The Weekly Consensus: Week of May 24, 2010
Faster, Internet! Shill! Shill!
Douglas Stebbins
This past Thursday, Google announced the unveiling of Google TV. With this innovation, Google is promising to provide, seamlessly, both the virtually limitless content of the Internet and the viewing ease afforded by the large screens of today’s televisions. For the last few years, there have been major strides in bringing television to computers, but no one has successfully married the Internet to the television: efforts by powerhouses like Microsoft, Intel and Apple have all failed to inspire consumers. If Google can succeed where its rivals have failed, the implications for its business are enormous.
For years viewers accepted choppy video and tinny sound as unavoidable consequences of watching video programming on a typical computer. Viewers were happy enough that a computer, or better yet, a portable laptop could do anything more entertaining than produce mind-numbing spreadsheets, page after page of “processed” words or hand after hand of Freecell. This advance in technology has the potential to render those days as distant in concept as the days when one had to let the tubes in the television warm up before viewing are to viewers today.
The question is: how will viewers react to the Internet on 60-inch HDTV’s? I imagine the initial reaction will not be overly enthusiastic, not because of the technology, but because of the content that is currently available. The majority of websites (specifically e-commerce sites) will look boring, unimaginative and, well, small on a big screen. It will be important that the websites and particularly e-commerce sites adapt and make the leap to providing content worthy of 1080p.
Internet television should be viewed as an entirely new medium. Not just a television that can surf the Internet, but rather a seamless combination of the two. It is left to retailers to harness the power. The e-commerce companies that succeed will be those that adapt to the new paradigm. A static web site will not be acceptable – successful players will need to have great graphics, high definition streaming video showing and coherent narrative to support their product. A successful internet television e-commerce site will need the detail of an infomercial, the on-demand convenience of pay-per view, the selection of a superstore and the speed of a drive-thru window.
Barnes & Noble and Borders were caught flatfooted by Amazon, and Blue Nile was able to claim the jewelry e-commerce lead ahead of Zales and Kay Jewelers. They were able to succeed by harnessing the power of the early Internet by providing innovations like images, real time reviews, one click ordering and wish lists. The winners in this race will be those that embrace and leverage the technological possibilities. It remains to be seen if the old guard will find a way to reclaim its dominance or will the young guns again beat them to the punch.
Apparel/Swimwear/Intimates
Betsy White
American Apparel Hits Choppy Waters
Los Angeles-based American Apparel is never far from the news, but a sharp decline in its share price presents a unique challenge for charismatic founder Dov Charney. In recent times Charney has hurdled outcries over racy advertising, and been forced to dismiss thousands of unauthorized domestic workers he vehemently defended. Meanwhile, American Apparel stores are sprouting up in a host of new global markets without much fuss. On May 20th though, the retailer caught traders by surprise when it posted a somewhat stunted trading statement, sending its shares tumbling. Market concern appears to arise from news that the company may struggle to comply with the terms of an existing loan. American Apparel's statement said: "Based on the company's preliminary financial results for the first quarter ended 31 March, and based on existing trends, the company anticipates that it will not be in compliance with the Total Debt to Adjusted EBITDA covenant under its credit agreement with its second lien lender at 30 June."
Resurgent Female Shoppers Swing Ann Taylor to Profit
Women's clothing retailer Ann Taylor Stores Corp. swung to a first-quarter profit, helped by resurgent demand for women's clothing and an updated merchandise assortment that spurred shoppers to pay full price. Net income hit $22.6 million, or 38 cents a share, compared with a loss of $2.3 million, or 4 cents a share, a year earlier. Sales in the quarter ended May 1 rose to $476.2 million from $426.7 million, while sales at stores open at least a year gained 14%, the 903-store chain said. The company forecast second-quarter sales of about $500 million with same-store sales rising at least 10%. For the year, Ann Taylor sees sales of $1.95 billion to $1.98 billion with positive same-store sales at both its namesake and Loft chains.
Casual Male Hopes to Woo Smaller Shoppers with New Store
Casual Male Retail Group Inc.'s chief executive said he hopes the company's new Destination XL stores will increase its market share by attracting the "smaller big-guy." "We do not have a big market share in the smaller sizes and that's a huge win for us if we can get it because it's a high percentage of the big and tall market," Chief Executive David Levin said. The retailer, which operates Casual Male XL retail and outlet stores and higher-end Rochester Clothing stores as well as a catalog and online business, plans to open four Destination XL stores during the fiscal second and third quarters. The stores represent a new direction for the company, which reported first-quarter earnings above analyst expectations. While the Casual Male XL store is about 3,500 square feet, Destination XL will combine all brands in a one-stop shopping 10,000- to 12,000-square-foot space. The company plans to close two to three Casual Male stores in each Destination XL market, but its total square footage won't change.
Anchor Blue Charts New Direction
Tom Sands is making big denim promises. “There’s nobody in the mall that will have the denim assortment that we do regardless of your fit,” said the chief executive officer of retail chain Anchor Blue. The jeans and teens retailer emerged from bankruptcy last year, and the company plans to spend 2010 carving out a new niche and a new identity. To do that, the company has brought in new executives to the design department. And it plans to expand its denim offerings to fit every teen—from the rail-thin boy with a size-28 waist to the curvy girl unable to find a selection of jeans at other retailers. Anchor Blue plans to be the go-to place for jeans and denim-related clothes, said Sands, who has been the retailer’s CEO since 2007. He also hopes the retailer will be the destination for a budget-savvy demographic that ranges from young men’s and juniors up to college-age men and women. Nothing in the shop will be priced for more than $30.
Athletic & Sporting Goods
Michael O'Hara
Dick's Sporting Goods Reports First Quarter Results; Exceeds Expectations
Dick's Sporting Goods, Inc. reported sales and earnings results for the first quarter ended May 1, 2010. The Company reported consolidated net income for the first quarter ended May 1, 2010 of $26.2 million, or $0.22 per diluted share. The first quarter earnings per diluted share exceeded estimated earnings expectations provided on March 9, 2010 of $0.12 - 0.13 per diluted share. For the first quarter ended May 2, 2009, the Company reported consolidated non-GAAP net income of $12.8 million, or $0.11 per diluted share. Net sales for the first quarter of 2010 increased by 9.2% to $1.0 billion due primarily to an 8.2% increase in consolidated comparable store sales and the opening of new stores. The 8.2% consolidated same store sales increase consisted of a 7.6% increase in Dick's Sporting Goods stores, a 12.4% increase in Golf Galaxy stores and a 15.2% increase in e-commerce.
Hibbett Sports Q1 Net Surges on 15% Comp Sales Gain
Hibbett Sports, Inc. reported net sales increased 17.0% to $184.5 million for the 13-week period ended May 1, compared with $157.7 million for the prior-year quarter. Comparable store sales increased 14.5% for the period. Net income for the first quarter increased 58.9% to $17.3 million, or 59 cents per dliuted share, compared with $10.9 million, or 38 cents per diluted share, for the year-ago quarter. Operating income was 15.0% of net sales for the first quarter of Fiscal 2011 compared with 11.1% of net sales for the first quarter of Fiscal 2010.
Catalog & Internet
Christopher Ellis
Facebook is Flirting with a Big Business Backlash
Facebook's race to monetize its content is fueling its drive to make everything open, and users and company brands alike may get left behind in the dust. Businesses are very sensitive about protecting their brand logos, and customers who feel a firm's association with Facebook intrudes on their privacy may not be customers for long. And therein lies the real danger for Facebook regarding the latest backlash: Small, medium and large businesses may actually start paying attention to the privacy issues and wonder whether their credibility and customer trust are at stake.
Buy.com Makes Its Biggest Sale Yet: Itself
Rakuten, a Japanese company that runs the biggest e-commerce site in Japan, said on Thursday that it had agreed to buy Buy.com, the online shopping site, for $250 million. The sale marks the next chapter for Buy.com, a company whose life mirrors the ups and downs of the dot-com era. Rakuten hopes that the acquisition will make its marketplace, Rakuten Ichiba, more competitive internationally with e-commerce giants like Amazon.com and eBay. “Rakuten Ichiba is very very competitive against a very powerful company like Google or Amazon or eBay, but that was a pretty domestic business,” said Hiroshi Mikitani, founder and chief executive of Rakuten and the sixth-richest person in Japan, according to Forbes. Both companies were started in 1997, the year that Amazon.com went public. Buy.com, which is based in Aliso Viejo, Calif., went public in 2000 and its stock price soared and then crashed. Its founder, Scott Blum, took it private a year later. Since then, it has grown to 14 million customers. It directly sells half its products and the other half are sold by other e-commerce businesses that use its online store. Buy.com is also the largest seller on eBay, which has frustrated some of eBay’s smaller sellers. It is unclear how that relationship will change after the acquisition is finalized.
Procter & Gamble Ventures into Direct Online Retailing, Opens "eStore"
The world's largest consumer products maker says its online shopping store is open for business. Procter & Gamble Co. said the "eStore" is up and running for the general public after months of testing. The Cincinnati-based maker of such household brands as Tide detergent, Pampers diapers, and Olay skin cream has jumped into online retailing with a site operated by Plano, Texas-based PFSweb. P&G insists the venture's main goal is to learn more about online shopping, and not to compete with stores and online retailers. P&G says it will share the "learning lab" information it gathers and that will help retail partners sell more P&G products.
Consumer Electronics/Video/Audio
Douglas Stebbins
Google: A New Consumer Electronics Power Broker
Aside from the questions about Google TV itself, the announcement once again reveals Google's limitless ambition. This is a company that honestly thinks it can provide better technology products and services than anyone else in the world. People laughed when Google got into mobile operating systems, wondering how a search company could break into a market dominated by old hands like Nokia and RIM as well as new upstarts like Apple (which at least had the benefit of decades of world-class software development). That seems to have worked out well for Google: it's the second largest smartphone operating system supplier in the U.S. at the moment, behind RIM and ahead of Apple. As we alluded to earlier in the week, Google is reaching a point in its evolution where it is bringing the tech industry into its own orbit. Consider this: Intel and Sony played second fiddle to Google Thursday in an announcement that highlighted their own failures to produce such a product.
Google Unveils Web TV Project
In a joint effort to bring Web and channel surfing together, Google Inc, Intel Corp, Logitech International and Sony Corp unveiled new plans for a “smart” TV on Thursday. Google wants to turn televisions into giant monitors to allow people sitting in their living rooms watching their favorite show to be able to click a button and surf the Web. The plan hopes to make more money selling ads. Although the company began selling ads for television programs three years ago, revenue has paled in comparison to what it rakes in with computer run ads -- $24 billion last year, mostly from Internet ads. The TVs are expected to go on sale beginning in the fall in Best Buy stores. The televisions will only be available in the US this year, and will gradually expand into other countries. Pricing won’t be announced until later in the year. The attempt to bring Internet into living rooms has frustrated nearly every major company in the technologies industry for years. If Google and its partners can market the idea of the new “Google TV” correctly, it will make for huge successes into the $70 billion TV advertising market.
Movie Gallery Judge Halts $1.75 Million Break-Up Fee
Movie Gallery Inc. failed to win approval for a $1.75 million break-up fee payable to Great American WF LLC if the liquidator loses its bid to manage the sale of the video chain’s inventory. There were two bidders “almost from the onset,” U.S. Bankruptcy Judge Douglas O. Tice Jr. said at a hearing today in Richmond, Virginia. “I just don’t see a need for the break-up fee.” Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC, which are currently liquidating more than 1300 Movie Gallery stores, filed an objection to the fee along with an offer of $63.3 million to act as agent for Movie Gallery in the liquidation of the remaining stores. Their offer didn’t contain a break-up fee.
Cosmetics & Pharmacy
Billy Busko
L’Oréal Forecasts Strong Growth in China
L’Oréal executives in Asia said the French beauty giant is expecting to post another year of double-digit sales growth in China this year. The company plans to reach sales in China of at least 1 billion euros this year, or $1.23 billion at current exchange, which would represent an increase of 16.1 percent on 2009’s figure of 861.6 million euros, or $1.2 billion at average exchange, executives said Monday at a press briefing here. Last year, L’Oréal registered like-for-like sales growth in China of 17.6 percent. But executives said the market isn’t slowing down — they are just being cautious on the 2010 target and they plan to surpass it. “That will be a fantastic achievement, a symbolic achievement,” said L’Oréal China chief executive officer Paolo Gasparrini. Executives said they don’t expect the overall market to contract and, on the contrary, see plenty of untapped growth potential in the country, particularly in areas like online sales and men’s grooming products.
Estee Lauder to Buy Smashbox Cosmetics
The Estée Lauder Cos. Inc. has gone Hollywood, nabbing the photo-studio-born makeup company Smashbox Beauty Cosmetics Inc. in a bid to move deeper into the fast-growing, alternative retail channel and gain entrée into the digital media space. Lauder said Monday it has signed a definitive agreement to buy the Los Angeles-based makeup brand, founded in 1996 by Dean and Davis Factor, the great-grandsons of legendary Hollywood makeup artist Max Factor. The acquisition includes a minority stake in Smashbox Studios, the Los Angeles photo facility started by the Factor brothers in 1991. The deal is expected to close in July, subject to certain conditions, including regulatory approval. The purchase price was not disclosed, but sources estimated it was between $200 million and $300 million.
Lauder Acquires Assets of U.K. Bumble Distributor
The Estée Lauder Cos. Inc. has acquired through its U.K. affiliate, Estée Lauder Cosmetics Ltd., certain assets of Comptons Ltd., the distributor of Lauder’s Bumble and bumble salon hair care brand in the U.K. and Ireland. Terms of the deal were not disclosed. The transaction stands to expand educational programs and business development, among other initiatives, for the hair care brand in the U.K. and Irish markets. Current brand and sales management there will be integrated into the Estée Lauder Cos. Lauder’s customer service, order processing and shipping departments will manage Bumble and bumble.
Department & Discount Stores
Mark Lenz
Walmart Post Records Q1 Earnings
Wal-Mart Stores, Inc. yesterday reported record first-quarter fiscal 2011 sales and earnings for the period ended April 30, 2010, with net sales of $99.1 billion, an increase of 6.0 percent from the $93.5 billion logged last year. Meanwhile, income from continuing operations attributable to Walmart for the quarter grew to $3.3 billion, from $3.0 billion in year-ago period. According to the company, Walmart will continue to expand globally, with a considerable number of store openings expected during the second and third quarters, after adding 3.6 million square feet of retail selling space during the first quarter. Walmart International remained the company’s fastest-growing segment, with net sales for the quarter up over 21 percent on a reported basis and nearly 9 percent on a constant currency basis. Walmart U.S. comparable-store sales for the quarter fell 1.4 percent, and Sam’s Club posted an increase in comps, without fuel, of 0.7 percent. Consolidated operating income for the company as a whole in the first quarter was $5.8 billion, an increase of 10 percent from last year, with a significant contribution from Walmart U.S.
Wal-Mart Asks Suppliers to Cede Control of Deliveries
Wal-Mart Stores Inc., the world’s largest retailer, is seeking to take over U.S. transportation services from suppliers in an effort to reduce the cost of hauling goods. The company is contacting all manufacturers that provide products to its more than 4,000 U.S. stores and Sam’s Club membership warehouse clubs, said Kelly Abney, Wal-Mart’s vice president of corporate transportation in charge of the project. The goal is to take over deliveries in instances where Wal-Mart can do the same job for less and use those savings to reduce prices in stores, he said. “It has allowed our suppliers to focus on what they do best, manufacturing products for us,” Abney said in a telephone interview yesterday from Bentonville, Arkansas, where Wal-Mart is based. “With lower costs usually comes increased sales.”
Sears Quarterly Profits Fall
Sears Holdings continued to underperform its rivals during the first quarter as it failed to capitalize on improved consumer sentiment and a government-backed surge in household appliance sales. The owner of Sears department stores and Kmart said operating income from its more than 3,900 stores in the US and Canada fell about 25 per cent to $98m against the same period last year, as aggressive price promotions on appliances and lower profits on home electronics at Sears stores hit gross profits. Comparable sales at the retailer’s Sears department stores rose 1.2 per cent from last year, as sales of fridges and washing machines were boosted by the government supported trade-in scheme aimed at supporting energy efficiency. Sears’ Kenmore brand is the best selling US home appliance name, but it has been facing increasing competition from rivals including Home Depot, Lowe’s and Best Buy. The same store sales gain at the Sears stores was the first since it was taken over by Kmart in 2005, in a transaction led by Eddie Lampert, the billionaire hedge fund owner who is now chairman of the combined company.
Stellar Seller
In many ways, TJX Cos., the multinational off-price retailer based in Framingham, outmaneuvered the recession. As other merchants cut back on advertising, TJX stepped up its marketing, using network television to educate customers about the bargains it offered. As consumers nationwide slashed spending, the company attracted growing numbers of cost-conscious shoppers and fashionistas no longer willing to pay full price for brand names. TJX kept the treasure hunt fresh, adding 2,000 vendors to increase the assortment of merchandise at its T.J. Maxx, Marshalls, Home Goods, and AJ Wright stores. It scooped up orders that had been canceled by rival stores because of slowing sales. And as the recession dragged down costs, TJX leaped ahead and opened 91 stores across the country and overseas, increasing its fortunes despite the downturn. “We were able to seize the day,’’ said chief executive Carol M. Meyrowitz. “We took advantage of all the opportunities during the economic crisis.’’
Energy
Christopher Ellis
BrightSource Energy Raises Record-Setting Capital: $150 Million
French energy company, Alstom said on Thursday that it will enter a partnership with BrightSource Energy Inc. in order to enter the solar energy market. Alstom announced it is investing up to US $55 million in BrightSource Energy Inc., with an equity stake that positions Alstom as one of the main shareholders in the company. This operation takes place as part of a capital increase of $150 million organized by BrightSource. The California State Teachers’ Retirement System was also an investor. The company has now raised more than $300 million. BrightSource's first U.S. power project, the 392 megawatt Ivanpah Solar Energy Generating System, is currently under development in San Bernardino County, California. BrightSource’s technology employs thousands of mirrors to reflect sunlight onto a central receiver atop a tower to produce high temperature steam at the highest levels of solar efficiency. The steam is then piped to a steam turbine and generator which produce electricity.
Footwear
Michael O'Hara
Foot Locker 1Q Net Income Skyrockets 74 Percent
Foot Locker Inc. said that its fiscal first-quarter net income jumped 74 percent as the athletic apparel retailer's steps to slash costs and shut down poorly performing locations continued to pay off. Foot Locker posted net income of $54 million, or 34 cents per share, for the quarter ended May 1, compared with net income of $31 million, or 20 cents per share, in the year ago quarter. Sales increased 5 percent to $1.28 billion from $1.22 billion. Sales at stores opened at least a year rose 4.8 percent during the quarter. Foot Locker operates 3,500 stores in 21 countries in North America, Europe and Australia.
Rocky Brands, Inc. Announces Refinancing of Term Loans
Rocky Brands, Inc. announced that it has received approval from the requisite lenders, including GMAC Commercial Finance, LLC, under the Amended and Restated Loan and Security Agreement, dated May 25, 2007, as amended from time to time, to advance $15 million to the Company under the existing revolving portion of its credit facility to prepay amounts due under term loans with Laminar Direct Capital L.P. and Whitebox Hedged High Yield Partners, L.P. After the prepayment, principal under the term loans will total approximately $11 million in the aggregate. The term loans have an interest rate of 11.5% payable semi-annually over the five year term of the notes. Principal repayment is due at maturity in May 2012. The interest rate for the revolving portion of the Company’s credit facility is currently LIBOR plus 3.75%. The transaction is expected to generate approximately $1.1 million in interest savings annually based on the current LIBOR rate.
Zumiez Inc. Announces Fiscal 2010 First Quarter Results
Zumiez Inc. a leading specialty retailer of action sports related apparel, footwear, equipment and accessories, reported results for the first quarter ended May 1, 2010. Total net sales for the first quarter ended May 1, 2010 increased 16.0% to $89.1 million from $76.8 million reported in the first quarter ended May 2, 2009. Comparable store sales for the first fiscal quarter of 2010 increased 9.1% vs. a decrease of 15.3% for the first quarter of fiscal 2009. The Company posted a net loss for the quarter of $1.9 million or ($0.06) per diluted share. These results include costs of approximately $1.2 million, or $0.03 per diluted share, associated with the relocation of the Company's distribution center from Everett, Washington to Corona, California. The company reported a net loss of $1.7 million or ($0.06) per diluted share in the first quarter of the prior fiscal year.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Barnes and Noble's Nook and Pubit: A Self-Publisher's Heaven
Barnes and Noble are really, really getting into this e-publishing game. In addition to combating Amazon's Kindle platform with the Nook e-reader and apps, they've also planned a self-publishing e-book system for authors, leveraging the Nook store. The system is called Pubit, and it's "coming summer 2010" according to the Web site. From a sheer branding perspective, it couldn't be a worse name. Seriously, how did you pronounce it when you read it the first time? It's a shame, because the actual notion behind Pubit couldn't be simpler: You write a book, devise the artwork, the cover, the traditional book-leaf blurb, then sign up to Barnes and Noble's service.
Borders Raises $25 Million Through Equity Financing to Support Key Financial and Strategic Initiatives
Borders Group, Inc. announced that an entity controlled by Bennett S. LeBow has agreed to invest $25 million in the company through a private purchase of 11.1 million shares of the company's common stock at a purchase price of $2.25 per share and certain other terms. The investment -- coupled with the company's recently announced financing -- will strengthen Borders' balance sheet and provide capital to help fund the transformation of the Borders brand. Mr. LeBow's investment will support several important financial and strategic initiatives such as improving the company's capital position, addressing the store network to maximize productivity and profitability, maximizing the digital opportunity including growing Borders.com, and developing strategic business partnerships. The purchase is expected to close later today. In connection with the investment, Mr. LeBow has joined the Board of Directors and has also been elected Chairman.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Unified Posts Q2 Profit Gains on Weak Sales Growth
Unified Grocers said second-quarter net income rose about 25%, to $3.1 million, compared with year-ago results, on a 0.8% gain in sales, to $959.7 million. The cooperative wholesaler attributed the sales gain primarily to the favorable timing of Easter in the most recent quarter. If not for the Easter shift — the holdiay occurred in the third quarter of last year — sales would have been down by about 1%, Unified said, citing the weak economy. In addition to the sales gains, earnings also increased as a result of cost controls, partially offset by increased pension and post-retirement expenses and reduced inventory holding gains. Year-to-date net income increased 7% to $6.8 million, while sales were down 1.8%, to $1.96 billion. Earnings before patronage dividends was $15.6 million, down 23%, attributable to the "unusually high level of food inflation and other vendor-related support" during the first quarter of a year ago that has not recurred this year, the company said.
Moody’s Boosts Whole Foods Outlook
Moody’s Investors Service changed the rating outlook for Whole Foods Market to positive from stable and affirmed the chain’s Ba3 corporate family rating and other debt ratings. “The positive outlook reflects the likelihood of a ratings upgrade if Whole Foods’ operating performance remains near current levels, which would allow it to sustain improvements in credit metrics, free cash flow and reduced operating risk,” Marie Menendez, senior vice president of Moody’s, said Monday.
Bashas' in Talks for Bank Financing
Bashas' said it is in the process of securing new financing that could allow it to emerge from Chapter 11 bankruptcy protection by August. In a letter to employees, Edward N. Basha 3rd, senior vice president, said the company has been negotiating for the past two weeks with two investment banking firms — which he did not name — both of which are interested in arranging new financing for the company. According to Basha, the financing would fully repay the chain's lenders immediately in cash in the full amounts owed and allow the company to pay its unsecured creditors at a faster rate than previously anticipated, thereby enabling Bashas' to emerge from Chapter 11.
Home Improvement/Auto Repair
Billy Busko
Home Depot 1Q Profit, Revenue, Transactions Climb
Customers returned to Home Depot Inc. in its fiscal first quarter, boosting the home improvement super store chain's profit and raising a key performance measure for the first time since 2005, the company said. The results come after years of efforts to improve customer service at Home Depot, tweak its merchandise assortment and win back customers who fled for competitors. "Are we back? We still have lots of opportunities," CFO Carol Tome told The Associated Press during an interview. "But are we better? We're much better." So much better that revenue in U.S. stores open at least a year rose 3.3 percent. It was the first gain since 2005's fourth quarter for that figure, considered key for retailers because it isn't skewed by results from stores that opened or closed during the year. Home Depot earned $725 million, or 43 cents per share, for the three-month period that ended May 2. That compares with $514 million, or 30 cents per share, during the same period last year. Adjusted profit was 45 cents per share, which excludes a one-time, $33 million cost related to extending the company's guarantee of a third-party loan. Revenue rose 4.3 percent to $16.86 billion, from $16.18 billion, as shoppers increased their spending on springtime gardening and bought more items for basic home improvement projects like paint.
Lowe's 1Q Net Income Edges Up as Spending Rises
Lowe's Cos. said shoppers spent more on home improvement projects in the first quarter and opted to buy new big-ticket items such as riding mowers rather than fix them, pushing the retailer's net income up 2.7 percent. The nation's No. 2 home-improvement chain also said government stimulus programs, including tax credits for home purchases and rebates for energy-efficient products, aided results, as did warmer weather. The company's results beat estimates and raised its guidance for the year. But the new expectations fell short of analyst predictions and shares fell. The company earned $489 million, or 34 cents a share, in the three months ended April 30. In the same period last year the company earned $476 million, or 32 cents a share. Revenue rose 4.7 percent to $12.39 billion.
Think Thinks About Retailing
The small companies planning to launch electric vehicles face a critical decision that has nothing to do with technology: picking the right retail model. Do you go with franchised dealers? Company-owned stores? Hook up with a big nonautomotive retail chain? One company, Think North America, will decide soon, a spokesman says. It sounds as if the Norwegian EV maker is at least considering option three. "We have talked to retailers who are in automotive, and we have talked to retailers who are not in automotive," says spokesman Brendan Prebo. It's tricky. Franchised dealers are feisty folks, but they use their own money to build you a retail network. Company-owned stores offer control but require you to bankroll an unfamiliar line of business. With a big, nonautomotive retailer -- let's call this "the Wal-Mart option" -- you get a ready-made network. But humongous retailers expect humongous leverage over pricing, product features and in-store display. In Think's case, the company just scored $40 million in equity to build a plant in Elkhart, Ind. Sales begin early next year. So the retail riddle is getting pretty real for Think.
Housewares/Furniture
Billy Busko
Williams-Sonoma Wins New Shoppers
U.S. home-goods chain Williams-Sonoma Inc. reported a much better-than- expected quarterly profit and boosted its forecast for the year as its more affluent shoppers showed a willingness to buy again, sending its shares up 5 percent. Sales at home-goods chains had tumbled in the housing downturn, but pent-up demand and changes in pricing and merchandising, including the introduction of less-expensive items, were enticing shoppers who have warmed up to the idea of investing in their homes again. The operator of Williams-Sonoma cookware stores and the Pottery Barn furnishings chain risked its high-end image and lowered prices on some items to win post-recession American shoppers. That emphasis helped it win over aspirational customers, which in turn leads to the potential to sell additional products or higher-priced goods. The company reported net earnings of $19.5 million, or 18 cents a share, for the first quarter ended May 2, compared with a year-earlier net loss of $18.7 million, or 18 cents a share. Net sales rose 17.3 percent to $717.6 million. Furniture sales accounted for about 30 percent of total revenue.
Cost Plus Posts Sharply Narrower 1st-Quarter Loss
Home decorating retailer Cost Plus Inc. posted a much smaller fiscal first-quarter loss, as it cut expenses and its revenue edged up. For the three months that ended May 1, Cost Plus said its net loss was $10.3 million, or 47 cents per share, less than a quarter the size of the $41.6 million, or $1.88-per-share, loss it posted a year earlier. Revenue rose 3 percent to $189.2 million, from $184.3 million last year.
1Q Net Income Nearly Doubles at Kirkland's
Home retailer Kirkland's Inc. said improved margins and sales trends helped nearly double its profit in the first quarter. The company reported that it earned $6.5 million, or 32 cents per share, for the quarter compared with $3.5 million, or 17 cents per share, in the same quarter last year. The prior year includes a 5 cents per share benefit due to a one-time tax-related item. Revenue grew 12 percent to $93.5 million.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
ShopNBC Searching for New Name as NBC Deal Ends
Come early next year, ShopNBC will be operating under a new moniker, as NBC sells off its shares, company executives announced during its first-quarter earnings call. NBC, which has been acquired by Comcast, announced it would be selling all of its 6 million shares in ShopNBC, as it no longer sees a home shopping network as a strategic fit for its future goals. During the call, ShopNBC Chief Executive Officer Keith Stewart said that the network's 10-year trademark licensing agreement with NBC--which allows it to use the NBC name and iconic peacock logo--expires in May 2011 and would not be extended.
Brand Loyalty Drops During a Recession
Market tracking firm comScore released a new study on Tuesday. The March 2010 results from their brand loyalty study among consumer goods showed a significant decline during the past two years of the "Great Recession." Simply put, the recession encouraged consumers to move away from brands they were once loyal to, to store and generic brands instead. These moves were made as cost-savings measures. When comparing, for example, Toothpaste out of the Health & Beauty Aids category, comScore saw a drop of 10 percent between March '08 and March '10. OTC medication loyalty dropped 15 percent in that timespan. However, Fulgoni added that clever marketing could give the brands an edge in bounce-back, once a recession ends. “Despite these shifting consumer dynamics, research has repeatedly shown that premium brands which invest in marketing and promotion activities aimed at maintaining buying at ‘preferred’ levels are able to minimize short-term erosion of share to less expensive brands and position themselves for a bounce-back when the economy improves.”
Jewelry/Mining
Mark Lenz
Golden Gate Now Has 19.9 Percent Stake in Zale
Private equity firm Golden Gate Capital, which threw Zale Corp. a $150 million lifeline last week, has taken a 19.9 percent stake in the company. A Schedule 13D filed Thursday with the Securities and Exchange Commission shows that Golden Gate Capital now owns nearly 6.4 million shares of Zale stock. According to Reuters, this makes the San Francisco-based firm the second-largest stakeholder in the company behind Breeden Capital Management LLC, controlled by former SEC chairman Richard Breeden, which has a 28.3 percent stake in Zale.
Zale Launches Sale of Pre-Owned Jewelry
Zale is now selling used jewelry, National Jeweler has learned. Though the company made no formal announcement, a posting on Zale's official Facebook page made Tuesday morning heralded the launch of "previously owned jewelry" that had been "restored to its original luster." The Facebook page linked to Zales.com, where images of hundreds of pieces of pre-owned jewelry have been posted for sale. It was unclear as of press time if the used jewelry would be available strictly online or also in Zale's stores.
Blue Nile Q1 Sales Gains Strongest for Big Ticket & Non-Engagement Jewelry
After a couple of years of flattish sales, Blue Nile is back on a strong growth path. Revenues for the largest online seller of jewelry in the world were up nearly 19 percent in the first quarter ended March 2010. This is the second sequential quarter that sales have shown double digit growth, after languishing for nearly two years. Sales by segment in the first quarter were as follows: total revenues rose by 18.7 percent, total U.S. sales rose by 13.6 percent. Jewelry priced over $25,000 retail and non-bridal fashion jewelry were the strongest categories. Further, total international sales rose by 71.4 percent, and represented 13 percent of total corporate revenues and sales in the first quarter of 2010 were at a record level. In short, sales have recovered, and are now greater than pre-recession levels at the end of the first calendar quarter.
Jewelry Industry Winners vs. Losers, Information Makes the Difference
You barely survived the recession. Now, remember all of those promises you made about what you would do differently if you made it through the Great Recession? Now, it’s time to make good on your promises. “Implementing a management information system” should have been at the top of your list. Think back, you struggled to figure out what was selling. You struggled to understand which merchandise you should melt, send back or blow out at distress prices. “Ahhh,” you thought, “if I only had a good management information system on my computer, I would never have gotten into this mess.” You were not alone back then, and you still have plenty of company today: too many jewelry merchants are still without a viable management information system.
Banana Republic Enlists Celebrity Designer for Jewelry Line
Banana Republic is trying out the celebrity designer trend for a jewelry line. It has partnered with jewelry designer Chan Luu for a limited-edition collection that will be sold exclusively at Edition, the accessories-only store that Banana Republic opened in Westfield San Francisco Shopping Center. The collection will be available starting in late May. Gap Inc. has worked with celebrity designers before, notably with Stella McCartney for Gap Kids. This is the first time it has done so for an accessory line.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Staples Profit Rises 32% as It Tempers Optimism with Caution
Average shoppers are coming back to the stores more often, boosting traffic by 3%, Chief Financial Officer John Mahoney said. They bought computers and related software and accessories as well as ink and paper. The company's tech-installation and repair service as well as copy and print shops, both of which are more profitable, also lifted results, he said. There were signs of improvement with the company's medium-sized or larger business customers as well: North American delivery sales rose for the first time in two years. Customers were willing to gradually spend beyond basic items for bigger-ticket and discretionary purchases such as furniture, sales of which was up slightly after declining 25% a year earlier.
Will Boomers Help or Hurt Funeral Industry?
At the Cannes Film Festival recently, director Woody Allen said about death, "I'm strongly against it." No doubt he was serious, but the former stand-up comedian was also serious about promoting his latest film, You Will Meet a Tall Dark Stranger—the "tall dark stranger" being a euphemism for death. For those in the funeral industry, death, or lack thereof, has been no laughing matter for almost a decade. Funerals and cremations are at a 20-year low. About a decade ago, the industry was handling three million deaths a year. Now that number is a third less. With an inherent gallows-humor bent, it's not surprising that lots of possible reasons have been circulating within the funeral industry about slow business. Among them are alien abductions, body snatchers, secret and private home funerals and burials, but none seemed to satisfy or be tenable. What adds insult to injury is that the industry geared up for lots of new business, following advice from a noted demographer and expert on aging 15 years ago. The demographer predicted that members of the huge Baby Boomer generation would start dying en masse in 2000.
Restaurants/Food Service
Mark Boucher
Sagittarius Divests Both Captain D’s, Del Taco
Sagittarius Brands Inc., which was created by industry veteran Sid Feltenstein and has operated the Captain D’s and Del Taco brands since 2006, has sold its fast-food seafood chain and recapitalized Del Taco under new ownership. Private-equity firm Sun Capital Partners Inc. said it has acquired the 539-unit Captain D's Seafood Kitchen chain. Terms of deal were not disclosed. Separately, the 515-unit Del Taco chain will now be operated under Del Taco Holdings Inc., based in Lake Forest, Calif., according to company officials. Del Taco’s existing debt has been refinanced with a new senior credit facility led by Wells Fargo and GE Capital, including a $160 million term loan and a $39 million revolving line of credit. A new cash infusion for Del Taco also comes from Goldman Sachs Mezzanine Partners as a new equity partner, along with existing investors Charlesbank Capital Partners and Leonard Green & Partners. Grotech Capital Group, however, is no longer among the backers of the brand, officials said.
OSI Restaurants Q1 Traffic Up Even as Sales, Income Drop
OSI Restaurant Partners LLC on Friday reported it had reversed same-store sales declines at three of its four core brands in the first quarter. OSI, the parent to the 968-unit Outback Steakhouse casual-dining chain, said net income for the first quarter, which ended March 31, fell to $1.3 million from $83.4 million in the same quarter last year. OSI is privately held but reports quarterly financial results because it has publicly held debt. Revenues slipped to $947.5 million from $964.4 million, part of which was attributed to the sale of the 34-unit Cheeseburger in Paradise brand in September 2009 and to negative Outback comparable-store sales.
Quiznos to Get a Taste of its Own Medicine
Quiznos's development strategy is taking it places it's never gone before: company-owned locations. The Denver-based sub chain is desperately fending off a brutal string of store closings. Hundreds have closed in recent years, and more closings could come. We talked to one operator who estimated that 80 percent of his market's Quiznos franchisees are in trouble. The company is opening in gas stations and bringing in operating partners. Now it's gone further by announcing that it plans to open company-owned stores this year. That's quite a step for the all-franchised chain.
Banking & Lending
Douglas Stebbins
Consumer ABS Market Begins to Show Signs of Strain
The $700 billion consumer loan-backed market joined other asset classes in worrying about fallout from credit concerns in Europe, with risk premiums on even top-rated portions of some of the bonds beginning to widen. Navistar Financial Owner Trust, for example, priced a $919 million auto sector bond with most parts at wider risk premiums than initial guidance. Navistar even "retained" the lowest-rated portion, meaning it won't even try to sell it. "The consumer asset-backed securities market is beginning to wobble," said Dan Nigro, chief executive of Warfield Consultants, a Montclair, N.J., firm focused on asset-backed and residential mortgage-backed securities. The turn in sentiment has been swift. Earlier this week, Nissan Auto Lease Trust and Santander Drive Automobile Receivables Trust both priced bonds easily, according to people familiar with the matter. "We expect spreads to have greater correlation with other markets and become more volatile as opposed to weeks past when we plugged away with blinders on," he wrote.
Looser Credit Boosts Auto Sales as Consumers Take Advantage of Lower Bar
Easier credit is fueling a recovery in new U.S. auto sales that are on pace for the fastest annual gain in 26 years. The market for bonds backed by auto loans is expanding for the second straight year, freeing up lenders’ capital for customers who would’ve been rejected last year. About $22.9 billion in bonds backed by auto loans, borrowings for dealer inventory and related debt were issued through April, according to data compiled by Bloomberg. That’s a 67 percent increase from $13.7 billion a year earlier. AmeriCredit, specializing in subprime lending, sold $200 million of bonds backed by car loans on March 31, its first sale without help from the Federal Reserve’s Term Asset-Backed Securities Loan Facility since November 2008. The company sold an additional $600 million of bonds on May 13.
Default Rates Easing, Except on Credit Cards
Will credit card users ever be more willing and able to pay their bills? More than a year after the default rates on most kinds of consumer loans began to decline, the proportion of credit card loans going bad continues to set new highs. An index of new defaults, the Standard & Poor’s/Experian Consumer Credit Default Indices, showed this week that in the three months through April the default rate on credit card loans had climbed to 9.14 percent, the highest since the index began to be calculated in 2004. “Consumer defaults continue to moderate in the key big-ticket items of first and second mortgages and auto loans,” said David M. Blitzer, a managing director of S.& P. “In these areas, defaults bottomed out around the same time as the stock market in the first half of 2009. Bank cards, on the other hand, continue to worsen and are at levels not seen in the history of these indices.”
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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