The Weekly Consensus: Week of May 3, 2010
It's China to Own
Christopher Ellis
May Day was opening day at China’s World Expo in Shanghai. Of the 70 million visitors expected during the 6 month long event, more than 200,000 early adopters showed up on the first day. The exhibition boasts over 240 pavilions or exhibits covering 3 square miles of what was a Shanghai suburb. The locally reported $58 billion spent on the event – in addition to being spent in part clearing unsightly shanty towns surrounding the Expo – was also used to boost a crackdown on the sale of counterfeit Western goods in the area, presumably in an effort to persuade the influx of foreign visitors that knockoffs are frowned upon.
China currently wears the mantle of the world’s top producer of bootleg goods, responsible for an estimated 80% of the supply. Even something as fresh and American as Apple’s Ipad has been knocked off (albeit running Windows 7, much heavier than the real thing and according to Reuters selling for only about $90 less). Chinese marketers have long understood the value of brands in their struggle to win domestic market share. In addition to the counterfeiting, there are a great many successful domestic brands in China that in the West we’ve never heard of. A typical hypermarket there will offer around 40 brands of hair products and 20 brands of toothpaste as opposed to about 15 and 9 respectively in the United States. In addition to local brands, Chinese companies have licensed a tremendous number of global brands, many of which are manufactured in China anyway, but are now distributed and sold by Chinese licensees.
As China looks for different ways to diversify their holdings of US dollars away from simply taking on ever more US Treasuries, they are very sensibly buying up assets overseas that secure mining, energy and technology resources to buttress the necessary domestic supply for manufacturing inputs. These acquisitions are largely made by State-owned Enterprises.
As serial savers, the Chinese are also spawning ever greater private equity funds, with a slightly different appetite for foreign acquisitions. Over the last few years, Dirt Devil, Ryobi, IBM’s pc division, Whirlpool, Hoover, Haggar Clothing and Volvo (to name but a few) have all had their ownership shifted to the Far East. An increasing share of an increasing amount spent by Chinese investors on overseas acquisitions is now taking aim at consumer brands.
Brands that, for better or for worse, or out of necessity, have outsourced manufacturing to China might as well be owned there too. Look for an acceleration of this kind of activity during the course of the Shanghai Expo.
Apparel/Swimwear/Intimates
Betsy White
What Benetton Can Learn from Fast-Fashion Chain Forever 21
We joke about how there seems to be a Starbucks on every corner now, but back in the late 80s the shop on every corner was Benetton. It was a gilded age for the Benetton Group, the Italian apparel manufacturer and creator of those colorful, highly-coveted rugby shirts of yore. At the height of its U.S. power, Benetton had 600 stores. Now that the count is down to 100 and the U.S. market represents less than 3 percent of Benetton’s global sales, it’s curious that VP of retail Alessandro Benetton alluded to expansion during a party for its next big ad campaign, “It’s My Time.” If it is indeed contemplating such a move, perhaps Benetton brass can take a page from family-owned Forever 21 to help it succeed. Benetton’s doing one thing right - it’s reinvented 80s clothing for the millennium. But the American consumer had been spoon fed low-priced apparel during this recession (who can resist the season’s must-have cargo capris for less than $25 at Forever 21?). In order to remain competitive and appeal to the U.S. “recessionista,” Benetton must hone its sourcing and supply chain strategies further than it has in order to accommodate customers’ recently adjusted mindset.
In Women's Clothing, Borrowing from the Guys is Big Business
Menswear for women is an enduring trend in fashion--perhaps best typified by Annie Hall, the androgynous bohemian (played by Diane Keaton in the movie by Woody Allen) whose look was very clearly borrowed from the men's section. That may have been in 1977, but the idea of women wearing men's fashions dates from long before and remains just as de rigueur today. Stylish women have long shopped Savile Row for made-to-measure tailored shirts to pair with everything from Carolina Herrera ball gown skirts to ripped vintage Levi's. And the menswear trend has made it onto the runways as of late -- Dolce & Gabbana played with the tailored tuxedo jacket on the fall 2010 runway as did Diane von Furstenberg. In fact, some of the most storied and beloved women's brands in the world actually started as men's brands: Think Ralph Lauren and Giorgio Armani. We have Lauren, Armani and others to thank for the forgiving boyfriend jacket, the tailored menswear shirt and of course trouser pants. Cut to today and many of these traditionally testosterone-fueled brands are growing their women's offerings, while preserving their men's heritage. Designers have cottoned on to the fact that where women's clothes are concerned, borrowing from the boys means big business.
J. Crew, Urban Outfitters Say Yes to the Dress
Trends are trumping tradition in the retail wedding business. J. Crew is opening a bridal shop and Urban Outfitters plans to follow suit. Although skeptics question taking on the bridal business in a tough economy, J. Crew and Urban Outfitters are betting they can crack a growing market by offering a distinctive, lower-cost alternative. The wedding market isn’t what it used to be. Research firm IBISWorld, noted that from a peak of $30,000 in 2006, the average spending on a wedding has declined to less than $20,000 today. The cost of a wedding gown and bridesmaid dresses account for about 10 percent of total wedding expenses, IBISWorld reports, so it isn’t surprising that shoppers have been looking for alternatives. Retailers have noticed. The Limited, Ann Taylor and Chico’s White House Black Market all have begun offering wedding dresses for less than $500. Similarly, J.Crew and Urban Outfitters target an affordable price range.
Jones is Looking to Grow
Jones Apparel is mulling acquisitions as it looks to expand its stable of brands. The New York clothing conglomerate -- which already owns labels like Nine West, Anne Klein and l.e.i. -- may scoop up more brands this year. "We've got a lot of cash on the balance sheet," CEO Wes Card said in an interview, noting that the purchase of smaller, upscale designers like Rachel Roy and Robert Rodriguez has helped Jones lure more shoppers at department stores. The company's first-quarter net soared to $39.2 million from just $300,000 a year ago, as tight inventories helped revive margins. Revenue declined slightly to $887.3 million.
Athletic & Sporting Goods
Michael O'Hara
Hilco sells Tommy Armour to The Sports Authority
Hilco Consumer Capital and The Sports Authority, Inc announced the sale of all intellectual property, trademarks and third-party licensee agreements of HCC's Tommy Armour Golf business to Sports Authority. The worldwide trademarks included in the sale were the core Tommy Armour and RAM marks, as well as Zebra, 845, Silver Scot and TearDrop, all of which are brands well-known and respected by golf enthusiasts and the golf industry. Prior to the acquisition, Sports Authority had been selling Tommy Armour branded products across its chain of over 450 U.S.-based sporting goods stores under an exclusive license agreement with Hilco dating back to September, 2007. Sports Authority had also provided product design and development guidance to third-party licensee manufacturers of golf clubs, related equipment and apparel. HCC and co-investor, Crystal Capital, acquired Tommy Armour from Huffy Corporation in August, 2007.
Vail Resorts to Buy Out Gart Brothers' Interest in Retail Joint Venture
Vail Resorts Inc. said Thursday it is buying out the remaining interest in a multi-state retail joint venture from brothers Ken Gart and Thomas Gart, who will be leaving their leadership roles in the operation. The Broomfield-based resort operator and real estate company, which runs Colorado's Breckenridge, Vail, Beaver Creek and Keystone ski mountains as well as Heavenly at Lake Tahoe, said it will pay $31 million for the remaining 30 percent interest it does not already own in SSI Venture LLC, which operates as Specialty Sports Venture (SSV). The venture between Vail Resorts and the Gart Cos. -- formed in 1998 -- operates some 145 shops and ski-rental outlets generating more than $180 million in annual sales.
Catalog & Internet
Christopher Ellis
Overstock.com to Launch ‘Main Street’ Store for Small Businesses
Overstock.com Inc. this week launched an effort designed to give small and minority-owned businesses the chance to sell more products on the discount retailer’s e-commerce site. The “Main Street Revolution Initiative” gives merchants access to Overstock’s national distribution channel. “By joining our network these small businesses can reduce their supply chain costs and open their products to a mass audience,” says Patrick Byrne, CEO of Overstock. Byrne says Overstock employees will contact local chambers of commerce to identify businesses that might want to sell products as part of this program. Businesses also can contact Overstock about taking part. Overstock generally defines a business as small if it has no more than five employees, Byrne says. Products from small and minority-owned business that sell under the Main Street program initially will be sold through existing product categories on Overstock.com and O.biz, the company’s business-to-business web site. Byrne anticipates opening a dedicated Main Street store within a month or so, when the number of merchants taking part reaches 100.
Site Search Must be Streamlined on the Mobile Web
Retailers creating mobile versions of their web sites should emphasize fast, streamlined and relevant site search, says Shaun Ryan, CEO of SLI Systems Inc., a provider of hosted site search applications. Because the screens of mobile devices are small, there is little room for a shopper to navigate from page to page or product to product, Ryan says in a blog post on the SLI site. “With effective mobile site search, people don’t need to rely on navigation—so it’s a space-effective way of getting people to the information they want to find on your site.”
Consumer Electronics/Video/Audio
Douglas Stebbins
HP Kills Slate Tablet Project?
Moments after it was announced that Microsoft abandoned its Courier project, we learn that HP is also killing its HP Slate tablet project, which Microsoft CEO Steve Ballmer unveiled back in January at the Consumer Electronics Show 2010. Sources state that the company is dropping Windows 7 as the official operating system because it is not satisfied with it. Sources go on to report that HP is also dropping the Intel-based hardware due to it being too “power-hungry.” Recently, plenty of information about the HP Slate was released including alleged price and availability details, and even a teaser video. Now, HP will apparently focus all its time and efforts on improving the Android-powered tablet that we first learned about the day after the HP Slate was introduced.
Clash of the Electronic Titans: Best Buy Sues Ultimate Electronics
Advertisers occasionally stretch the truth, or overstate a claim. But Twin Cities-based Best Buy has filed a lawsuit against competitor Ultimate Electronics, challenging Ultimate's advertisements stating it has the lowest prices, which the company asserts is based on daily shopping of competitors, such as Best Buy and Wal-Mart, and constant adjusting of prices. Best Buy says that claim is blatantly false. The Better Business Bureau of Minnesota and North Dakota (BBB) seems to back up Best Buy's challenge. BBB secret shopped Ultimate Electronics' 'Lowest Prices Period' claim on dates between July 2007 and August 2008. On each of those five occasions, a random sampling of electronic devices revealed one or more items which were priced lower at the stores of competitors listed in Ultimate Electronics advertising.
H.P. and Palm – P.D.A. Powerhouses Unite
The year was 2005 and things didn’t look all that awful for Hewlett-Packard and Palm when it came to selling mobile devices. In fact, things looked quite good. H.P., for example, sold $836 million of its iPaq personal digital assistants in 2005. It held 15 percent of the P.D.A. market, trailing Palm’s 19 percent and Research In Motion’s 21.4 percent. When it came to the embryonic market for smartphones, Palm was outselling R.I.M., shipping 1.95 million Treo smartphones versus 858,000 Blackberries. The funny thing about the last five years and H.P.’s woes is that smartphones have just moved closer and closer to PCs. They can process proper software, have serious storage capacity, play music, access the Internet and the list goes on. But the smartphone market seems to require a certain amount of pizzazz and pluck that H.P. lacks.
Cosmetics & Pharmacy
Billy Busko
Avon Products 1Q Profit Drops with Currency Hit
A currency devaluation in Venezuela, costs related to a bribery investigation in China and restructuring charges drove Avon Products Inc.'s profit down 64 percent in the first quarter. But consumers in many international markets spent more on Avon's cosmetics and other products, and its revenue climbed 15 percent, the company said Friday. Avon, whose force of thousands of independent sellers ballooned during the recession as unemployed workers sought new income, increased its marketing spending during the quarter and continued to recruit sellers to promote its low-price products, some of which sell for less than $5. Its outside sales force grew 6 percent, and it spent 23 percent more than a year earlier marketing its brands, which include Skin-So-Soft and Mark, as well as Avon. Avon's revenue fell 2 percent in North America, and units sold were flat, hurt by weakness in its non-beauty business. Regionally, the biggest drop -- 31 percent -- came in China in both direct sales and sales at the company's beauty boutiques. Its sales were up more than 20 percent in Latin America and Central and Eastern Europe, two key markets for Avon.
Nu Skin Enterprises Reports Record First-Quarter 2010 Results
Nu Skin Enterprises, Inc. announced record first-quarter results, with revenue of $364.1 million, a 23 percent improvement over the prior-year period. Quarterly revenue was positively impacted 8 percent by foreign currency fluctuations. Earnings per share for the quarter were $0.48, a 153 percent improvement, or 71 percent when excluding restructuring charges of approximately $0.09 per share included in the prior-year results.
Alberto Culver Announces Second Quarter and First Half Fiscal Year 2010 Results
Alberto Culver Company, a leading manufacturer and marketer of beauty care brands including TRESemme, Alberto VO5, Nexxus, St. Ives, Simple and Noxzema, announced results for its fiscal year 2010 second quarter and first half ended March 31, 2010. In the U.S., despite strong growth on TRESemme, reported sales declined 1.7%, largely due to lower than normal customer service levels as a result of the Company's manufacturing, supply chain and systems disruptions. International sales on a reported basis increased 38.7% (the effect of foreign currency fluctuations as well as acquisitions and divestitures accounted for approximately 31.7% of the growth) behind strong TRESemme growth.
L’Occitane Raises $707m in Hong Kong IPO
Upmarket cosmetics group L’Occitane has raised HK$5.49bn (US$707m) in the first Hong Kong initial public offering of a French company, according to people familiar with the matter. The landmark deal highlights Hong Kong’s growing prominence in global finance and comes three months after Rusal, the aluminium producer, became the first Russian company to float in the city. L’Occitane, whose natural skincare products are made in Provence, sold 364.12m shares, or a 25 per cent stake, at HK$15.08 each – the top of its intended price range. That price values the company at US$2.8bn and represents a multiple of 21.9 times forecast earnings for the year ending March 2011, broadly in line with other global cosmetics retailers.
Department & Discount Stores
Mark Lenz
Macy’s Editing Assortments to Go Bigger
Macy’s store executives are assessing its assortments in 26 categories and will trim back items so that it can make a more forceful statement with key merchandise. “There are areas where we have too many ideas and too many competing ideas,” said Jeff Gennett, chief merchandising officer, during the company’s Analyst Day meeting here this morning. The problem, dubbed “Edit for Growth,” will reduce sku count in targeted areas by 15% to 30%, with reduction decisions made door by door. The affected sub-categories will represent areas where Macy’s sees opportunity to make significant market share gains – “not just 10% growth, but 50% growth,” said Gennett.
Gottschalks Revival? Ex-CEO Says Financing Set for New Retail Chain
A former chairman of Gottschalks Inc. wants to resurrect the venerable retail name with a new chain of department stores. Joe Levy, whose great-aunt was the wife of Gottschalks founder Emil Gottschalk, said Monday he has formed a new company -- called Gottschalk by Joe Levy Inc. -- with plans to open stores in the valley and beyond. The original Gottschalks started with one store in downtown Fresno in 1904 and eventually expanded to dozens throughout the western United States -- many in smaller cities often passed over by national retailers. But a sour economy, declining sales and rising debt forced the chain to file for bankruptcy in January 2009. The last of its 58 stores closed during the summer. With the valley economy shaken by high unemployment and deflated home prices, retail experts aren't sure that Levy's new company would will fare any better than its predecessor. And while Levy says he has financing lined up, it's unclear if those resources are enough for so expensive an undertaking.
Wal-Mart Thinks Smaller
Wal-Mart Stores Inc. became the largest retailer by building sprawling stores in suburbs and rural towns. But now it is exploring opening a number of small outposts to penetrate the nation's cities and fight the spread of no-frills grocery chains, which are luring away some of its core customers. Wal-Mart declined to discuss the details or timing of its new strategy, but Chief Executive Mike Duke stated in the introduction to the company's annual report last week that U.S. growth will be fueled by "innovative new formats." It is one of several recent statements by Wal-Mart declaring that its U.S. expansion will center less on its warehouse-sized Supercenters and more on far smaller urban stores, as well as condensed locations where consumers can pick up merchandise they order online.
Pop-Up Power: Retail's Recession Invention
Right about the time monthly sales results for the nation's biggest retailers started sliding off a cliff, the word "pop-up" kept ... popping up. Target uses the pop-up stores to generate plenty of A-list buzz during New York Fashion Weeks. For the Gap, Los Angeles-based pop-ups seem like a trendy (and low-risk) way to introduce new lines to demanding denim connoisseurs. Even elite brands like Gucci have been popping up around the world, introducing new designers, limited-edition collections or brand-new price points. These temporary retail locations offer consumers the insider-y thrill of a sample sale and whiff of an unexpected bargain -- like a flea market or yard sale, from a single retail brand. We asked Christina Norsig, a pop-up pioneer and CEO of PopUpInsider, a portal that connects brands to the right real estate, to explain the attraction.
Why Walmart Should Be Worried: Target's Cheap Chic Is Hitting the Bulls-Eye
Target surged past Walmart in a new consumer preference study, and signs point to more consumers aiming their purchases at the bull’s-eye. Consumers are beginning to open their wallets, according to the analysts at Retail Eye Partners, and they are giving Target credit for better prices. That’s important.
Energy
Christopher Ellis
Camelina Biofuel Powers US Navy F/A-18 Test Flight
Sustainable Oils supplied the camelina-based biojet fuel that powered a test flight of the U.S. Navy's F/A-18 "Green Hornet" aircraft last week on Earth Day. Taking place at the Naval Air Warfare Center in Patuxent River, Maryland, the flight was the first to demonstrate the performance of a 50-50 blend of camelina-based biojet fuel and traditional petroleum-based jet fuel at supersonic speeds. Sustainable Oils also provided the camelina-based jet fuel that powered the historic flight of a U.S. Air Force A-10C Thunderbolt II on March 25, 2010. According to the U.S. Navy, the Green Hornet performed as engineers expected, successfully completing all aspects of the test flight.
Phoenix Solar & MiaSolé Sign 4.5-MW Thin-film Deal
Phoenix Solar AG has signed a framework agreement with MiaSolé, a manufacturer of copper-indium-gallium-selenide thin-film photovoltaic solar panels based in California. The agreement, which runs until 2013 calls for Phoenix Solar to receive an initial 4.5 megawatts of thin film modules from MiaSolé in the second quarter of 2010. The framework agreement also includes a recycling warranty where required by regulation or financing. At the end of the lifetime of the solar modules the customer has the option of having them taken away by MiaSolé and recycled or reconditioned.
Footwear
Michael O'Hara
Jones Could Be Nearing Deal for Weitzman
Jones Apparel Group Inc. could be close to a deal to acquire a stake in Stuart Weitzman. People familiar with the matter said today that a deal between Jones and Irving Place Capital, Weitzman’s minority investor, could happen as soon as tomorrow. There is also some speculation that Jones could acquire more than Irving Place’s 40 percent stake. One investment banker said negotiations between Jones and Weitzman have been “going on for a while” and that “some deals take a very long time to come to fruition.” But the anonymous banker added that when a deal involves a founding individual such as Weitzman, it can add to the complexity of a potential acquisition because it becomes much more personal than “a corporate business run by hired executives.” Weitzman himself has been very vocal about finding a succession plan. The founder, 68, is actively searching for a CEO and a president of retail. He recently told Footwear News he would like to continue running the business while he is able and that he is open to selling it to an entity that would allow that.
The Walking Company Holdings, Inc. Emerges From Chapter 11
The Walking Company Holdings, Inc. announced that it has successfully completed all conditions of its reorganization plan and today emerged from Chapter 11. "Entering voluntary Chapter 11 protection with a plan and the continued support of our lenders enabled the Company to emerge in an expeditious manner," said Andrew Feshbach, The Walking Company's CEO. As outlined in the Plan, the Company exits bankruptcy with 207 of its former 210 locations of The Walking Company remaining open. The Company will also pay all of its debts and future obligations to trade creditors. In addition, the Company's common stock will continue to trade under the symbol WALK.PK.
Gifts/Accessories/Luggage/Pets
Mark Boucher
The Problem with Being a Trendsetter
When it comes to fashion, no success is sacred. Last year, the Shashi bracelet, a bauble of macramé and rhinestones, was on Lindsay Lohan's wrist and sold for about $60 at Henri Bendel and Intermix. Now, American Eagle Outfitters Inc. is selling similar-looking bracelets priced at $12.50. "It's not fair," says jewelry designer Yuvi Alpert, who, along with his business partner, Danna Kobo, makes and sells the Shashi bracelet. While the design continues to sell well, the Shashi bracelets' retailers have complained about less expensive look-alikes on the Web and in stores, Mr. Alpert says. "I can't know of how many people didn't buy Shashi bracelets because of it," he says. American Eagle Outfitters declined to comment. When it comes to fashion, no success is sacred. Emerging designers are especially prone to cheaper knockoffs. The fashion world is ravenous for new jewelry, accessories and clothes to fill the shelves of retailers and Web sites, many of which seek to offer fresh inventory as often as every two weeks. Often, existing designs become the inspiration for new, mass-produced pieces. Small designers face a particularly large burden; often, they lack deep pockets to chase down versions they find similar, and their brands are so little-known that customers often aren't aware they're not buying an original design.
Retailers Debate: Should You Discount?
The heads of Saks and Louis Vuitton debated the wisdom of discounting at a panel at the American Express Publishing Luxury Summit titled "What Price Luxury?" Stephen Sadove, chairman and CEO of Saks, defended his decision to slash Saks's goods prices by 70 percent during the most difficult period of the recession. "It was the smartest thing that could have been done," he said. "I would do again in a heartbeat. It was really an economic decision based on the reality of the time.” Louis Vuitton took the opposite tack, maintaining price points, inventory levels, and advertising programs. "We changed absolutely nothing in our approach," Daniel Lalonde, president and CEO of Louis Vuitton, said. "The thing that made our business robust in the last couple years is that we never went on sale."
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Anchor Brewing Co. Sold to Greggor, Foglio
Fritz Maytag, the washing machine heir who launched the microbrewery movement, has sold Anchor Brewing Co. in San Francisco to a pair of Bay Area entrepreneurs who plan to preserve and expand the iconic brand. No terms were disclosed for the sale of the 70-person Mariposa Street brewery and distillery that traces its roots to the Gold Rush, when local brewers produced a heady elixir known as steam beer. In 45 years at the helm of Anchor Brewing, Maytag helped spark a revival in the craft of making beer by hand and inspired thousands of entrepreneurs to follow him in creating small, artisanal breweries. Keith Greggor, 55, and Tony Foglio, 64, two veterans of the spirits industry, say they plan to expand Anchor Brewing's operations and cement its position as a font of artisanal beers and spirits.
Safeway Comps Fall, Sees Price Pressures
Stock in Safeway fell more than 5% after the company posted a 3.1% decline in same-store sales for the first quarter and said profits fell by a third, adding that short-term profit pressures persist. The company expects deflation to decline and inflation to increase through the first half of the year but does not anticipate reflecting rising costs in its pricing immediately, Steve Burd, chairman, president and chief executive officer, told analysts. Burd made his remarks during a conference call to discuss financial results for the first quarter, which ended March 27. Net income for the quarter was down 33.4% to $96 million, on a 1% increase in sales, to $9.3 billion. During the quarter Safeway saw increased transactions per household and increased items per basket, Burd said.
Sliced & Diced
Even in the most economically viable markets in the country, it is clear that 2009 was a difficult year for food retailers, particularly traditional operators. Supermarket News examined food-retailing market-share trends for 10 markets around the country that were ranked as having the best economic growth in 2009, based on an analysis by the Brookings Institution, a nonprofit economic research organization. Brookings analyzed the markets based on several factors, including employment gains, changes in housing prices and changes in gross metropolitan product. The data reflect food-retailing market shares at the end of 2009, although some adjustments have been made based on changes that have taken place in early 2010, such as the acquisition of Penn Traffic by Tops Markets. For each market, SN lists store count and market share by company, plus market share from the preceding year.
Home Improvement/Auto Repair
Billy Busko
Advance Auto Parts Announces Closing of Senior Notes Offering
Advance Auto Parts, Inc., a leading automotive aftermarket retailer of parts, batteries, accessories, and maintenance items, announced today the closing of its Senior Unsecured Notes offering. The Company completed the offering of $300 million in principal amount of 5.75% Senior Unsecured Notes due 2020 at an issue price of 99.587%. The company will use the proceeds of the offering to pay off and retire the $200 million of outstanding indebtedness under its term loan, reduce $75 million of borrowings under its revolving credit facility, pay transaction fees and expenses and for general corporate purposes. Banc of America Securities LLC and J.P. Morgan Securities Inc. acted as joint book-running managers of the debt offering.
Home Depot, Lowe's Welcome Back Shoppers
Home Depot and Lowe's patio furniture and grills can't match the revenue of truckloads of lumber and piping, but they're a solid foundation as home improvement retailers rebuild their buyer base this season. Weber and Brinkmann grills stood in rows at the front of a Home Depot in Boston earlier this week, while Scotts Miracle-Gro lawn and garden products and Toro and Black & Decker mowers filled the shelves of seasonal aisles -- reminders of the customer service and "lower-price campaign" strategies that Chief Executive Frank Blake credited with keeping the company above water for the last two years. Beyond the room-sized displays of patio furniture, fire pits and Black Friday-style outdoor product promotions, contractors were loading up on building supplies. Home Depot and its competitors are expecting more of them in 2010. Despite 2009 sales that fell 7.2% from the year before and last year's closure of its EXPO Design Center chain, Home Depot expects 2.5% sales growth this year. Lowe's, meanwhile, envisions 4% to 6% total sales growth and 40 to 45 new stores in 2010.
Housewares/Furniture
Billy Busko
Ethan Allen Reports Results for Quarter Ended March 31, 2010
Ethan Allen Interiors Inc. reported operating results for the three and nine months ended March 31, 2010. Net delivered sales for the quarter ended March 31, 2010 were $147.3 million, up 5.0% from the prior year quarter. The Company’s Retail division delivered net sales of $107.1 million, increased 3.7% and the Wholesale division delivered net sales of $96.6 million, increased 9.7% from the prior year quarter. Total orders booked for the Retail division increased 18.6% while comparable design center orders were 23.7% higher than the prior year quarter. The reported loss in the quarter was $0.9 million or a diluted loss per share of $0.03 compared with a loss the prior year quarter of $48.7 million or $1.69 per diluted share.
Lumber Liquidators Announces First Quarter 2010 Financial Results and Raises Full Year 2010 Outlook
Lumber Liquidators, the largest specialty retailer of hardwood flooring in the U.S., announced financial results for the first quarter ended March 31, 2010, and provided updates to its outlook for 2010. Net sales increased $27.3 million, or 22.1%, to $151.2 million in the first quarter of 2010 from $123.9 million in the first quarter of 2009. Comparable store net sales for the first quarter of 2010 increased 8.0%, as strong consumer demand drove sales volume. In the first quarter of 2009, comparable store net sales had decreased 5.8%. Non-comparable store net sales increased $17.4 million in the first quarter of 2010 over the prior year period. The Company opened 11 new stores during the first quarter of 2010.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Iconix to Buy Owner of Peanuts Comic Strip for $175 Million
Iconix Brand Group Inc. said it would buy the "Peanuts" comic strip brand and other assets from United Features Syndicate Inc and E.W. Scripps Co. for about $175 million, in partnership with cartoonist Charles Schulz' family. The New York-based fashion house said it would buy United Media Licensing, owner of the Peanuts and Dilbert character brands, through a newly formed subsidiary, in which Iconix will hold an 80 percent share and the Schulz family will hold the remaining stake. Iconix, which will fund its share of the acquisition with its existing cash balance, said on a pro-forma basis, the deal is expected to generate about $75 million in royalty revenue and add 12 cents to 15 cents a share to its earnings annually. In 2010, however, the additional earnings will be impacted by deal costs and will depend on the timing of the close, the company said.
World's Most Valuable Luxury Brands
What is the world's most valuable luxury brand? According to a study released today compiled by market research firm Millward Brown Optimor, the most valuable brand is France's Louis Vuitton with a brand value of nearly $19.8 billion. Hermes, with a brand value of $8.45 billion, landed in the second spot, followed by Gucci ($7.58 billion), Chanel ($5.54 billion) and Hennessy ($5.36 billion). Perhaps most surprising about the list this year were the brands that didn't fare well. The brands that are more closely associated with trends and high fashion, such as Prada and Burberry, did not rank high on the list---in fact, Prada was knocked off the top ten list altogether.
VF Move Lifts Blacks Leisure
Blacks Leisure was in focus yesterday after VF Corporation declared an interest over a 5 per cent stake in the outdoor goods retailer. The talk in the market was that VF, whose brands include North Face jackets and Vans shoes, would convert its holding of warrants (purchased from Bank of Scotland) into shares and use it to back a cash call. A previous attempt by Blacks to raise £22m via a placing of new shares was thwarted by 28 per cent shareholder Sports Direct. However, Blacks has restructured the fundraising - and seen off a bid from Sports Direct - so that it now needs a simple majority to pass. Blacks shares rose 3.4 per cent to 60½p.
Jewelry/Mining
Mark Lenz
AMEX Warns Lazare Kaplan of Delisting
Struggling diamond firm Lazare Kaplan International (LKI) received a deficiency letter from the NYSE Regulation on behalf of NYSE AMEX warning the company that it is in violation of its listing and may, as a result, be delisted for failure to file its quarterly report. Earlier this month, LKI notified the Securities and Exchange Commission that it will be late in filing its quarterly report. In response, AMEX on Monday notified LKI that the timely filing of such reports is a condition for the company's continuing listing on the exchange and failure to do so is a material violation of its listing agreement.
Diamond Market Recovery Sluggish
Although it appears rough diamond prices are on the path of rebound, the diamond market is still far from recovery and it is still too early to talk about recovery. Prices of rough diamonds collapsed in late 2008 and for most of 2009 as a result of the global downturn but now seem to be on the path of recovery, which has not really brought excitement to Debswana. Boyce Sebetela, Group Manager Strategy Manager, said the current recovery is based on fiscal and monetary policy stimulus and not by private sector consumption. He said until those are withdrawn as recovery depends on the private market, the industry cannot talk about recovery.
Frederick Goldman to Distribute Charles and Colvard
Moissanite maker Charles and Colvard has signed a manufacturing and distribution agreement with New York-based Frederick Goldman, one of North America's largest fine jewelry manufacturers. Under the terms of the agreement, Goldman has the exclusive right to distribute and sell finished jewelry featuring moissanite to "certain national retail customers," Charles and Colvard announced in a news release issued late Wednesday.
Affluents More Comfortable About Spending
The stories of people skulking out of luxury boutiques with their purchases hidden in plain brown bags may have been mostly urban mythology to begin with. In any case, a report released this week by American Express Publishing suggests that "luxury guilt" is abating. Conducted during the first quarter of this year by the Harrison Group among affluent consumers (average household income: $520K), the survey found 45 percent of respondents saying they feel guilty about purchasing luxury goods, down from 54 percent last year. At the same time, the proportion of affluents who "say they like it when others recognize them as being wealthy" has risen from 30 percent then to 42 percent now.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Missouri Gets $440,000 Judgment Against Office Depot
A consent judgment issued Friday requires Office Depot to pay $440,000 to settle allegations that the company had violated Missouri’s Merchandising Practices Act, according to the state attorney general’s office. In February 2009, Attorney General Chris Koster launched a statewide probe into Office Depot over allegations of fraudulent pricing and overcharging on government contracts. Koster’s probe came as Office Depot faced civil investigations by a number of states and federal agencies regarding its pricing practices relating primarily to government customers.
Jo-Ann Stores the Latest Toy Importer to Pay Up for Allegations It Violated Lead Paint Ban
Another toy importer will pay a hefty penalty after the government said it violated the federal lead paint ban by importing and selling lead-tainted children's products made in China. Jo-Ann Stores Inc., of Hudson, Ohio, will pay a $50,000 civil penalty, the Consumer Product Safety Commission announced on Wednesday. The settlement resolves the agency's allegations that it knowingly imported and sold Robbie Ducky children's products with higher-than-allowed levels of lead paint.
Restaurants/Food Service
Mark Boucher
Restaurants Ready to Hire More Workers
Restaurant operators expect to do more hiring in the second quarter of this year, another sign that the industry may be climbing its way out of the economic slump, according to data in the latest People Report Workforce Index. More than 40 percent of companies surveyed by People Report plan to add both hourly and management staff in current second quarter, while just 4 percent plan to cut hourly workers and 6 percent plan to reduce management staff, the Workforce Index reported.
Analysts See Start of Restaurant Recovery
After more than two years of slow sales and anemic guest traffic for restaurant operators a recovery in consumer spending may finally be here. “We officially declare that ‘the restaurant consumer recovery’ began in March 2010,” said Cowen & Co. analyst Paul Westra. Westra said same-store sales appear to be rising at restaurant chains, a phenomenon he witnessed in 2003 as the industry came out of a recession. Following a gain in same-store sales in May 2003, restaurant stocks jumped 45 percent over the next year. In particular, Westra said “polished casual-dining” chains like Darden Restaurants Inc., which owns the Olive Garden and Red Lobster, are likely to benefit from baby boomers’ preference for dining in “high-end” environments. Chains that can capitalize on those preferences could take diners away from “mass-casual” competitors as the economy improves.
Papa John's Names Thompson Co-CEO with Schnatter
Papa John’s International Inc. has appointed president and chief operating officer Jude Thompson as co-chief executive to serve alongside the brand’s founder and spokesman, John Schnatter, the company said. Thompson and Schnatter now join the ranks of restaurant industry co-CEOs with Steve Ells and Monty Moran at Chipotle Mexican Grill Inc., Larry Flax and Rick Rosenfield of California Pizza Kitchen Inc., and Rick Federico and Bert Vivian of P.F. Chang’s China Bistro Inc.
Landry’s Chairman Ups Buyout Offer Again
Landry’s Restaurants Inc. said that its chairman, Tilman J. Fertitta, has upped his offer to take the restaurant and gaming company private from $14.75 per share to $21 per share, or about $341 million. Landry’s said in a statement that Fertitta, who has been courting the company for years, increased his offer after conducting “lengthy negotiations” with a special board committee and reaching a tentative agreement with plaintiffs who had filed a lawsuit in Delaware over derivative claims. Fertitta’s latest offer still must be approved by the board’s special committee, the entire Landry’s board and a majority of shareholders of common stock not held by Fertitta, who holds more than 55 percent of the company’s shares.
Banking & Lending
Douglas Stebbins
Loan Demand Spurs Buyouts Among Private Equity Firms
Banks committed to arrange $3.52 billion of loans to help pay for LBOs this year, more than 13 times the amount during the same period in 2009, according to data compiled by Standard & Poor’s LCD and Bloomberg. Private-equity firms plan to use 55 percent of that money to back company purchases from one another as a steady flow of cash into the loan market enables sponsors to tap demand for the debt, triggering buyouts. Transactions among private-equity firms may increase because raising debt for a previously bought-out companies such as Hillman, ViaWest and USIC is “easier,” according to McDonnell and David Becker, managing director in the financial sponsor investment banking group at Barclays Capital, the investment banking division of Barclays Plc. LBO firms are tapping into demand in the loan market to exit investments after seeing U.S. initial public offerings stumble at the start of the year, with the first 14 deals getting cut by 22 percent on average, according to Bloomberg data, and taking some of the biggest discounts, according to London-based researcher Preqin Ltd.
BlackRock Joins Blackstone in Loan Fund Frenzy: Credit Markets
BlackRock Inc., the world’s largest asset manager, and Blackstone Group LP’s GSO Capital Partners LP are forming mutual funds to invest in loans as the London interbank offered rate rises to the highest level since August. The firms have joined Goldman Sachs Group Inc. in announcing funds investing in leveraged loans pegged to short- term interest rates. Investors poured more than $2.5 billion into bank-loan mutual funds in March and the first three weeks of April, more than triple the amount for March and April last year, according to Lipper FMI data. The Federal Reserve will likely raise its target rate for overnight loans between banks to 0.75 percent by the end of this year, up from 0.25 percent, according to the median estimate of 67 analysts surveyed by Bloomberg. New money “will provide financing, which will help” mergers and acquisitions, said Tom Ewald, a New York-based money manager who runs the Invesco Floating Rate Fund at Invesco Ltd., which has about $11 billion of leveraged loans under management. “That is a positive for all markets and the economy.”
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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