The Weekly Consensus: Week of June 21, 2010
Why, Robot
Steven Bowles
“Soon, That Nearby Worker Might Be a Robot,” reads the headline in a recent Business Week. It is the case that robot industry advocates are now promoting the idea that today’s robots have reached a level of safety and sophistication that allows them to move out of factory environments and hazardous roles such as bomb disposal, and into America’s offices.
You read that right, robots are allegedly ready to make the move from the bomb squad to hanging around the water cooler.
Several manufacturers are marketing remotely controlled machines for workers in one location to direct (via the Internet) around a distant office to seek out and speak to colleagues, “replicating in some measure the unplanned conversations that occur in offices.” It seems a long way to go in the 21st century to outdo the 19th century’s great distance communication technology, the telephone, not to mention the 20th’s, e-mail.
Business Week quotes researcher Larry Fisher’s observation that there is a “cultural element that’s helped keep robots out of the workplace.” He is correct. But the resistance is not that Americans have been conditioned by dystopian visions of a robot-rich future such as Westworld, Runaway and The Terminator. The cultural element has been the desire for human employment. In the vacuum of space, or in the containment tanks at a nuclear power plant, there is little to criticize about expanding roles for ever more sophisticated robots. This is not the case when the machine is taking up residence in the cubicle next to yours.
In tough times, with the national unemployment rate hovering near 10 percent, advocating remote-controlled office conversation machines represents an interesting use of limited resources. Of course, one element that may be behind establishing robots in an expanded work role is that robots don't need breaks, or want vacations and you don't have to pay them benefits.
We all wonder what the future will bring; it’s a close cousin of Hamlet’s undiscovered country. My suspicion is that while the world of the future will certainly be different, people will operate under rules that we would recognize, no matter what the machines can do.
Apparel/Swimwear/Intimates
Betsy White
American Apparel Seeks to Renegotiate Debt Covenants
American Apparel, the Los Angeles-based retailer whose sexually charged advertising has persistently ignited controversy, is hopeful of a deal to amend loan covenants that threaten to push the company into bankruptcy. Talks with Lion Capital, the London private equity firm that came to American Apparel's rescue last year, are said to be progressing in a "supportive" manner as a deadline to renegotiate a $80m (£54m) loan agreement looms. Lion Capital specialises in investments in consumer businesses and has put money into such famous brands as Jimmy Choo shoes and the restaurant chain Wagamama. Its $80m loan to American Apparel last year, which the retailer used to pay off older debts, came with a 15 per cent interest rate and tough financial conditions.
Sam's Club Raises Apparel Profile
If there is a bright spot for apparel at Wal-Mart Stores Inc., it may be at Sam’s Club. “We’re seeing good trends in apparel, and we’re bringing in new brands that are appropriate on a seasonal level,” Brian Cornell, chief executive officer of Sam’s Club, said after the Wal-Mart annual meeting on June 4. In contrast, vice chairman Eduardo Castro-Wright characterized Wal-Mart’s apparel business as “disappointing” and “a work in progress.” Without the constraints of Wal-Mart’s “low-price leadership” strategy, Sam’s Club can sell department and specialty store brands but still at significant savings.
Ralph Lauren to Sell Portion of Polo Shares
Ralph Lauren, chairman and chief executive of Polo Ralph Lauren Corp., is selling approximately a quarter of his holdings in the company he founded, a move that could raise up to $955 million at last Monday's closing price. A spokeswoman said the sale is "purely for asset diversification purposes." Mr. Lauren and his family will remain in control of Polo, and his role at the company won't change. Mr. Lauren intends to sell up to 11.35 million shares in the company, according to a filing with the Securities and Exchange Commission. The shares closed Monday at $84.17. Mr. Lauren currently owns 39.8 million Class B shares, which each are entitled to 10 votes, compared with just one vote per Class A share. For the sale, the Class B shares are being converted to Class A shares. The transaction would leave Mr. Lauren and his family in control of more than 80% of the company's votes, compared with 88.5% currently.
U.S. Apparel Retailers Turn Their Gaze Beyond China
Rising labor costs in China are forcing U.S. apparel and accessories retailers, such as AnnTaylor Stores Corp. and Coach Inc., to consider relocating at least some of their production to countries with cheaper work forces. But doing so could risk increasing other expenses, such as shipping. "We are looking to move production into lower-cost geographies, most notably Vietnam and India," Mike Devine, Coach's chief financial officer, said at a conference last week. The luxury-handbag retailer already produces goods in those countries, but plans to increase its presence in both of them. Guess Inc. is thinking along similar lines. Dennis Secor, the fashion brand's chief financial officer, said in an interview that Guess is looking to build its production capabilities in Vietnam, Cambodia and Indonesia. Recent minimum-wage increases have pushed up Chinese labor costs by 5% to 15% on average this year, said Rick Darling, president of LF USA, a unit of Hong Kong-based Li & Fung Ltd., which acts as a go-between for retailers and their webs of suppliers. In the southern coastal province of Guangdong, one of a handful of hubs for apparel and accessories makers, the monthly minimum wage rose on average by more than 20%, effective May 1, the firm said. The gains come as Chinese workers more broadly have been securing wage increases, partly through labor disputes. In addition, their government has sought to steer manufacturing away from labor-intensive, low-technology industries, such as textiles, into more-sophisticated products, such as electronics devices.
Athletic & Sporting Goods
Michael O'Hara
L.L. Bean to Host Maine's Moose Hunting Lottery
A lottery for 3,140 moose hunting permits will take place on Thursday, June 17, at L.L. Bean's flagship store in Freeport, Maine. L.L. Bean will offer entertainment throughout the day. Events begin at 11 a.m. and include a moose call seminar, a free archery range, and seminars on moose hunting. The lottery begins at 6 p.m. Mac McKeever, L.L. Bean's senior public relations representative, told the Portland Press Herald that the retailer wanted to host the moose lottery for the Maine Department of Inland Fisheries and Wildlife because moose hunting is central to Maine. "It means a lot. We were extremely honored and very flattered when our wish was granted by the department," McKeever said. "It's a monumental event to do justice to this event, and also to the celebration of the moose lottery. We've put together a terrific array of family oriented activities ... It's a great way to celebrate Maine's rich and illustrious hunting and fishing heritage."
Sports Authority Sued Over World Cup Ads
Sports Authority was sued on Thursday by the U.S. Soccer Federation, which accused the sporting goods retailer of running television and Internet advertisements tied to the World Cup without permission. In a lawsuit filed in the U.S. District Court in Chicago, U.S. soccer's governing body claimed that TSA Stores Inc, which operates as Sports Authority, infringed its trademarked crest and logo in an ad televised during the June 12 World Cup match between the United States and England. It said the ad showed Taylor Twellman, a forward on the U.S. national team, and Michael Strahan, a retired star defensive end for the New York Giants football team, wearing official national team uniforms, including the crest and logo. The soccer body said it objected to the ad because it licenses only one retailer, Dick's Sporting Goods Inc, to use its trademarks.
Catalog & Internet
Christopher Ellis
Gilt Groupe Styles Runway for Everyday
Racks upon racks of designer clothes line the most unlikely warehouse inside the industrial Brooklyn Navy Yard, swarming with chic models, stylists, photographers and makeup artists. Hundreds of pairs of covetable shoes, handbags and belts are lined up neatly on nearby shelves to be parsed out to seven photo studios that buzz nonstop from 8 a.m. to 1 a.m. every single day. This space belongs to Gilt Groupe, a sample sale website that converts often avant garde runway looks into reality — bought and worn by regular folks who feel comfortable dropping a load of money, even with the discount, on things they can't see, let alone try on.
Retail Chains are Embracing Their Online Stores
When shoppers at JCPenney Co. stores can't find what they want, sales clerks are steering them to the Internet — not at their home computers, but at new online kiosks right inside the stores. Action sports retailer Zumiez Inc. has opened more than 200 stores over the last four years. But this year, it has scaled back its openings to focus on building its e-commerce sales. Even Macy's Inc. is doubling down on its dot-com. The company whose name is almost synonymous with "department store" has seen its online sales rocket more than 50% in the last two years. It recently junked its standard cash registers for 50,000 high-tech ones that can check online for items that are out of stock in the store and place orders directly for customers.
Consumer Electronics/Video/Audio
Douglas Stebbins
Cloud Computing: A Paradigm Shift for Gaming
As Microsoft, Sony, and Nintendo promote their upcoming hardware innovations and try to extend the life cycle of this generation of consoles, a burgeoning company called OnLive sits on the show floor of the video game industry’s trade show, sending out the message that dedicated game machines could be a thing of the past. The idea behind OnLive is simple: Games are stored and played on its centralized servers (the "cloud," in tech parlance) and pushed to users via a broadband connection. On the surface, it sounds like a just another delivery method—but what makes OnLive and other upcoming cloud-based gaming services interesting is their ability to transform almost any screen into a high end gaming system. Core PC gamers spend thousands of dollars to put together systems loaded with RAM and bleeding edge graphics cards to get the most out of their games. But with cloud gaming, a $300 netbook or low-end desktop will be able to play games just as effectively, with optimized graphical and other gameplay settings – since all the processing is done remotely. OnLive will soon launch a peripheral for television sets as well, letting you play in your living room. The iPhone and iPad are next logical steps.
AOL Confirms Sale of Bebo to Turnaround Firm Criterion
AOL Inc. has unloaded its social-networking site Bebo to turnaround specialist Criterion Capital Partners LLC, exiting a disastrous investment for the company. Terms of the deal weren't disclosed, but a person familiar with the situation previously told The Wall Street Journal the price is a small fraction of the $850 million AOL paid for the site two years ago. For its part, AOL said that following the transaction it will treat Bebo common stock as "worthless" for U.S. income-tax purposes, according to a filing with the U.S. Securities and Exchange Commission. The company's current tax basis in Bebo is about $750 million. AOL said it expects to record a deferred tax asset and corresponding tax benefit of $275 million to $325 million to its tax provision during the second quarter. It specializes in turning around companies with revenue between $3 million and $30 million. AOL acquired Bebo under a previous executive team, when AOL was owned by Time Warner Inc. (TWX). The deal was part of a broader plan to transform AOL's business from a subscription-based service for connecting to the Internet to an ad-supported media business.
Blockbuster Girds for Worst
Blockbuster is in discussions with bondholders to get up to $150 million in so-called debtor-in-possession financing, said people familiar with the matter. Such loans, which typically carry high interest rates, are used to help companies operate while under Chapter 11 protection. The senior bondholders, owed about $630 million, would provide the financing to protect their original investment should Blockbuster enter bankruptcy court. The talks don't necessarily mean Blockbuster will file for bankruptcy. Blockbuster is pursuing other options, and troubled companies often negotiate bankruptcy loans as a precautionary measure and still reach deals with creditors to restructure debts outside of court. On a separate front, Blockbuster is talking with possible strategic partners about a new cash infusion, a person familiar with the matter said. Under that scenario, a group of lower-ranking bondholders owed $300 million would likely convert their debt to equity.
Cosmetics & Pharmacy
Billy Busko
Stock Repurchase Program at CVS Caremark Approved
CVS Caremark has announced that its board of directors has approved a new share repurchase program for up to $2 billion of its outstanding common stock. The share repurchase authorization expires at the end of 2011 and permits the company to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions and/or other derivative transactions. The company also stated that during second quarter 2010 it repurchased approximately 16.7 million shares of common stock for approximately $613 million, completing the $2 billion repurchase program authorized in November 2009.
Shiseido Bullish on China
Shiseido Co. Ltd. is expecting to post double-digit sales growth in China as consumers become increasingly demanding and savvy about their beauty regimes. Masaru Miyagawa, chief officer of Shiseido’s China business division, said the company expects to post 2010 sales growth of between 15 and 20 percent in the country, outpacing the overall market growth of 10 percent. “China is the growth engine,” he said Thursday at a press briefing. “Even if the economic growth does slow down a bit, we believe the cosmetics business has extremely high growth potential and we forecast a stable growth.” The company estimates that the number of Chinese people buying cosmetics consists of 100 million individuals and will grow to comprise 210 million people in 2015 and 400 million people in 2020. Shiseido is one of many beauty players targeting China. Just a few weeks ago, L’Oréal executives said the company plans to post sales growth of at least 16.1 percent in China this year.
Department & Discount Stores
Mark Lenz
Missed Opportunities: Target Is Dawdling in Cities While Walmart Ramps Up Its Assault
Target may be missing a golden opportunity and permanent advantage over Walmart by not more aggressively moving into urban locations. The retailer has emerged as less of a mark for union and quality of life activists in cities and the urbanized suburbs than Walmart. As such, it has slipped into environments that frequently have rejected its competitor. Target has eight stores in New York, for example, to Walmart’s none. Target has more experience in creating specialized urban formats that give it another advantage over its rival. The retailer is preparing to apply that experience once again as it opens its first Manhattan location in Spanish Harlem this summer.
Barneys Performance Ahead of Forecast
Barneys New York's results so far this year are well ahead of its own projections, helped by revived luxury spending, though its debt load remains a drag, according to a source familiar with the matter. Demand for fancy items at the department store chain, such as Manolo Blahnik shoes and Bottega Veneta handbags, has picked up speed since November and is lifting Barneys' earnings before interest, taxes, depreciation and amortization (EBITDA). Barneys expects EBITDA to rise by as much as $40 million in 2010. The retailer's current 2010 forecast is 75 percent greater than the original estimate it gave lenders.
Kohl's Exclusives Made up Nearly Half of Q1 Sales
Kohl's Corp. said that exclusive product lines accounted for 47 percent of sales in the first quarter of 2010, which it said was a large increase over a year earlier. In February, Kohl's Chief Executive Kevin Mansell told Reuters that exclusives could eventually account for half of the retailer's sales. In the fourth quarter of 2009, they made up 42.7 percent of sales.
Footwear
Michael O'Hara
Bakers Footwear Expects to be Delisted from Nasdaq
Shares in Bakers Footwear Group lost more than a third of their value June15th after the company announced it expects to receive notification of its delisting from Nasdaq. The St. Louis-based retailer of women's fashion footwear has warned shareholders since last year that it no longer meets the minimum stockholders' equity requirement to stay on the Nasdaq. Peter Edison, the company's chief executive, had said the company would appeal such a notice. But during a conference call with investors, Edison said the appeal was not successful and that the company would move stock trading to the over-the-counter market. "However, regardless of our listing status, we believe our business is poised for improvement and we expect our current and future stockholders to benefit," he said.
Kohl's to Partner with Aldo on New Line of Shoes
Kohl's will partner with Canadian shoe maker Aldo on products to be sold exclusively at the department store chain. Aldo will design and produce exclusive footwear products to be sold at Kohl's and Kohls.com under select private and exclusive brands. A first of its kind for both Kohl's and Aldo, the agreement encompasses a range of footwear products for women and men, including fashion shoes in a variety of styles such as dress and casual. The Aldo-designed products will be available in all Kohl's stores and Kohls.com beginning Spring 2011. For Kohl's, the partnership with Aldo. continues to build on its successful private and exclusive brand strategy, which accounted for 47 percent of sales in the first quarter of 2010, up significantly from 2009. Footwear continues to be a key growth area and one of the strongest performing categories for the company, and has outpaced performance plans for the past year. As part of the agreement, Aldo will be responsible for the design and production and will have a dedicated design team on the business. Kohl's will collaborate on the design process. Sold under select private and exclusive brands, the footwear will include fashion-based styles exclusive to Kohl's.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Coach Sues Chicago Over Counterfeits
Coach, Inc filed a multimillion-dollar lawsuit against Chicago, alleging that the City’s failure to crack down on vendors who sell counterfeit goods at an outdoor market amounts to a violation of the Lanham Act. The lawsuit, filed in Illinois federal court, seeks $2 million per violation, an injunction halting the sale of fake Coach products, and punitive damages. According to the complaint, a Coach investigator visited Maxwell Street, a local market, in August 2009. Within plain view he observed roughly 300 vendors selling counterfeit Coach products, the suit claims. City police officers later returned to the market with the investigator, who purchased an $18 fake Coach bag at one booth and a fake Chanel bag for $24 at another booth. The two vendors were arrested and 351 fake Coach products were found in the two booths. Over the last year Coach has filed almost 200 lawsuits as part of a nationwide program called Operation Turnlock, the company’s attempt to use civil litigation to fight the distribution and sale of fake products.
With a Little Help from Martha Stewart, Specialty Pet Retailers Fend Off Big-Box Competition
As the usual set of large, discount retailers roll out more diverse pet supply offerings, specialty retailers, like PetSmart, are sharpening their competitive edge with more targeted merchandising initiatives and exclusive, brand-name products. “The recession has had a definitive impact on spending on hard goods and as such, a lot of the retailers are very much focused on merchandising in that category,” said Joan L. Storms, a vice president and research analyst at Wedbush Securities, Inc. “For example, PetSmart is rolling out Martha Stewart pet products by the end of Q2, and they also just announced an exclusive agreement with GNC to make animal vitamins and supplements,” said Storms. “It introduced for the first time nationally branded flea and tick products and advertised it heavily on national television, i.e., Frontline and Advantix.”
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Sears Tries Grocery Delivery, Because Anything Goes as Eddie Lampert Flails About
In the never-say-die world of Sears Holdings, the latest brainstorm involves… home delivery of groceries. However dicey that may sound, failure will only drive the company to try something — anything! — else as long as it can be done on the cheap. Sears is testing home grocery delivery in Manhattan and the Hamptons, and will soon extend it to Chicago and other points west. The trial effort is an extension of an initiative launched last year, known as MyGofer, which allows consumers to purchase a variety of general merchandise and food products on the Internet, then pick them up at Kmart stores — at least for the most part.
UNFI Completes SDG Acquisition
United Natural Foods, Inc. (UNFI) has completed its previously revealed acquisition of the Canadian food distribution assets of the SunOpta Distribution Group business (SDG) of SunOpta, Inc., for a total amount of about CDN $68 million in cash. With the completion of the transaction, the acquired SDG business is now a wholly owned subsidiary of UNFI, operating as UNFI Canada. Founded in 2002, the Canadian operations serves about 6,000 customer locations with 15,000 SKUs and five distribution centers employing state-of-the-art technology. Toronto-based UNFI Canada is that country’s largest distributor of organic, natural, kosher and specialty foods.
GE Capital Provides Restructuring Loan for Bi-Lo
GE Capital on Wednesday announced that it had agented a $150 million credit facility for Bi-Lo.The loan, previously disclosed as part of Bi-Lo's plan of reorganization, will provide working capital and support as the retailer exits from Chapter 11 bankruptcy protection.
Bubble Chocolate Arrives at Duane Reade
One of the latest chocolate innovations now is available at 250 Duane Reade locations. Aerated chocolate brand Bubble Chocolate announced that Duane Reade is selling both dark and milk chocolate bars in more than 250 locations. "In nine months Bubble Chocolate has gained incredible distribution throughout North America, and getting our bars into Duane Reade confirms that Americans are ready for aerated chocolate," said Paul Pruett, CEO of Bubble Chocolate. "The positive feedback from buyers and consumers is so exciting and we expect that this brand will continue to grow exponentially."
Home Improvement/Auto Repair
Billy Busko
Pep Boys Declares Quarterly Dividend
The Pep Boys – Manny, Moe & Jack, the nation’s leading automotive aftermarket service and retail chain, announced that its Board of Directors approved the payment of the next quarterly dividend of $0.03 per share payable on July 26, 2010 to shareholders of record on July 12, 2010. The annual dividend of $0.12 per share currently yields approximately 1.2%.
AutoZone Authorizes Additional Stock Repurchase
AutoZone, Inc., today announced its Board of Directors authorized the repurchase of an additional $500 million of the Company's common stock in connection with its ongoing share repurchase program. Since the inception of the repurchase program in 1998, and including the above amount, AutoZone's Board of Directors has authorized $8.9 billion.
Housewares/Furniture
Billy Busko
Pier 1 Records Profit in First Quarter, but Net Falls
First-quarter net income for Pier 1 Imports totaled $7.7 million, down 74 percent from net income in last year’s first quarter. According to a company statement, last year’s first-quarter net of $29.3 million resulted largely from a gain of $47.8 million from the repurchase of debt. Pier 1 actually recorded an operating loss of $26.7 million in the first quarter of last year, compared to operating income for this year of $8.3 million. The retailer managed to trim selling, general and administrative expenses by 4.3 percent, and boosted its gross margin by 719 basis points to 37.4 percent. Pier 1’s net sales finished the first quarter at $306.3 million, up 8.9 percent over the first quarter of last year. This included an impressive 14.3 percent pickup in same-store sales.
Williams-Sonoma Sees Permanent Change in Consumer Behavior
Williams-Sonoma Inc. believes the recession has recalibrated consumer attitudes about how they shop, and the company is repositioning the pricing of key merchandise categories and items. "Above all, we believe the consumer's focus on price and value will endure long after the economy begins to recover," evp and chief marketing officer Pat Connolly told attendees at the William Blair 30th Annual Growth Stock Conference here this morning. The company continues to work on reducing store costs, a plan that will entail shuttering some units, renegotiating leases on others and experimenting with smaller stores, he said. The Pottery Barn nameplate is driving traffic through opening price point goods, and its West Elm brand is expanding opening price points along with its assortment of non-furniture product.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
FIFA Hits Back at Bavaria after Ambush Marketing Stunt
FIFA has filed criminal charges against Dutch beer brand Bavaria for ambush marketing at a World Cup game on Monday. Football’s international governing body filed with the South African Police Service after 36 female supporters were ejected from the Holland v Denmark game for wearing orange mini-dresses that were believed to be part of a campaign for the brand. FIFA is very protective of the rights of sanctioned sponsors to market exclusively at World Cup games and has vowed to come down hard on rival brands’ attempts to highjack the tournament.
Lifetime Brands Retires $49.9 Million Convertible Notes
Lifetime Brands, Inc., North America's leading resource for nationally branded kitchenware, tabletop and home decor products, today announced it has agreed to purchase, in privately negotiated transactions, $49.9 million principal amount of its 4.75% Convertible Senior Notes due July 2011. The purchase price was at 100.25% of the principal amount plus accrued interest and was funded with borrowings from the recently completed new credit facilities. Prior to the purchase, the Company had outstanding $74.0 million principal amount of the Notes. The Company will recognize a one-time, non-cash pre-tax charge.”
Lifetime Brands Retires $49.9 Million Convertible Notes
Lifetime Brands, Inc., North America's leading resource for nationally branded kitchenware, tabletop and home decor products, today announced it has agreed to purchase, in privately negotiated transactions, $49.9 million principal amount of its 4.75% Convertible Senior Notes due July 2011. The purchase price was at 100.25% of the principal amount plus accrued interest and was funded with borrowings from the recently completed new credit facilities. Prior to the purchase, the Company had outstanding $74.0 million principal amount of the Notes. The Company will recognize a one-time, non-cash pre-tax charge.”
Will Last Century’s Styles Open Today’s Wallets?
For some clothing brands, the summer of 2010 looks a lot like the summer of 1910, and 1949, and 1957 — basically, any time but now. Eddie Bauer is reintroducing jackets that the company supplied to World War II pilots and 1950s mountaineers. Jantzen’s ruffled halter bikini is modeled on a pin-up-girl style it sold in the 1940s. Sperry Top-Siders is selling white buck shoes based on archival pieces. And L. L. Bean has revised a hunting shoe that a 1914 catalog sold with the warning “You cannot expect success hunting big game if your feet are not properly dressed.” Brands are combing their archives in the hope that old clothing styles with a classic feel will assuage consumer anxiety in shaky times. With some Americans feeling as if they can’t trust government, Wall Street or big business, the brands are betting their heritage lines will evoke memories of better times — and help pry open shoppers’ wallets. “We’ve been through a very unsettling time, and it’s when people are discontent with the present that they really start appreciating or having a nostalgia for the past,” said Nigel Hollis, chief global analyst for the market research firm Millward Brown. “Marketers are seeking to tap into that.”
Rachel Zoe to Design Clothing
It was only a matter of time before Hollywood stylist Rachel Zoe launched her own design career. After all, the perpetually bronzed, blonde, stick-thin stylist has already added a slew of slashes—reality TV star (her Bravo show, The Rachel Zoe Project, airs its 3rd season in August), newsletter purveyor, scribe (of the tome "Style A to Zoe"), and consultant (for the likes of Piperlime)—to her title. Zoe is gearing up to debut The Rachel Zoe Collection in partnership with LF USA, a subsidiary of Li & Fung Ltd. The label will not only include shoes and other accessories, but clothing "with the possibility of home down the line," says Women's Wear Daily. It's slated to hit both boutiques and department stores, as well as online shops, come Fall 2011.
Jewelry/Mining
Mark Lenz
Signet Produces Solid 1Q Financials
Signet Jewelers' U.S. retail division, Sterling Jewelers, was the star operating entity for the company during the quarter ended April 2010. U.S. sales rose by almost 7 percent and operating profits surged by nearly 62 percent. Here's what is most impressive about their first quarter performance: Virtually all financial metrics at Sterling showed improvement. Its financial gains were not driven by just one or two factors. Rather, a large number of factors--none of which showed dramatic improvement--came together to generate a solid broad-based gain for Sterling and Signet.
Consumers Pick Costco for Value and its Quality of Jewelry
A new study by the Consumer Reports National Research Center found that the world's largest retailer was not necessarily the favorite place to shop in the U.S. For its July 2010 issue Consumer Reports Magazine surveyed 30,666 subscribers on the best places to shop and while Walmart is often cited for having "low prices," consumers found prices at least as good at JCPenney, Sears, Dillard’s, Meijer and other stores. Overall, consumers cited Costco as offering much "better than average" for value. Costco, which sells diamond jewelry in the mix of household products and furnishings, was found by consumers to have "rock-bottom prices" and the warehouse store was praised for offering the best "bang for the buck." Costco also earned high marks in the survey for watch and jewelry quality among other items.
Providence Chain Co. Forced Into Receivership
A sixth-generation manufacturer of gold and silver chains has been forced into receivership, a form of corporate bankruptcy, after the company's bank learned that $7 million worth of raw materials is currently missing from the facility and unaccounted for. According to documents filed June 7 in Rhode Island Superior Court in Providence, R.I., lender RBS Citizens, N.A. (formerly known as the Citizens Bank of Rhode Island) filed a petition to force Providence Chain Co. into receivership--a legal action in which the court appoints a receiver to run a company's affairs--after counsel for Providence Chain told the bank on June 4 that it "was short" about $7 million worth of precious metals inventory that it had received on consignment from Mitsubishi International Corp. The court granted the bank's request for receivership the same day, appointing Providence attorney Allan Shine as temporary receiver. A hearing for the appointment of a permanent receiver is scheduled for June 22.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
A.C. Moore Arts & Crafts Names Joseph Jeffries CEO
A.C. Moore Arts & Crafts Inc. said its interim CEO has been hired permanently. Joseph A. Jeffries, who had been acting CEO since March 31, takes over the top spot, effective June 17. Jeffries, 45, has been with the retailer since late 2007, serving most recently as executive vice president and chief operating officer. Before joining A.C. Moore, he’d been a senior executive at Office Depot Inc., serving as vice president of store operations, store planning and visual merchandising.
Craft Shop Family Buys Up Ancient Bibles for Museum
At least one example of the printed word is in great demand even in the digital age: ancient Bibles. With a goal of establishing a national Bible museum of great depth and size, the evangelical Christian family behind the Hobby Lobby chain of craft stores has been spending heavily to amass a collection that has set dealers buzzing in the staid world of rare books. Specialists estimate the family has bought illuminated, or decorated, manuscripts, Torahs, papyri and other works worth $20 million to $40 million from auction houses, dealers, private collectors and institutions, some of which may be selling because of financial pressure.
Toys ‘R’ Us Offers a Holiday Savers Club
Toys “R” Us is counting on an Eisenhower-era tactic to get consumers to spend this Christmas. The toy retailer will begin offering a “Christmas Savers Club” on Wednesday that allows shoppers to put money away with the company for holiday gifts. Toys “R” Us in Times Square. The chain is setting up a “Christmas Savers Club,” in which customers set aside holiday money. Participants will receive a card similar to a gift card, and can contribute funds to it through cash or credit card payments. As an incentive Toys “R” Us will add 3 percent interest on the balance. The program is a throwback to what banks and credit unions offered in the 1950s and 1960s before credit cards allowed people to spend money they did not have.
Restaurants/Food Service
Mark Boucher
Storm Clouds on McDonald's Horizon?
The University of Michigan's Ross School of Business released its American Consumer Satisfaction Index this morning and, among many other things, it noted that McDonald's was the only fast food company to post a decline in customer satisfaction. It was an ironic finding, given the chain's booming sales. The survey noted that economic concerns are driving customers to the chain, but they're not satisfied with it. "These new customers seem less satisfied," the report said, "and were it not for the economy some of them would rather eat somewhere else." The danger: Those customers may leave once they feel comfortable enough spending money at a more expensive restaurant.
Luby's To Pay $61 Mln In Cash For Fuddruckers, Magic Brands
Luby's Inc. said it will buy most assets of burger chain Fuddruckers Inc., its parent Magic Brands LLC and their affiliates for about $61 million in cash. Shares recently traded at $4.02, up 5%. The stock has lost 7% in the past year. The cafeteria chain also will assume some of Fuddruckers' obligations, real estate leases and contracts. It will pay $2.45 million more in cash if it does not assume some contracts. Texas-based Luby's, which has 96 restaurants, bought the assets in an auction Thursday. Fuddruckers filed for Chapter 11 bankruptcy protection in April, saying that would ease the company's sale to private-equity firm Tavistock Group for $40 million. Fuddruckers operates 60 namesake restaurants and three Koo-Koo-Roo locations, while franchisees operate 138 more Fuddruckers sites.
Good News for Family Dining?
Here's some good news if you're running a family restaurant and are wondering where the customers are: A survey from the consulting firm Technomic found that budget-conscious consumers have not forgotten about the segment and its low price points. More than two-thirds of respondents said in the survey that it's highly likely they'll go to a family restaurant when they want an affordable sit-down meal. Nearly three-quarters said they visit once a month. So far, with the possible exception of IHOP, these numbers haven't translated into positive comp sales for family dining chains, many of which are struggling. But at least consumers aren't ignoring the segment.
Robin Investors Up Stake, Reiterate Board Plans
Investors in Red Robin Gourmet Burgers Inc. upped their holdings in the casual-dining company and reiterated plans to add board members and search for a new chief executive. The push for corporate influence among activist investors at Red Robin is just the latest in the restaurant industry. Most recently, the chief executive of Denny’s Corp. resigned after an investor-led proxy fight at the Spartanburg, S.C.-based company. Prior to that, the chief executive at Nashville-based O’Charley’s Inc. resigned from his post at the company, which has long been involved with Crescendo Partners, an investment firm that holds a significant share of the casual-dining company and a handful of board seats. Red Robin and the investor group, made up of firms Clinton Group Inc. and Spotlight Advisors LLC, came to an agreement in March that Red Robin would search for a new chief executive to replace Dennis Mullen and add three directors nominated by the investor group, including industry veterans Robert Aiken, Lloyd Hill and Stuart Oran.
Banking & Lending
Douglas Stebbins
Debit-Card Fee Debate Could Cost Consumers
Most shoppers don't realize they are in the middle of a heated debate over the fees merchants pay to banks on debit-card transactions, but the outcome may bring steeper costs and fewer rewards for consumers. If a proposed bill to curb merchants' costs becomes law, consumers might find their debit cards come with new fees and less-generous reward programs. "Financial institutions will want to recoup revenues that are being legislated away," said Red Gillen, a senior analyst at Celent, a research and advisory firm to financial institutions.
One View on Financial Reform: 'Swipe Fees' Boost Your Costs at the Register
The U.S. government prints money, distributes it, replaces it when it gets old and guards against counterfeiters. No matter how many times a dollar changes hands, the government never charges a transaction fee. But in an increasingly cashless society, banks have found a way to undermine the government's costless money idea. By joining together under a few brands, most notably Visa and MasterCard, they have figured out how to take a cut of about 1% to 3% from retail transactions occurring in stores, restaurants, repair shops and other businesses, as well as online. All told, banks collect about $48 billion per year in "swipe fees," according to the National Retail Federation. Visa and MasterCard take a small cut of this. The rest goes to the banks that maintain the cardholder's account.
Bank Profits Rise, but So Do Bad Loans
The nation's banks keep looking for signs that they've turned the proverbial corner toward prosperity, and there may have been a few faint indicators in the first quarter that the worst days are behind them. But after more than two years of stress, it's probably still too early for many to relax, according to quarterly financial reports compiled by the Federal Deposit Insurance Corp. and analyzed by the Investigative Reporting Workshop at American University in Washington. Even though profits increased sharply, troubled assets continued to grow. According to the Workshop's analysis, 411 banks have a "troubled asset ratio" of more than 100, up from 389 banks at the end of December. In other words, they had more problem loans and foreclosed properties on their books than capital and loan loss reserves.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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