service required for me to use my phone?" Despite complaints like this, the technology is poised for big sales, thanks to price drops but also because of the entrance into the market by AT&T. Other companies - Verizon, for example - have already marketed their mini-towers for niche use to customers in places with limited cellphone signals, like basements or homes with particularly thick walls.
Cosmetics & Pharmacy
Billy Busko
Zappos Eyes 5-Year Goal of $75M Beauty Biz
Cassandra Lappe, Zappos.com Inc.'s beauty buyer, has a list tacked to the wall of her office in Henderson, Nev., of the beauty brands she dreams would agree to be carried by the online shoe authority. "The vision is in five years to have a Bobbi Brown, MAC, Dior and Chanel," she said. "They [Zappos.com] think there is a lot of room for growth." What's stopping those brands from heading now to Zappos.com, an e-tailer that topped $1 billion in gross sales in 2008 and was acquired last year by Amazon.com Inc. in a deal valued at around $1 billion? Lappe conjectured that Zappos.com still remains off their beauty radars. "People don't think of Zappos as a beauty destination. People think of it as a shoe destination," she said. But Lappe, who rose from an assistant buyer for men's fragrances at Famous Barr to a merchandise business analyst at Macy's Midwest before joining Zappos.com in 2008, is working to help change the perception of Zappos.com from a single-category specialist to a one-stop shop with beauty playing a prominent role. The company's five-year goal is to build Zappos.com beauty, which recorded less than $1 million in sales last year, into a $75 million business.
Prestige Brands Provides Update on 9 ¼% Senior Subordinated Notes Due 2012 Tender Offer
Prestige Brands Holdings, Inc. announced that, on March 10, 2010, its wholly-owned subsidiary Prestige Brands, Inc. commenced a cash tender offer for any and all of its 9 ¼% Senior Subordinated Notes due 2012, of which $126 million aggregate principal amount were outstanding at that time. In conjunction with the Tender Offer, Prestige Brands solicited consents to adopt proposed amendments to the indenture under which the notes were issued, dated as of April 6, 2004, that, among other things, eliminated substantially all of the restrictive covenants and certain events of default in the indenture, and shortened the minimum notice period for a redemption from 30 days to three business days. On March 24, 2010, the Company announced that as of 5:00 pm, New York City time, on March 23, 2010, $97.9 million aggregate principal amount of the Notes had been validly tendered and not withdrawn.
Department & Discount Stores
Mark Lenz
Wal-Mart Bets on Reduction in Prices
Wal-Mart Stores Inc. is cutting prices on thousands of products in an aggressive campaign to reinforce its reputation as a discount leader, as the company seeks to reverse months of slowing U.S. sales. The world's largest retailer was a rare beneficiary of the economic downturn, as large numbers of bargain-hungry Americans, including many middle-class families, flocked to its supercenters from supermarkets and specialty clothing stores. sales at U.S. stores open a year or more have edged lower recently, while other retailers have started to see an uptick in consumers' discretionary spending. That suggests to some analysts that Wal-Mart is having trouble hanging on to middle-class shoppers.
Why Macy's Is Banking on Fashion Celebs, Digital This Spring
Macy's has been serving up fashion advice via a series of "irreverent" celebrity-studded Web videos. The department store, which saw same store sales increase 3.7 percent in February, has tapped style gurus like Martha Stewart, Donald Trump, Clinton Kelly, and Rachel Roy to guide consumers through real life challenges-like what to wear when meeting your ex-boyfriend for coffee. The goal, said Martine Reardon, Macy's marketing evp, is to give consumers the confidence and style tips they need to "put it all together." The effort, she said, stemmed from research that showed consumers wanted more than just "fashion advice from Macy's."
Is Luxury Dead? Maybe Not
Guess who says the following attributes are most influential in making "important purchases" today: value, price, overall quality, good design and functionality? A clue: 84% of this group texts from cellphones; 78% use social networking; 66% use the mobile web and 57% use mobile apps. It's not who you think it is. In fact, it's a group whose median age is 45, not 19. According to "The New Face of Affluence," an in-depth study from Dwell Strategy and Research, San Francisco, these are the attributes that drive purchase decisions of the "New Affluents."
Kmart CMO on Why Retailers Are Seeing Signs of Hope
Layaway was a big hit with consumers when the economy tanked, and it still is. Kmart, which is part of Sears Holding Corp., has observed that consumers use the option-which lets shoppers gradually pay for items they want to purchase-year round. The shift reflects America's increasing focus on value, as well as careful, planned spending, said Kmart chief marketing officer Mark Snyder. But value isn't the only focus for Kmart. Using digital and social media, the retailer is prompting teens and younger consumers to shop at its stores. Selena Gomez is launching an exclusive line of teen clothing in Kmart in July, and Jones Apparel Group's GLO jeans and accessories recently hit stores. In an interview Snyder, who hails from Holiday Inn, discussed layaway, teen apparel, and what's new on the marketing front.
Energy
Christopher Ellis
US Wind Industry Needs US Manufacturing
Wind manufacturing is recovering but growth is slow. That's the message coming from the American Wind Energy Association (AWEA), which this week released its wind market report for 2010. The manufacturing sector for the wind industry has grown significantly in the past several years, adding, announcing or expanding over 100 facilities since 2007. While 2009 was a strong year for announced manufacturing facilities, it is down significantly from 2008. Currently, over 200 facilities across the U.S. serve as suppliers to the wind industry, and this figure does not capture the many additional facilities at the sub-supplier level. Wind manufacturing facilities can be found in every region of the United States. Despite the slowdown in wind turbine manufacturing in 2009 compared to 2008, 10 new manufacturing facilities came online in the U.S. last year, 20 were announced and nine facilities were expanded, according to AWEA. The largest category was wind turbine sub-components, such as bearings, electrical components and hydraulic systems. "It's critical for our sector to have a [U.S.] manufacturing base," said Liz Salerno, AWEA's director of industry data and analysis. "The Midwest and Upper Midwest, where we have manufacturing capability is now starting to be utilized for turbine components and sub components."
Energy Storage's Quiet Revolution
When A123Systems saw its shares jump more than 50 percent in a successful Nasdaq debut back in September, some industry insiders expected it would be the first of a bevy of big energy-storage headlines. Instead, energy storage seems to have fallen out of the limelight, getting nothing near as much hype as Bloom Energy, a fuel-cell company focused on electricity generation instead of energy storage, generated when it launched last month. But a series of recent small announcements suggest that energy-storage technologies are quietly making progress toward commercialization nonetheless. While automobiles remain a key area for new energy-storage technologies, she's seeing a "spillover effect" as research and investment spreads into other areas, including grid applications for utilities and nonautomotive transportation. Some examples? In February, Valence Technology signed a $45 million deal to supply its lithium-ion battery systems for a new line of hybrid-electric yachts, sailboats and motorboats from Beneteau Group. And International Battery, another lithium-ion rechargeable battery manufacturer, announced it was selected to supply battery systems for an American Electric Power smart-grid demonstration project in Ohio.
Footwear
Michael O'Hara
Timberland Hunts for Eco Partners
Timberland is searching for ethical footwear companies to collaborate with on special collections to help increase the footwear brand's eco credentials. Timberland said it would use its ethical credentials and environmental strategy to drive sales and help it become Europe's largest outdoor footwear brand. The brand confirmed it was already in talks with ethical footwear brand Po-Zu, which it met at Milan trade show Micam, about working together on a range. Timberland already has its own eco range called Earthkeepers, which features boots with components that can be recycled when users have finished with them. The Earthkeepers range also uses rubber from old tires for its soles.
Yue Yuen: Plans To Borrow US$300 Million, Issue Option Shares
Yue Yuen Industrial (Holdings) Ltd., the world's largest contract shoe manufacturer, plans to borrow up to US$300 in a three-year loan agreement to repay debts and to issue up to US$406.8 million worth of option shares for general capital use. The athletic footwear maker said it plans to issue up to 92.25 million options at an exercise price of US$4.21 each, or about HK$32.72 each, representing a premium of about 21.2% to its last closing price of HK$27 Tuesday. The firm said it will get a cash premium of US$18.5 million from the sale of the options, and if all options are exercised, it will receive a total US$388.4 million, bringing the total proceeds of the option sale to US$406.8 million.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Tandy Leather Factory: Sales up 17%
Specialty retailer Tandy Leather Factory Inc. said Thursday that sales jumped 17 percent in March when compared to March 2009. Fort Worth-based Tandy Leather posted March sales of $5.4 million. Year-to-date sales hit $14.6 million, up 9 percent from $13.4 million last year. In the company's retail leather craft division, sales rose 22 percent in March. The wholesale leather craft and international leather craft divisions sales jump 12 percent and 59 percent, respectively.
Two Men and a Baby Business
When Marc Lore and Vinit Bharara launched Diapers.com, a US e-commerce website selling nappies and a few other baby products in 2005, one of the biggest challenges was getting hold of the goods. As a small, unknown start-up, says Mr. Lore, "we couldn't buy direct from the manufacturers, so we had to buy from Costco and BJ's [the discount, bulk-sales warehouse clubs]." The high school friends started by picking up supplies in a car, before upgrading to an open-backed truck, a van and an 18-wheel tractor-trailer. "We cleared out BJ's stores up and down the east coast," Mr Lore says. "The managers would ask us to leave some for the rest of their customers." Even when sourcing from discount clubs, the high shipping costs on bulky boxes of disposable nappies meant the fledgling company was losing money when it met orders. But demand was so high that the two entrepreneurs took it as a sign that their project was going to work. The company has yet to record a profit as it continues to invest heavily in marketing and expansion, although it has raised more than $50m in commitments, including $30m in a financing round last year led by New Enterprise Associates, the venture capital group. But with leading baby product brands such as Huggies and Pampers now on board - after many rebuffs including scores of frustrating phone-calls - the pair no longer have to worry about where the next nappy is coming from.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Giant Eagle to Purchase 5 Stores from TOPS Markets
Giant Eagle Inc. announced it has reached an agreement to purchase five former Penn Traffic stores slated for closure in Pennsylvania from Tops Markets. The purchased stores inclide BiLo Foods in Brookville, DuBois, Johnstown and St. Marys, and the Quality Market in Titusville. Liquidation of Tops store inventory will begin immediately, according to a statement from Giant Eagle. During the liquidation sales and through the closure and transition period, the in-store pharmacies at the Brookville and DuBois locations will remain open, allowing customers to continue to order and pick up prescriptions, the company said.
Bashas' to Negotiate New Reorganization
Bashas' said it is negotiating a non-binding "term sheet" with its lenders to come up with a new, consensual plan of reorganization - a process expected to take about 30 days. A term sheet is a bullet-point document outlining the terms and conditions of a business agreement that helps legal counsel prepare a final agreement. The company filed for Chapter 11 bankruptcy protection in June and filed a reorganization plan with the U.S. Bankruptcy Court in January, with the goal of emerging sometime this month after developing a reorganization plan that had the backing from chain management and its official committee of unsecured creditors. Passage has reportedly been held up by banks and insurance companies in possession of bonds worth an estimated $215 million.
Perishables are Going to Waste in California
Although most supermarket chains participate in hunger-relief programs, liability concerns severely limit the amount of surplus food that they donate to the needy. As a result, vast amounts of food go to waste across the state, an examination by California Watch and the Annenberg School for Communication and Journalism at University of Southern California found. Fearing liability if someone were to get severely ill, major retail grocery chains and restaurants are more likely to throw away meats, fruits and vegetables than donate to distribution centers.
Home Improvement/Auto Repair
Billy Busko
Clorox Could Sell STP, Armor All Brands
Clorox is looking to auction its two well-known automotive brands, STP and Armor All, the Wall Street Journal reports, citing people familiar with the matter. Clorox could hire an investment bank within the next couple of months to advise on the sale, these people added. It isn't clear how much the two brands would fetch in a sale, though several people estimated Clorox would try to get about $800 million or more. Clorox has received expressions of interest for the two units, one person told the newspaper. Investment bankers have held discussions with consumer-product companies, such as Unilever, and private-equity funds to gauge their interest if STP and Armor All are put on the block, the Journal reports. STP and Armor All have combined annual sales of about $300 million.
AutoNation Announces Updated Estimate of First Quarter EPS from Continuing Operations
AutoNation, Inc., America's largest automotive retailer, today announced an updated earnings estimate for the first quarter ended March 31, 2010. The Company now expects earnings per share from continuing operations for the first quarter of 2010 to be in the range of $0.32 to $0.35, increased from the previous estimate of $0.29 to $0.32 announced on March 31, 2010. This compares to adjusted EPS from continuing operations of $0.22 for the first quarter of 2009. Adjusted EPS from continuing operations for the first quarter of 2009 excludes the items detailed under "Non-GAAP Financial Measures" below. GAAP EPS from continuing operations was $0.30 for the first quarter of 2009. The Company's prior estimates for first quarter 2010 revenue, new vehicle unit sales and used vehicle unit sales are in line. Details will be provided in the Company's first-quarter earnings release and conference call scheduled for April 22, 2010.
Housewares/Furniture
Billy Busko
Tempur-Pedic Acquires Canadian Distributor
Tempur-Pedic has purchased its Canadian distributor, Tempur Canada. The terms of the transaction were not disclosed. With this acquisition, Tempur Canada has become Tempur-Pedic's wholly owned Canadian subsidiary, and will continue to distribute the parent company's products throughout that country. Over the past four years, Tempur-Pedic has swung similar deals with distributors in Austria, Australia, China and New Zealand.
Bed Bath Net Climbs 60 Percent in Fourth Quarter
Net income for Bed Bath & Beyond in the fourth quarter totaled $226 million, up 60 percent over the fourth quarter of last year. The company accomplished this bottom-line boost on a 16.7 percent gain in net sales for the quarter, which reached $2.2 billion. In addition, Bed Bath firmed its gross margin by 177 basis points to 42.58 percent. Selling, general and administrative expenses increased by 5.6 percent, but fell 274 basis points as a percentage of sales, to 26.05 percent. The fourth quarter pushed Bed Bath's net income for the year to $600 million, up 41 percent over the prior fiscal year. Net sales totaled $7.8 billion for fiscal year 2010, an increase of 8.6 percent.
Pier 1 in the Black for the Fourth Quarter and Fiscal Year
Pier 1 Imports finished fiscal year 2010 with net income of $34.5 million for the fourth quarter and $86.8 million for the year, reversing losses of $29.4 million and $129.3 million, respectively, for the fourth quarter and fiscal year of 2009. The specialty retailer managed this turnaround through a combination of increases in net sales and gross margin, and cuts in expenses. Fourth-quarter net sales edged up 1.7 percent to $396 million, while gross margin in the quarter rose by a whopping 1,276 basis points to 38.92 percent.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Calvin Klein Is Making Warnaco Look Sharp
Despite worries about the economic slowdown and tepid consumer spending, shares of Warnaco, a global designer, maker and marketer of apparel, are on a tear. Since February, the stock has bolted from $38 to a 52-week high of $49.43 on Apr. 5. Now nearly $48, Warnaco had plunged to a 52-week low of $24 on Apr. 7, 2009. What's behind the stock's big surge? Warnaco has been gaining market share, thanks to the continued strength of its widely popular Calvin Klein line. Indeed, Warnaco might as well rename itself Calvin Klein because that brand is mainly responsible for firing up sales and earnings growth. And analysts expect the advance to further accelerate. In an odd twist, Phillips-Van Heusen still owns the rights to the name Calvin Klein, which it acquired from the fashion designer. Warnaco has been buying various rights to the Calvin Klein name from Phillips-Van Heusen. Those rights are expected to generate $150 million in incremental business over the next five years, says Asaeda. As of Jan. 2, Warnaco operated 1,097 Calvin Klein retail stores worldwide and three online stores.
Brand Positioning and the Consumer Mind
Many marketers instinctively know that a new brand requires a unique idea or concept (what I would call a hole in the mind) if the new brand is going to become successful. That's difficult to do. So they take the easy way out and introduce "me-too" line extensions, hoping to trade on the power of their brand names. This might work in the short term, but seldom works in the long term. Today, we have many well-known brands with no places in the mind to put them. What's a Dell? What's a Hewlett-Packard? What's an IBM?
As Generic Brands Gain Market Share, Retailers Capitalize on Trend
Alicia Peiffer used to go to the store and pick up packs of Huggies diapers for her two children. But things changed when her fiancée lost one of his jobs in January. On a routine shopping trip, she noticed the Target-brand diapers-Up & Up-on sale. Used to be there was a certain stigma attached to picking up the store-brand product versus purchasing national-brand products, but that has faded along with sky-high housing prices. Instead, the shift in consumer mindset has helped generics gain market share and propped up retailers' margins. Generic brands currently make up $88 billion in sales, according to the Private Label Manufacturers Association. While stores are capitalizing on the generic-buying trend by investing more in marketing their private-label lines, many are asking if this is a trend that will continue.
Jewelry/Mining
Mark Lenz
Modi: Gitanjali Not Cutting Back in U.S.
Gitanjali USA Chief Executive Officer Nehal Modi says the company is shifting its presence away from underperforming U.S. stores to focus on key markets, but that an Indian newspaper's recent report suggesting it is downsizing its U.S. presence was written "out of context." A recent report in the Indian daily newspaper the Business Standard focused on the manufacturer-retailer's U.S. operations and was headlined "Gitanjali to cut its presence in US Jewellery market." NationalJeweler.com and other U.S. news outlets picked up on the story, which quoted Gitanjali Gems Managing Director Mehul Choksi and indicated that Gitanjali, which owns the Samuels and Rogers Jewelers chains, would cut it presence in "rural retail locations" while expanding its presence at "premium locations."
Rio Tinto Diamonds Starts Rough Diamond Tenders
Rio Tinto Diamonds started holding tenders last month, an action that some are concerned will lead to further runaway rough diamond prices. While these concerns may or may not be justified, Rio Tinto seems focused on gauging prices of certain goods and learning more about companies that are not regular clients. Three times a year, Rio Tinto Diamonds will hold what it calls "invitation sales," during which a small share of its Diavik production will be offered in a tender. The first such sale took place last month. The company did not disclose an estimate of the size of the tenders. The goods are not run of mine, however they represent a cross section of all major categories from the Diavik production.
Rising Polished Diamond Prices Signal Upward Trend
Polished diamond prices posted solid gains in March, according to the IDEX Online Global Polished Price Index. This is a continuation of a trend that began about four months ago. Further, leading indicators point to even higher prices later this year. The polished diamond price bubble peaked in August 2008, and then burst quickly along with the sharp decline in global financial markets late that year. Diamond prices reached a bottom at the end of the first quarter of 2009, and languished for the rest of that year until about December. Just as 2009 was ending, polished diamond prices broke out on the upside from their narrow trading range, a trend that has continued into 2010. Thus, the current price rebound--which appears to be sustainable—is a welcome trend for polished diamond traders.
Judge Schedules Trial in Carlyle Sale Case
The fate of the Carlyle and Co. retail chain—once part of Finlay Enterprises but later bought back by a member of its founding family after Finlay went bankrupt--is headed for trial, court documents show. On March 1, Carlyle and Co., along with its debtors and debtors in possession, filed a motion in U.S. Bankruptcy Court for the Southern District of New York to compel Adamas Partners LLC and its principal Russell Cohen, a member of the family that started Carlyle and Co., to honor an agreement to buy what remains of the Carlyle and Co. business. Carlyle and Co. claims that Adamas and Cohen, who once owned the business and served as chief executive after Finlay bought the chain, are trying to "abandon" the sale because a key vendor has backed out but that the company shouldn't be allowed to do so, because the sale didn't hinge on any conditions.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Staples Inc.: Office Supplier's Sales Rising at Last
Staples Inc., the largest U.S. office supply retailer, said last month that its sales are improving. CEO Ron Sargent said sales in North American retail stores open at least a year grew in the latest quarter for the first time in 10 quarters. And sales to small businesses rose for the first time in six quarters, though overall North American business delivery edged down. "Price and value remain top of mind," Sargent said. Consumers responded well to deals on laptops and discounts on ink and paper, he said. However, sales of business machines and furniture were soft.
Office Depot Offers Recycling Discounts
Office Depot is teaming up with Gazelle.com of Boston on an Earth Day promotion that will give instant store rewards and discounts to consumers who turn in certain types of used printers, shredders, cameras, or notebook computers at Office Depot stores. For example, a consumer could save an extra $25 instantly on the purchase of a shredder regularly priced $129.99 and above at Office Depot when that consumer trades in a shredder through April 24, Office Depot said.
Restaurants/Food Service
Mark Boucher
Cinnabon Seeks to Strengthen Sales through Innovation
Cinnabon first opened in 1985 with the perfect formula for success: hot, fresh, indulgent cinnamon rolls baked onsite to tempt hungry mall shoppers. In just 25 years, the brand has grown to more than 770 franchised locations worldwide - now also in airports and travel plazas. Thanks to its licensing program, the brand and its signature Makara cinnamon has become a household name. But being well known wasn't enough to keep sales from sliding as the recession took a bite out of retail traffic, the company found. Cinnabon is fighting back, with a multi-pronged strategy to keep the brand relevant and lure in those shoppers still in the malls.
New KFC Sandwich Uses Chicken Breasts Instead of Buns
KFC is putting its chicken where its buns were. The nation's largest chicken fast-food chain announced plans to nationally roll out a breadless chicken sandwich that uses two boneless chicken fillets as the bun—then squeezes two pieces of bacon, two slices of cheese and some sauce in between. Drooling yet? You'll have to wait a few days. The $5 sandwich, dubbed the Double Down, will be available at all KFCs on April 12. The sandwich, which comes complete with 1,380 milligrams of salt (about 60% of what the federal government recommends for an entire day's consumption) and 10 grams of saturated fat (about 50% of a day's supply), would seem to be a slap in the face to nutritionists - and nutrition advocates such as Michelle Obama- calling for more restraint from the nation's foodmakers. "It's a salt bomb," says Kelly Brownell, director at Yale's Rudd Center for Food Policy and Obesity. "That's a better part of a day's sodium in one meal." The sandwich is not, however, a calorie bomb. The Original Recipe version is 540 calories— about the same as a Big Mac.
Starbucks Tries Out Upscale Cafes
Heavy velvet curtains, indie movie nights, single-origin coffees, wine and beer, mouth-watering organic pastries and gourmet cheese and meat plates—this is Starbucks? Well, sort of. It's Roy Street Coffee & Tea by Starbucks Corp, the result of Chief Executive Howard Schultz directing his store designers to break the mold and build a neighborhood coffee house from scratch. Some company watchers say the two cafes signal a plan by Starbucks to move its stores back into the top end of the market, a niche it essentially vacated when it went mainstream with its lattes and Frappuccinos—now facing competition from McDonald's Corp's even more mass-market McCafe drinks.
Burger Brands Race to $1 Billion
In the increasingly crowded world of fast-casual burger concepts, industry pundits expect the sector's first billion-dollar player to soon emerge. Many see Five Guys Burgers and Fries leading the pack. The Lorton, Va.-based chain reported $453 million in sales in 2009, an increase of 50 percent over the previous year, largely because of its rapid pace of growth. During 2009, Five Guys jumped from 360 to 547 units, a 52-percent increase at a time when most companies put growth on hold. In March, Chicago-based market research firm Technomic Inc. placed Five Guys at the top of the list of 10 fastest growing chains in 2009, among those with sales over $200 million. Observers also are keeping their eyes on Denver-based Smashburger, Santa Barbara, Calif.-based Habit Burger Grill, Arlington, Va.-based Elevation Burger, and numerous two- or three-unit regional players that hope to stake their claim before the larger chains enter their markets. Despite the explosion of better-burger brands over the past few years, researchers say there's plenty of room in the fast-casual market to grow.
Report: New CKE Bidder is Apollo
The rival buyout offer received by CKE Restaurants Inc. this week was from private-equity firm Apollo Management, Reuters reported Thursday. CKE, the Carpinteria, Calif.-based parent to the Carl's Jr. and Hardee's chains, has until April 27 to evaluate the new offer. On Wednesday, CKE said it had received a buyout offer that may be better than the bid made in February by private-equity firm Thomas H. Lee Partners LP to buy the company for $928 million. THL's offer includes the assumption of $309 million in debt and a per-share cash price of $11.05. CKE officials said they could not name the source of the rival offer because of a confidentiality agreement with the second bidder.
Caribou Coffee Commits to 100% Sustainable Coffees
Caribou Coffee has said it will commit to serving only Rainforest Alliance-certified coffees by the end of next year. To celebrate the move toward 100-percent sustainable coffee, Caribou will begin selling two certified blends, Lacuna and Lakeshore Blend, at all 535 of its U.S. locations on April 15. The sustainable-coffee blends also will be sold on Caribou's website. The Sustainable Agriculture Network, a coalition of independent, nonprofit conservation groups, oversees the Rainforest Alliance certification process. The designation comprises environmental, social and economic sustainability and is meant to encourage standards for farmers and growers of all sizes.
BLT Looking to Rename Burger Concept
BLT Restaurant Group plans to rename future units of its BLT Burger concept following its split last month with former partner Laurent Tourondel. A company spokeswoman said Tuesday that the three existing BLT Burger Restaurants in New York, Las Vegas and Hong Kong would retain the original moniker, but future locations of the fast-casual concept would be opened under a new name. New stores are planned for New York, Los Angeles and Washington, D.C., but opening dates are not set. The burger concept's new name will be selected via a contest now underway that offers the person with the winning name a grand prize of $4,000. Contestants have until April 30 to enter the Name Game contest and can sign up to participate at BLT's website.
Banking & Lending
Douglas Stebbins
Talbots Lands $200m from GE Capital
Talbots Inc., the Hingham, Mass.-based women's apparel retailer, said it has received $200 million in financing from GE Capital. Talbots is in the midst of consummating a $350 million refinancing arrangement with a private-equity backed shell company affiliated with Parella Weinberg Partners. The GE loan will be used for working capital, to refinance debt and to help complete the deal with the private-equity group.
Consumer Credit in U.S. Fell by Most in Three Months
Consumer credit in the U.S. declined in February more than anticipated, indicating Americans are reluctant to take on more debt without further improvement in the labor market. Borrowing fell $11.5 billion, the most in three months, after a revised $10.6 billion January gain that was twice as much as initially estimated, the Federal Reserve said today in Washington. The decline in the February measure of credit card debt and non-revolving loans was worse than the lowest estimate in a Bloomberg News survey of 34 economists. "I don't think we're going to have the credit-fueled spending we had in the past," said Gary Thayer, chief macro strategist at Wells Fargo Advisors LLC in St. Louis. "A lot of consumers are deleveraging. They see excess borrowing as threatening."
NewAlliance Provides ABL Facility to The Worth Collection
NewAlliance Commercial Finance, a division of NewAlliance Bank, announced that it is providing a new asset-based lending facility to The Worth Collection, Ltd., a designer and direct seller of luxury women's apparel based in New York City. The transaction, structured as a revolving line of credit, will be used by The Worth Collection to refinance an existing line of credit and to provide for the company's ongoing working capital needs. Duff & Phelps served as the company's exclusive financial advisor and placement agent with respect to the financing. NewAlliance Bank launched its Commercial Finance division in November 2009, expanding the bank's business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory and other assets.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
Comments
Post new comment