The Weekly Consensus: Week of May 31, 2010
Calls, Waiting
Mark Lenz
Summer is here again, and where there is summer, there will be vacations, whether they are to the mountains, the seaside or to Liberal, Kansas to see the largest free-standing mud dwelling ever built.
Early last week, I had the opportunity to beat the crowds and spend some "quality time" in the mountains of New Mexico, hiking and fishing with my friend, Jack, and my son, Brian. We stayed in a cabin at a place called Sipapu, which is 24 miles southeast of Taos. You will never find Sipapu in Condé Nast Traveler or the like. It provides relatively modest accommodations, but the surrounding area is beautiful. The Rio Pueblo, swelled with snow melt, rushes by behind the cabins. And your cell phone doesn't ring, because there is not a cell tower to be found within miles. There are no landlines, television or radios, either, although that's because the management chooses not to offer them. I bet the very idea makes some of you shudder.
We are so used to being connected, 24/7, that when we go somewhere where that is not the case, it is a shock. Connectivity is even one of the top selling points at many places you might stay on a vacation. Imagine, a FREE tether to your office, while you are away from the office! To which some of you probably say, "Great!"
I am sure that many readers have had a summer vacation where one is physically away from the office, but there is a good deal of time spent on emails, the phone and the Blackberry/iPhone. If your family is like mine, they remind you about those times at every opportunity. But hey, that is the way it is sometimes. You are critical to the process. You need to be accessible all the time...or do you? It is in our nature to believe that we are vital, but much of the time it is probably true that projects can move along without one's being constantly connected. Our families and friends would surely appreciate it.
While I was off the grid at Sipapu, there was no financial meltdown, although the stock market did backslide as the instability in Greece continued. The team back in the office handled everything I had been working on that needed attention. Retailers continued to sell their products to customers. But, I did not know that at the time. What if someone needed me? I confess to being tempted to ask Jack and Brian to climb a little higher on the trail and see if I could get a cell phone signal so I could check in with the office. Fortunately, I had the mountains of New Mexico to remind me of what a vacation is for.
Apparel/Swimwear/Intimates
Betsy White
Burberry Steps Up Expansion as Profits Jump
The 154-year-old British group said it would almost double capital spending to £130m in its 2010-11 financial year, with a focus on emerging markets such as Brazil, Mexico and India, as well as e-commerce. Profit before tax and one-off items was a record £215m in the year ended March 31, topping forecasts of £201m-£208m. Exceptional charges included a £129.6m impairment charges relating to the restructuring of its Spanish business and the group's cost cutting program. Including exceptionals, pre-tax profits rose to 166m from a £16.1m loss last year. Sales rose 7pc to £1.28bn, while gross profit margins climbed 760 basis points, boosted by fewer markdowns, and the group ended the year with net cash of £262m. "While mindful of the economic environment, Burberry plans to build on its strong financial position by accelerating investment in growth initiatives in retail, digital and new markets," said Angela Ahrendts, the Burberry chief executive.
Destination Maternity Finds President to Replace Matthias
Retailer Destination Maternity Corp. said it has hired a president to work with its chief executive. Emilia Fabricant, who has two decades of experience in the women’s apparel industry, takes over effective Monday, reporting to CEO Ed Krell. Rebecca Matthias, the founder of Destination Maternity, agreed to relinquish the title of president, the maternity-wear retailer said. Matthias previously announced she would retire on June 15. She will serve as chief creative officer until then, and then in a part-time capacity until full retirement on Sept. 30. Fabricant will have direct responsibility for all merchandising, marketing, visual, sourcing and branding functions.
Target's Temporary Designers Are Critical to Its Long-Term Success
Target made many adjustments to cope with the recession, but its initiative to coax renowned designers to produce fashion products for its stores has set it on the road to recovery and what looks like prosperity beyond. Target has enacted a strategy that is very close to that employed by retailers who sell designer brands that manufacturers have overproduced or department and luxury stores have overbought — so-called off-pricers such as TJX and Ross Stores. The success off-pricers have enjoyed with lower-cost designer products has prompted retailers who sell them at full cost, including Nordstrom and Bloomingdales, to ratchet up outlet store initiatives, building specialty stores so they can act as their own off-pricers. Target is borrowing from that off-price/outlet strategy and one-upping it at the same time. Because much of what off-pricers and outlets sell has backed up in the distribution system through slow sales, it’s usually a season behind. By employing designers to provide lower-cost versions of their products on a temporary basis and for a given season, Target can come in as close as it wants to the latest fashion sensibilities.
American Eagle Shares Clipped
A disappointing profit forecast by American Eagle Outfitters stoked fears that teen spending is sputtering as summer vacations begin. Shares of the mall-based clothing chain plunged nearly 17 percent after it said store traffic lately has been spotty, resulting in heaps of unsold spring fashions. For the second quarter, the retailer forecast a loss of 1 cent a share to earnings of 3 cents a share -- sorely short of Wall Street's expectation of a profit of 21 cents. The news hit shares of other teen retailers yesterday, as investors fretted that school kids and their parents lately have clamped down on spending amid worries about unemployment and the global economy. Shares of higher-priced rival Abercrombie & Fitch fell 3.5 percent, while shares of lower-priced Aeropostale dropped 4.7 percent.
Banana Republic May Slip on Its Own Schpeel Unless It Can Reach New Customers
Gap has turned things around at its Banana Republic unit, which is good for the company’s stability — but, unfortunately, still not enough to guarantee that the Gap’s comeback has legs. In Gap’s first quarter conference call, CEO Glen Murphy acknowledged that the company has shifted marketing dollars to win more sales from its credit-card holders. Promotions to Old Navy, Gap and Banana Republic cardholders have included 10 percent off purchases and alerts about discount events and other money-saving deals. It’s an effective strategy for a retailer that lost shoppers to the recession. Banana Republic comparable store sales, those in locations opened for at least a year, gained five percent in the quarter but only after losing 13 percent in the period a year earlier. The real test for Banana Republic will come when it gets back as many of its lost customers as it can. Then, the chain will have to compete with a lot of retailers who are after the fashion and budget-conscious customer it covets.
Why Uniqlo's Collaboration with Designer Velvet is One More Step Towards Retail Domination
Some designer/retailer collaborations make you scratch your head, puzzling how two disparate entities could work together. Others are so natural you wonder why the two didn’t get together sooner. Uniqlo’s recently announced partnership with the California design duo of Velvet is definitely a case of the latter –- and a lesson in how joining forces with a like-minded aesthetic strengthens both brands. Jenni Graham and Toni Spencer, the creative team who founded Velvet, are somewhat typical indie designers: they’ve been around for a while and built a loyal following both here and abroad, one carefully curated collection at a time. Their company has evolved from offering a single line of women’s t-shirts and dresses into several distinct brands including Velvetmen (2003) and a luxury line dubbed Graham & Spencer (2006). What’s admirable is that despite this growth, the founders have held fast to a design philosophy as pared down as their apparel: “fuse quality with trend-setting basics.” It’s a principle which the Japanese retail powerhouse can respect as it is part of their own corporate DNA. Owned by parent company Fast Retailing, Uniqlo has made a name for itself on consistently providing high quality basics at affordable prices. What Uniqlo does not offer in terms of number of styles (think the thousands of different pieces available at other discount style peddlers H&M or Forever21) it makes up for by providing a staggering variety of colors (think one cashmere crewneck sweater, 25 shades).
Athletic & Sporting Goods
Michael O'Hara
Under Armour Shares Its House
Under Armour, the envied global apparel and footwear megabrand that never stops reinventing itself, burst onto the world scene with its "Protect This House" campaign. And recently it took a time out to share that house -- and the Under Armour success story -- when it hosted a March 25 human resources council meeting of the American Apparel and Footwear Association (AAFA). The rare event represented one of the first times the company could show off its new expanded waterfront digs in South Baltimore -- and all the Under Armour glitz and business success was readily apparent. Three months previously in December, the company commenced its onsite expansion into 140,000 more square feet of refurbished space adjacent to its headquarters to create a larger 265,000-square-foot mini-campus for its nearly 3,000 employees. From a financial standpoint, publicly traded Under Armour, in 2010, is close to eclipsing the $1 billion dollar annual sales mark for the first time ever -- a milestone that regardless whether it hits the mark or not will fly in the face of a down economy. It would also serve to note that in 15 short years Under Armour (which as early as its first year, 1996, sold just $17,000 through word of mouth) now competes with the other industry behemoths such as adidas and Nike.
Skate Chain on the Comeback Trail
Almost one year after high-profile skate chain Active Ride Shop declared bankruptcy, a new ownership is finding out whether it can recapture the mojo that made the Mira Loma, Calif.–based company one of the stars of skate-fashion retailing. “We are not making any drastic changes,” promised Esmail Mawjee, who has served as president of the 21-store chain spread throughout Southern California since July. “We are strategizing what our next step will be.” For more than five years, Active was the must-be-seen place for many surf, skate and fashion vendors. In 2008, the rapidly expanding skate chain was named men’s retailer of the year by the Surf Industry Manufacturers Association for having the best mix of men’s merchandise. Sales in 2008 totaled $61.8 million with a net loss of $2 million. By 2009, sales dipped to $59.9 million, but net loss mushroomed to $7.7 million. That forced Active, started in 1989, to file for Chapter 11 bankruptcy protection on March 23, 2009, in U.S. Bankruptcy Court in Riverside, Calif. At the time, Active owed secured creditors $4.7 million and unsecured creditors $15.2 million.
Catalog & Internet
Christopher Ellis
Online Retailer Gets Ready to Rebound
Bluefly, founded in 1998, is an online retailer that sells high-end clothes at discounts. The company has struggled to achieve profitability since its founding in 1997. Despite consistent losses, visible below, Bluefly's business is on the mend. The New York-based company's first-quarter loss narrowed 52% to $1.5 million, or 7 cents a share, from the year-earlier loss. Revenue inched up 1.7% to $20 million. Bluefly has suffered nine consecutive quarterly losses, but the stock is safer than it appears. The company sold new common shares to growth investor Rho Ventures, which now owns 33% of the float, in December and February. The sale diluted its base, but put Bluefly on superior financial footing. Management paid off outstanding debt and boosted its cash balance from $2 million to more than $14 million, translating to an ample quick ratio of 1.8. Bluefly is on the cusp of profitability. Its gross margin expanded from 38% to 44% in the latest period and its operating margin shrank from negative 14% to negative 7%. As the luxury clothing market picks up, Bluefly expects sales to follow. The average order size grew 12% during the first quarter.
HSN's Fashionista
It's 30 minutes to airtime, and Serena Williams—muscled, styled, economical in her movements—sits on a leather couch admiring her navy blue quilted flats. "These are incredibly comfortable shoes," she says. This is not the casual remark of a celebrity killing time in the green room. This is Serena Williams-as-saleswoman, practicing her pitch. Over the next 24 hours, Williams will be live on HSN—the television shopping service formerly known as the Home Shopping Network—for a total of eight hours, hawking pieces from her clothing and jewelry collection to women across America—some 15,000 bracelets, 4,000 flats, 1,900 pairs of jeans, plus sweaters, dresses, T-shirts, and handbags. Every minute she is on air will be measured in dollars, every hour will be scripted, product by product, to build momentum. When it's over, Williams is expected to have sold all of it. On HSN, celebrities have to produce. The fact that Williams is here at all, linking her reputation to an outlet once known for pushing Suzanne Somers' ThighMaster, shows how far HSN Chief Executive Officer Mindy Grossman has taken the company. When Grossman was recruited for the job in 2006 by Barry Diller, chief executive of HSN's then-corporate parent IAC/InterActiveCorp, she told Diller that she would accept only if he gave her the freedom to turn the place upside down. She wanted to transform HSN by making it more modern and tasteful: Maybe it would never be hip, it certainly wouldn't try to be edgy, but it could at least be relevant. "I got excited about what it could be, not what it was," she says. "There was not a lot of pride in the culture, and that was shocking to me, especially given where I had come from."
ChompOn is a White-Label Platform for Groupon-Like Deals
Group buying sites such as Groupon have proven to be a lucrative model for social e-commerce. Today, ChompOn is launching at TechCrunch Disrupt to bring a white-label group buying service to the space, allowing business owners to create their own deal of the day. ChompOn’s platform allows businesses to easily create a deal of the day (which is hosted on ChompOn), and set limits on the discount, how many people can access the sale and how long the sale is available for. The business can send the deal out via a link on Twitter, over email, and on Facebook. ChompOn also aims to help businesses create repeat customers by offering extra discounts for users who Fan their Facebook page, share the deal on Twitter or write a Yelp review. The virtue of ChompOn is that it allows businesses to create more targeted promotions. Sam Yam, co-founder of ChompOn and founder of AdWhirl (which was sold to AdMob last year), says that the site also doesn’t take as big of a cut from the sales as Groupon and LivingSocial do. Yam declined to name the exact cut ChompOn takes, but says that it “falls well below the 30 to 50 percent mark.”
Gilt for Restaurants Comes to New York
You can already buy designer clothes, spa treatments and vacations on private, limited-time sale Web sites. Now you can make restaurant reservations, too. The latest start-up to join the trend is VillageVines, which opened its Web site to the public on Wednesday. It is a members-only site (though anyone can become a member) that offers reservations at trendy, high-end restaurants with discounts, starting in New York. The founders, Dan Leahy and Benjamin McKean, are roommates and former investment bankers who worked with tech companies. After work, they would talk about how small businesses like restaurants did not take advantage of technology. They were inspired by sites like Gilt, which sells overstock inventory for designers. “It’s a huge opportunity, even more so with restaurants, because if you have a table that goes unfilled, you get zero dollars for it,” Mr. Leahy said. Restaurants on the site — including Butter, Kittichai and the Russian Tea Room — offer unbooked tables, often Sunday through Thursday but sometimes on the weekends. Several restaurants are listed each day. Users pay $10, and in return get a discount, usually between 25 percent and 30 percent, off their entire bill. The discounts are discreetly applied to the bills, so customers do not have to pull out paper coupons, which can be awkward for both customers and servers, Mr. Leahy said.
Consumer Electronics/Video/Audio
Douglas Stebbins
Microsoft CEO: To Launch New Phone Software by End of 2010
Microsoft Corp. plans to launch a new software for mobile phones by the end of 2010, Chief Executive Steve Ballmer said, while commenting on its entertainment division. The entertainment division makes Xbox video game consoles, Zune music players and mobile phone software. The company recently announced plans to reorganize its entertainment division with the division's president, Robbie Bach, retiring this fall. Microsoft had announced its overhauled operating system for smartphones, Windows Phone 7, in February. New devices with the software are expected out this holiday season.
Ultimate Electronics building a foothold in the Boston area
When Circuit City pulled the plug on all its stores just over a year ago, Best Buy was widely viewed as the last national electronics chain that would be left standing. Apparently, Mark Wattles didn't get the memo. The owner of Ultimate Electronics has some big ambitions. He unsuccessfully tried to move in on Canton-based Tweeter in 2005 and to wage a proxy battle at Circuit City in 2008. Those chains are gone now, the victims of a crippling recession and vicious price wars with other big box stores. But Wattles survived, and now he's taking advantage of cheap rents and desperate landlords to expand Ultimate Electronics on his own and fill a gaping hole in the market. Ultimate has the Northeast and the Boston area, in particular squarely in its sights. In Massachusetts alone, Circuit City's closure in early 2009 left 19 big box stores empty. The recent demise of other chains such as Tweeter, Bernie's and Linens 'n Things have left comparable spaces ripe for the picking.
Survey Says: iPad is Killing Netbooks
A new survey shows consumers are "overwhelmingly leaning" toward the iPad instead of netbooks, and cheap laptops are also taking a toll on netbook sales. The study, which surveyed more than 1,000 U.S. consumers, was commissioned by consumer electronics site Retrevo. Apple's iPad has proven popular with shoppers, as more than one million devices have already been sold. That popularity is hurting netbook sales, says the survey, as the iPad offers many of the same advantages that netbooks offer over a traditional laptop, such as higher portability and longer battery life.
Cosmetics & Pharmacy
Billy Busko
1Q Prescription Volume Rose
Prescription drug volume increased 5.7 percent during the first quarter, according to Fitch Ratings which noted more active pharmacy benefit managers the people who make a lot of the calls for health plan sponsors and members. The ratings agency said a large portion of the increase came from Express Scripts Inc. and its $4.68 billion buyout of WellPoint Inc.'s NextRx unit in 2009. Medco Health Solutions Inc. also contributed to the volume increase. The dispensing rates for pharmacy benefit managers were stronger than the rates for retail stores, Fitch said. CVS Caremark Corp. operates retail stores, but also has a pharmacy benefits management unit. Other retail store operators include Rite Aid Corp. and Walgreen Co. Meanwhile, the agency said margin pressure from health care reform will likely not have a significant impact on the credit in the industry. Fitch expects pharmacy benefit managers to maintain good cash flow because of volume increases, despite a weak employment environment.
Estee Lauder Completes Tender Offer
Cosmetics company Estee Lauder Cos. said that it has completed a nearly $200 million debt buyback. The makeup company said it bought back $130 million in senior notes due in 2012 notes as well as $69.9 million in senior notes due in 2013. The 2012 notes have a 6 percent interest rate while the 2013 ones have a rate of 7.75 percent. About $140.2 million of the 2012 notes and $69.9 million of the 2013 notes were validly tendered, the company said.
Q&A: Procter & Gamble CEO Bob McDonald
Like many CEOs, Bob McDonald has filled his office with family portraits, each bathed in white light, on clear glass shelves. First there is Crest, then comes Tide, then Gillette. McDonald has more than 60 products on display, and he has every reason to be as proud of them as any dad is of his kids. Many, after all, pull in more than $1 billion in annual sales.
Q: Some say the P&G model is broken—that the trading-up, premium-price strategy P&G has relied on won’t work now that thrift is here to stay.
A: We are much more deliberate than before at innovating at every point in the value pyramid, making sure we have the portfolios right in every market.
Q: You want a billion new customers in five years, or 548,000 customers a day. Did you get your 548,000 today?
A: We’re working on that. It’s all about strategy: touching and improving lives...more completely. We will fill out our portfolio by country and by category, extending distribution to more rural areas.
Q: What makes you think that a company that’s built itself on premium brands like Tide can shift toward selling inexpensive products to people living on $1 a day? A: When I was general manager of the Philippines in 1991, 60 percent of products were in single-use sizes. The profitability was great. The after-tax profit margins for developing countries is the same for us as in developed markets.
Q: How will P&G look in five years?
A: We would have more of our categories in more countries, and we would be deeper into the rural areas. We will have created many new product categories like the Swiffer.
Department & Discount Stores
Mark Lenz
Kohl's Customers Can Shop Online While In-Store
"Can't find the size or color you need?" asks the loudspeaker in a Kohl's department store. The answer is just a click away, the voice advises, directing shoppers to a kiosk where they can order whatever they need and have it shipped home for free. The kiosks are a place where brick-and-mortar retailing meets the Internet. It is a new initiative for Kohl's, aimed at boosting sales in whatever channel works for the customer: in the store or online. These days, Kohl's and other retailers are seeing big gains in their e-commerce businesses, which are growing faster than in-store sales. For the first quarter of this year, Kohl's online sales jumped by 50%, better than expectations. Nordstrom's Internet sales were up 38.7%; Macy's, 34%; Urban Outfitters, 40%.
Kohl’s Casts Its Eyes Northward
U.S.-based Kohl’s is scouting out locations in Canada in a preliminary look at bringing its mid-priced department stores to this country, industry sources say. In an era of challenged department stores, Kohl’s draws customers with low-cost stylish private labels and exclusive mid-priced designer lines from the likes of Vera Wang. U.S. retailers, grappling with economically fragile consumers at home, are increasingly turning to Canada for more fertile ground. Some of them, including Kohl’s, had counted on adding new stores in states such as California, Florida and Arizona but those markets were ravaged in the recession. Now clothier J. Crew, discounter Target Corp. and lingerie retailer Victoria’s Secret are among U.S. merchants preparing to take the leap across the border.
Higher-End Stores Give Big Boost to Big Lots
Big Lots is bringing its "A" game to its "A" stores - and it's paying off. The company's new stores in upscale locations have performed well, the company said yesterday in announcing first-quarter numbers. That performance contributed to Big Lots' 14th consecutive quarter of record earnings per share. "These locations, on average, have exceeded our initial financial goals," said Charles Haubiel, executive vice president of legal and real estate, during a conference call with analysts. "Early indications suggest that we are attracting a new customer base in these locations. We see this as a major step forward for our company."
Walmart Devours Its Own -- Customers in This Case
Walmart may be able to drive profits, but its sales are languishing — and unless it develops a new kind of store it can grow rapidly, it will find itself in the dreary situation of trailing Target in revenue generation. Just as it did in the latest quarter and before the recession. Today, the retailer has so many supercenters -– and it keeps adding more -– that they are cannibalizing its existing stores, hurting overall store visits and comparable store sales, those at locations open for at least a year. The retailer has been developing alternative stores, but it has never been able to find one that provides the kind of returns it’s looking for.
In Rush to Outlets, Retailers Tread Fine Line
This month's opening of a Nordstrom Rack store in the heart of Manhattan shows just how far outlet stores have come, from being distant outposts for liquidating unsold inventory to taking center-stage in retailers' growth strategies. Nordstrom Inc. and other U.S. retailers from Coach Inc. and Nike Inc. to Chico's FAS Inc. and Saks Inc. are expanding their outlet stores, with more and more merchandise made exclusively for those stores. So far, Wall Street has cheered the approach, but analysts say the strategy is not without risk. If retailers are careless about how many outlets they open and where, they can harm the very traits that give high-end brands their luster: exclusivity and high prices. Traditionally outlets, or factory stores, have carried unsold merchandise left over from full-priced stores, so their size and color assortments were often incomplete, or their fashions less current. They are also generally located in shopping centers away from big cities, making them good choices for occasional all-day trips, rather than impulse or everyday shopping. But now they are in more convenient locations such as the Nordstrom Rack in Manhattan's Union Square. In San Francisco, Nordstrom has both an outlet and a full department store, and that could present a problem, Chen said.
Footwear
Michael O'Hara
Zappos Eats $1.6 Million in Pricing Snafu
Zappos-owned e-commerce site 6pm.com had a little pricing problem this weekend: A glitch in its system marked down every product in the store to $49.95. By the time the problem was fixed, the store had lost $1.6 million. So, did Zappos cancel the orders or charge the customers the "correct" price for their goods? Nope. The company ate the loss, saying it was "the right thing to do for our customers."
Deckers Outdoor Declares Three-for-One Stock Split
Deckers Outdoor Corporation has approved the increase of its total authorized number of shares of common stock and therefore, as previously announced, the company will effectuate a three-for-one stock split of the company's common shares. All shareholders of record as of the close of business on June 17, 2010, will receive two additional shares of common stock for each share held on that date. The additional shares of common stock will be distributed on July 2, 2010.
Rocky Brands Receives Military Order Worth $3.2M
Rocky Brands, Inc. has received an additional order to produce approximately 45,000 pairs of insulated boots with an approximate value of $3.2 million under the $29 million blanket purchase agreement with the General Services Administration (GSA) that was announced in August 2009. There is $11.3 million remaining under the $29 million blanket purchase agreement. Also, the company has received an additional order to produce approximately 8,000 pairs of 'Hot Weather' boots with an approximate value of $500,000 under a contract with the U.S. Military that was announced in July 2007. Shipment of these orders is expected to be completed in 2010. All of these boots will be manufactured in the Company's factory in Moca, Puerto Rico.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Movado Group, Inc. Announces Plans to Close Retail Boutique Division
Movado Group, Inc. announced that, following a strategic assessment of its retail boutique performance, the Company's retail subsidiary, Movado Retail Group, Inc. (MRG), will close its retail boutique division effective June 30, 2010, in an effort to streamline its business, redirect investment toward higher return businesses and improve the Company's overall profitability. The Company will continue to sell its watch products primarily through its wholesale model, where it expects to increase its market share by further expanding relationships with existing wholesale customers and enhancing its relationships with independent retailers. In addition, MRG will continue to sell all of the Company's watch brands directly to consumers through its 31 outlet stores and will keep the Movado Boutique located in New York's Rockefeller Center open as a flagship store. The boutique closings will have no impact on the availability of any of the Company's watch products.
Del Monte’s Pet Products Division Posts Gains
Del Monte Foods Inc. reported increases of net sales and operating income for its pet product division for the third quarter and first nine months of fiscal year 2010. The company reported pet product sales of $468.8 million for the third quarter ended Jan. 31, compared to $433 million in the year-ago period. Del Monte attributed the increase primarily to strong unit volume growth from existing products, mostly in the dry dog food and pet snacks categories. Pricing actions in fiscal year 2009 also benefitted the top line. These gains were partially offset by increased trade spending, the company reported. The pet product segment’s operating income increased 19.3 percent to $91.5 million in the third quarter of 2010, compared to $76.7 million in the year-ago period.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Last Simon David Store Set to Close
Safeway is planning to shutter the last remaining Simon David gourmet food store and replace it with a Tom Thumb, according to local reports. The Simon David chain, founded in 1889, was acquired in 1963 by Tom Thumb, which was later acquired by Randalls Food Markets and then Safeway. Most of the former Simon Davids were converted or sold.
Planet Organic to Sell to Creditor
Planet Organic will seek court approval to sell all its assets to Catalyst Capital Group in exchange for forgiveness of its debts, the company said. Planet Organic filed for protection under Canada’s Companies Credits Arrangement Act last month after it defaulted on more than $31 million in loan debt to Catalyst.
Canadian REIT Buys Texas Properties
Canada's largest real estate investment trust on Thursday said it had agreed to acquire an 80% interest in eight Texas shopping centers, including several anchored by Wal-Mart, H.E. Butt Grocery Co. and Safeway's Tom Thumb. RioCan Real Estate Investment Trust, based here, said it entered the agreement with Inland Western Retail Real Estate Trust through its RioCan Holdings USA. The transaction is valued at $138 million, including $53 million in net equity and the assumption of $85.6 million in debt. <
Masculine Muffins
Real men eat quiche and, as it turns out, they’re pretty fond of cupcakes, too. But let’s be honest, it’s hard to feel like Chuck Norris when you’re eating something that looks like it was decorated by Martha Stewart. Enter Butch Bakery of New York City, which is now selling cupcakes for men. And it’s not just the look of these miniature treats that will have you licking your chops; the flavors are downright manly, too. Designed specifically for a man's palate, the assortment ranges from “Rum & Coke” (rum-soaked Madagascar vanilla cake with cola Bavarian cream) to the “Beer Run” (chocolate beer cake with beer-infused buttercream topped with crushed pretzels) to the “Home Run” (peanut butter cake with banana Bavarian cream and crumbled bacon). A Butch Box sampler of all 12 varieties retails for $48. Delivery is currently limited to Manhattan, Queens and Brooklyn, but Butch Bakery hopes to begin delivering nationwide later this year.
Candy Firm Farley's & Sathers on the Block
Farley's & Sathers Candy Co Inc, the maker of Brach's, Jujyfruits, and Now and Later candies, has hired Goldman Sachs to help it find a buyer, sources familiar with the situation said. The Minnesota company is owned by Greenwich, Connecticut-based private equity firm Catterton Partners, which bought it in 2002. Farley's & Sathers has made several acquisitions to build its business since its inception in 2002. Its most recent acquisition was Brach's Confections in 2007. Farley's & Sathers legacy goes back much further. The Farley namesake began in 1870 and grew to sell its own brand and private label candies, while Sather began in 1936 and sold rebagged candies and snacks in convenience stores. The sweet maker's portfolio includes Chuckles, JujyFruits and Jujubes, all acquired from Hershey Co. in 2002, as well as a batch of brands acquired from Kraft Foods Inc. that year, such as Now and Later and Intense Fruit Chews. The company makes more than 900 different candy items and produces 42 million pounds of confections a year, which are distributed throughout the United States. It had about $400 million in sales in fiscal 2008.
Home Improvement/Auto Repair
Billy Busko
Buyers Seek Stores, but Bargains are Scarce
David Wilson, president of David Wilson Automotive Group in Orange, Calif., owns seven Toyota dealerships and three Lexus stores, including the $75 million Newport Beach, Calif., Lexus dealership he built in 2006. And he's aggressively hunting for more Toyota and Lexus stores -- so far without success. "With the troubles they have had, you would think the sellers would be offering bargains," Wilson said. "But no such luck." Dealership acquisitions are heating up after two years in the deep freeze, but not to the red-hot temperature of three years ago. Buyers -- especially the public dealership groups -- are not paying the six times net pretax earnings for dealerships that they were a few years ago. They're paying half that.
A 16.8 Million Market in Just 2 Years? Really?!
The consulting firm A.T. Kearney predicts U.S. light-vehicle sales could jump from 11.7 million this year to as many as 15 million in 2011 and 16.8 million in 2012. Skeptics ask: How? Pent-up demand and more-available credit, says A.T. Kearney's Daniel Cheng. Cheng says shoppers have deferred purchases of 19.6 million units since 2007. He expects 9.2 million of those shoppers to come back into showrooms next year. But that's just 47 percent of the pent-up demand. Typically, 65 percent of that demand turns into sales during a recovery. The percentage will be held down by tight credit. Loan approval rates for subprime customers dropped from 68 percent before the recession to just 12 percent during the recession. That's starting to ease. Since the fourth quarter of 2009, nonprime-loan approvals have increased 2 percentage points -- and that's big. Cheng estimates that a 1-point increase in loan approval rates means an extra 350,000 sales a year. So the difference between A.T. Kearney's most-likely and best-case scenarios will be driven largely by lenders.
Lowe's Raises Dividend 22 Percent
Home improvement retailer Lowe's Cos Inc said it raised its quarterly dividend 22 percent, joining a string of retailers and consumer products companies that have upped their payouts in recent months. The new dividend of 11 cents a share is payable Aug. 4 to shareholders of record on July 21.
Housewares/Furniture
Billy Busko
William-Sonoma Begins Stock Buyback, Ups Dividend
Williams-Sonoma Inc. said that it will buy back $60 million worth of its shares and increased its quarterly dividend. The company said it hopes to complete the repurchase before the end of the fiscal year. William-Sonoma has nearly 108 million common shares outstanding. The repurchase was launched to offet the dilution caused by shares given to employees as compensation. William-Sonomoa is also increasing its dividend by 2 cents to 15 cents per share -- saying its financial performance is rapidly improving. It's the second quarterly dividend increase this year. The dividend is payable Aug. 24 to shareholders of record as of July 27.
Newell Lays Out Plan to Boost Margins; Shares Rise
Newell Rubbermaid Inc. is hoping its recent price hikes and efforts to revamp its product portfolio will prop up margins in the near term, sending shares in the consumer goods maker up 3 percent. The maker of Rubbermaid storage containers and Sharpie pens is on track to achieve gross margin of 40 percent in the next three to four years, Chief Executive Mark Ketchum said. Gross margins were at 36.7 percent in 2009. Newell, whose other products include Graco strollers, Calphalon cookware and Paper Mate pens, has benefited from a move to exit more commoditized product categories like plastic storage boxes, shelving and wooden pencils.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
VF Eyes Acquisitions, Accelerates Spending as Profit Surges
VF Corp., the maker of Wrangler and Lee jeans, said Friday that its first-quarter profit rose a better-than-expected 62%, helped by global demand for its brands from North Face jackets to Vans sneakers. The strength also was seen in the company's own retail stores, which represents about one-fifth of its total and grew 23% in the quarter, he said. As part of its growth strategy, VF, which has diversified through buying brands from Nautica to North Face, also has been "aggressively pursuing" acquisitions, especially in the area of outdoor and action sports, its finance chief said. "We have been very actively looking for acquisitions," Shearer said, adding the challenge is finding the reasonable prices as multiples of brands have gotten too high as the economic picture improves. "They are still important to us."
Tide Dry Cleaners Franchises the Concept Beyond Kansas City
The Tide Dry Cleaners business that The Procter & Gamble Co. started in the Kansas City area plans to expand via franchisees in other markets. Tide Dry Cleaners said Tuesday that it is seeking franchisees to open multiple locations in the Atlanta and Columbus, Ohio, markets. The store website said it also is offering individual and multi-unit franchises in Cincinnati; Dayton, Ohio; Northern Kentucky; and Lexington, Ky.The concept, operated by Procter & Gamble subsidiary Agile Pursuits Franchising Inc., started in 2008 with a pilot of three dry-cleaning stores in Kansas City — two in Overland Park and one in Leawood. Each new store will have about 15 to 20 employees. Agile Pursuits also franchised the Mr. Clean brand car wash business, which started in 2007 and now has 16 locations in Ohio, Georgia and Texas, and is developing seven more, according to the release.
SpongeBob HandBag
Hello Kitty, meet Carlos Falchi. The firm that makes accessories bearing the cartoon likenesses of Hello Kitty and SpongeBob SquarePants is in a licensing pact with the owners of luxury handbag maker Carlos Falchi. New York accessories kingpin Steve Russo -- who has made a fortune selling backpacks and other back-to-school supplies emblazoned with everything from the Muppets to Hannah Montana -- has signed a five-year deal with Falchi that will guarantee its owners at least $120 million in retail sales, sources said. To casual observers, the deal might be an odd fit for Falchi. The iconic New York designer built his legend in the 1970s outfitting rock stars like Mick Jagger and jazzmen like Miles Davis with exotic animal skins and meticulous patchwork. But sources said the agreement is a cornerstone for Russo's plan to build a New York-based empire in luxury handbags. He's calling the new outfit Artisan House and has tapped the respected Hermes veteran Mickey Ateyeh to help run it as president.
Jewelry/Mining
Mark Lenz
Profits Jump at Tiffany, Signet
Tiffany & Co.'s fiscal first-quarter earnings more than doubled as the luxury jewelry retailer saw demand rebound across most of its markets, another sign that higher-end consumers are feeling better about buying. The jeweler expressed optimism about the rest of the year by raising its earnings guidance and affirming its sales growth target. "Our business performed exceptionally well in the first quarter, continuing the broad-based improvement we began to experience in the second half of 2009," Chief Executive Michael Kowalski said. Separately, Signet Jewelers Ltd. said fiscal first-quarter earnings rose 98% as the largest U.S. jewelry chain operator by sales saw improved demand in the U.S.
Zale Reports Smaller Loss, Plans to Rebuild Management
Zale Corp. bought itself expensive time to turn its business around. Now it just needs to sell jewelry. The Irving-based jeweler reported a decent start by posting a narrower third-quarter loss and saying it plans to restore some of the organization behind each store brand that prior management eliminated. Zale has five years to pay back Golden Gate Capital, which gave it a $150 million lifeline earlier this month. Interest payments to Golden Gate alone will be about twice the $10 million Zale paid last year. But Zale needed money to start making money again.
De Beers to Reach Out to Botswana
De Beers Group Managing Director, Gareth Penny says his company wants to improve its relations with Batswana and engage them more regularly. Their problem with Botswana was lack of communication. “We just assumed that facts would speak for themselves,” he said, declaring that they will visit Botswana more often. The Gazette interviewed De Beers’ Group Managing Director when he visited Botswana last week. Penny said De Beers has a good working relationship with the Botswana government founded on the principle of Public Private Partnership; comparatively, Botswana the Government-De Beers relationship was one of the best in the world, “however our first-class relation with government officials is not reflected in the general public,” Penny said.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Michaels 1Q Profit Triples from Weak Prior Year
Michaels Stores Inc.'s fiscal first-quarter earnings more than tripled from weak prior-year results as the arts and crafts retailer continued to increase sales and improve its margins. Chief Executive John Menzor said the latest performance was driven by a combination of stronger sales, gross margin improvements with increased direct sourcing, more effective promotions and a close eye on expenses. The company--which also sells frames, wall decor and seasonal and floral items--dealt with sales weakness in the downturn by opting to sell less seasonal merchandise and to offer more in-store classes. After a period of heavy promotions to boost sales, Michaels has been improving its margin by better controlling its clearances and reducing transportation and occupancy costs.
Office Depot Unveils New Format
Office Depot held a ribbon cutting event at 2 p.m. on Tuesday to unveil its remodeled store in the Towne Park Plaza Shopping Center in Albuquerque. Office Depot has converted its Duke City flagship to its M2 retail format where products are grouped in strategically located “pods,” with core supplies at the outer perimeter of the store.
At Jo-An Stores, Sewing Businesses Still Dominant in Q1
While home decorating fabric sales were still “slightly” negative at Jo-Ann Stores during its first quarter, the fabric and craft retailer did see sewing-related business continue to dominate sales and grow in comp sales in the period. “The sewing business represented 53% of our first-quarter sales volume and increased 5.5% on a same-store-sales business. We continue to experience positive same store sales in a majority of our fabric and sewing notion product categories,” said Darrell Webb, Chairman and CEO. Non-sewing comprised 47%, representing an increase of 3.2% on a same-store-sales basis. “Core craft categories remain strong and our seasonal business turned positive for the first time in two years,” Webb continue, later adding “Sales were well balanced across our sewing and non-sewing businesses. But home decorating fabric sales were still slightly negative as a result of subdued activity in the housing market.”
Toys R Us to Go Public Again Through $800M IPO
Toys R Us Inc. said that it plans to go public again by raising as much as $800 million in an initial public offering. The retailer of toys, games and other products for infants and children said in a filing with the Securities and Exchange Commission that it will use the proceeds from the offering to pay off some of its debt and for general corporate purposes. It did not say how many shares it will sell. It said its stock would trade on the New York Stock Exchange under the ticker symbol "TOYS."
Restaurants/Food Service
Mark Boucher
Can Starbucks Still be Seattle's Best if It Grows by Hyping Seattle's Best?
Starbucks bought Seattle's Best back in 2003, but a week or so ago most coffee drinkers didn't know the two brands were related. The company didn't need them to. For years, opening new Starbucks stores had been enough to drive tremendous growth without any help from its little sister. Then that joke about having a Starbucks across the street from another Starbucks started coming a bit too close to reality, forcing the company to close up hundreds of stores over the last three years. Starbucks had turned into a "former rapid growth business approaching 'maturity' based on their historical business model," wrote Barclays Capital analyst Jeffrey Bernstein in a recent note. So what's a barista to do? While Seattle's Best may have been second fiddle to Starbucks, it's now becoming primary to the company's growth strategy. Starbucks has re-branded Seattle's Best into what it calls an "approachable" line (read: less upscale) and plans to grow it into a multibillion-dollar brand. Starbucks' move is a familiar one in the consumer world. In fashion, there's Gap with its Old Navy and Banana Republic brands, or take Ralph Lauren's American Living line for J.C. Penney. Williams-Sonoma has Pottery Barn and West Elm. Marriott has the Fairfield Inn, and the list goes on. Companies do it because it's a classic, proven way to grow a business.
Landry’s Ends Takeover Battle After Revised Offer
Landry’s Restaurants accepted a $1.4 billion takeover offer by its founder and chief executive, Tilman J. Fertitta, concluding a years-long battle after Mr. Fertitta agreed to raise his bid. Shares in Landry’s, a Houston-based restaurant chain, jumped as much as 13 percent on the news and exceeded the $24-a-share takeover price, an indication that some investors were betting that a higher rival offer would materialize. The two-and-a-half year battle between Landry’s board and Mr. Fertitta, with failed takeover efforts and multiple lawsuits from both sides, was one of the longest and bitterest in recent memory. Under the terms of the new bid, Mr. Fertitta raised his price just 50 cents higher than his original $23.50-a-share offer, made in January 2008. But today he owns 55.1 percent of Landry’s, as opposed to just 39 percent two years ago, meaning that he isn’t paying as much of a premium now. Landry’s now has a 45-day go-shop period in which to solicit higher takeover offers. The company said that it would reimburse the due diligence costs of the top two bidders to make a proposal in excess of $24 a share. Mr. Fertitta wouldn’t receive a break-up fee if the company chooses another bid, though some of his expenses might be covered.
Hardee's Sales Grow, but Carl's Jr. Still Struggling
Hardee’s sales remained positive in late April and early May while those of sister brand Carl’s Jr. were still in negative territory as a result of the challenging economy in California, CKE Restaurants Inc. said. For the four weeks ended May 17, Carl’s Jr.’s same-store sales at company-owned units were down 5.2 percent, compared with a 6.2-percent decline for the same period a year ago. The core market for Carl’s Jr. is California, where unemployment rates remain high, the company noted. At Hardee’s, a chain with stores primarily in the Midwest and Southeast, same-store sale at company stores were up 0.6 percent for the period, compared with flat sales a year ago. For the full first quarter, same-store sales decreased 6.1 percent at Carl’s Jr. company units and fell 1.2 percent at Hardee’s company stores. Blended same-store sales for the quarter dropped 3.9 percent.
Hooters Sued by Server Claiming She was Put on 'Weight Probation'
A waitress at a Hooters restaurant is suing the chain's parent company for discrimination in a flap tied to her allegations that management put her on “weight probation” because of the fit of her uniform. Attorneys for waitress Cassandra Marie Smith, 20, filed a complaint in the Circuit Court for Macomb County, Mich., against Hooters of America Inc., alleging the violation of Michigan discrimination prohibitions and intentional infliction of emotional distress. Smith’s lawsuit contends that restaurant and chain managers have “constructively discharged” the woman, or put her in employment limbo where she is not working but has not been fired, “because she was unable to meet Hooters’ discriminatory and illegal requirements of a ‘Hooters Girl.” It further alleges that the defendants told Smith's co-workers and others that she was on weight probation, thereby making the Roseville restaurant an "intensely humiliating,” “deeply offensive” and an “untenable environment” for the young waitress. Hooters officials said the chain has never been sued for weight discrimination and added that it “welcomes the opportunity to defend ourselves against these baseless and self-serving charges.” Smith’s complaint seeks lost wages and damages for emotional distress, as well as exemplary damages and other relief the court deems appropriate in an amount exceeding of $25,000.
Banking & Lending
Douglas Stebbins
New Home Sales Boom, Foreclosures Loom
The headlines are full of the great news about new home sales. And some of them are warranted. The boom in new home sales does not show a healthy housing market that's ready to leap forward. After all, there are still roughly 6 million properties out there teetering on the brink of foreclosure, according to a recent report about the Home Affordable Modification Program. Instead, the high number of new home sales shows that our sick housing economy is responding to the shock treatment the federal government gave it: the $8,000 homebuyer tax credit. We're probably going to be reading about the high demand for housing most of this summer, as homebuyers who signed contracts this spring close the deals to buy their homes in May and June. The monthly new home sales reports will come out a month later. Those reports will likely make banner news headlines through the end of July. Even though the number of home sales is high, home prices are weak.
CARD Act Elements Achieve Success
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), imposes a number of new disclosure requirements on credit card issuers that are designed to protect consumers. One requirement is that card issuers must provide on each customer's billing statement a snapshot of how long it will take that customer to get out of debt if they only pays the minimum amount due on the existing debt each month. Also, the act requires issuers to list a toll-free number to a nonprofit credit counseling agency on the statement. This disclosure aspect of the CARD Act appears to have had the intended result, in that 25 percent of more than 2,000 respondents said it inspired them to pay more each month, while 12 percent indicated that it prompted them to reach out for help to the credit counseling agency.
Banks Cut Emergency Borrowing from Fed
Banks borrowed less from the Federal Reserve's emergency lending program over the past week, a further signal that credit markets are improving. Banks averaged $4.3 billion in borrowing for the week that ended Wednesday, the Fed said Thursday. That is down from $5.1 billion last week. Loans from the central bank's emergency lending program, known as the discount window, surged to a high of $110 billion a day during the height of the financial crisis in the fall of 2008. At the time, banks found their customary sources of credit frozen.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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