The Weekly Consensus: Week of July 12, 2010
Taxable Outcome
Betsy White
When it comes to the issue of taxing sales made to out-of-state customers, the search for a workable system has seemingly been around since Sears met Roebuck. The definitive Supreme Court case, Quill v. North Dakota in 1992, found that a state cannot require a seller with no physical presence or nexus in a state to collect sales tax on sales made to customers located in that state. However, the Court did leave the door open for Congress to pass new legislation to require remote sellers to collect sales tax – and last week, while most of us were preparing for a long July 4th holiday weekend, Congressman William Delahunt (D-MA), filed a proposed bill that would expand states’ rights to impose sales tax on out-of state purchasers. This being the 21st century, Mr. Delahunt’s bill is aimed squarely at shoppers on the Internet.
Of interest is that the legislation does not necessarily expand states’ rights to require payment of taxes, but merely changes the method and timing of collection. Currently, when a business or individual orders goods from an out-of-state seller and does not pay sales tax on the purchase, the buyer is generally required by state law to pay the uncollected sales tax, called a use tax, directly to the state. Shockingly, there is little compliance on the part of purchasers to self-assess use taxes.
Several states have tried an end-run around trying to collect taxes on sales made to in-state customers by out-of-state businesses. Businesses such as Amazon and E-Bay maintain “affiliates” in multiple states, and are required or are being pressured by states such as New York, North Carolina, and Colorado to either collect and remit sales taxes for sales made in those states (by re-defining nexus to include affiliates) or to turn over records of sales made to customers located in their states so the states can assess sales taxes on customers directly.
The current set-up of sales tax laws penalizes both “brick and mortar” and “brick and click” retailers at the expense of pure e-commerce retailers. In most states when you buy a book at Amazon.com, you will not pay sales tax. However, if you buy the same book at an independent bookstore, a Barnes & Noble store or on Barnes & Noble’s website, you will. Assuming that all outlets will sell you the book for the same price and you’ll qualify for free shipping, Amazon.com has a clear advantage, which increases as the value of your purchase (and cash/tax savings) rises.
To increase the likelihood and ease of implementing sales tax collections by remote sellers, beginning in 2000, 44 states and other interested parties began a process to create uniformity on sales tax collection efforts. The project, memorialized in the Streamlined Sales and Use Tax Agreement, has resulted in conforming legislation passed in 23 states, representing 33% of the US population. Under this agreement, the states are also looking to exempt smaller businesses that generate less than $100,000 in out-of-state sales. The passage of similar legislation in the remaining states is needed before the enactment of any federal legislation, particularly to ease the administrative burden on businesses, which today have to deal with multiple taxing jurisdictions and rates within each state.
Internet sellers are not so sure that streamlining will take place. The Computer and Communications Industry Association, a trade group, insists that the legislation will “place a huge burden on small online businesses to collect taxes for thousands of state and local tax jurisdictions.” But the bill has support from retailers and groups like Walmart, Home Depot, Costco, AutoZone, Target, IKEA, the International Council of Shopping Centers, Kohls, the National Governor’s Association and the National League of Cities.
Thus the battle lines are drawn. Whatever the outcome, it is clear that reliance on self reporting with no system of checks and balances is no system to collect taxes. It seems inevitable that when governments are aware of uncollected taxes, and are actually supported in their efforts to collect those taxes by many businesses (notwithstanding the opposition), Mr. Delahunt and his colleagues or their successors will ultimately prevail.
Apparel/Swimwear/Intimates
Betsy White
Bebe to Close PH8 Chain, Pay $1/Share Special Dividend
Bebe Stores Inc. said it plans to shutter its unprofitable PH8 chain as the women's clothing retailer looks to improve the results at its namesake operations and develop its 2b bebe concept. The company also announced fiscal fourth-quarter, same-store sales will likely come in at the low end of its prior forecast as bebe also disclosed plans to pay a $1 a share special dividend in the wake of it receiving payment for auction-rate securities previously tied up with UBS AG. The dividend will cost bebe some $86 million; it has about $350 million in cash and investments. Meanwhile, the closing of the 48-store PH8, which is known for edgy streetwear and workout apparel, comes as retailers are giving less time to developing new brands in the current retail environment. 2b, meanwhile, is an outlet concept and such lower-price locations have been a growth point for retailers.
London Firm Brings Hartmarx Back from Brink
Sales at the upscale Hickey Freeman menswear store are up nearly 40 percent from a year ago, and the store's owner is itching to open a Hart Schaffner Marx store, too. "The Chicago store has the largest year-over-year sales increase of all three of our stores," including one in New York and a second in San Francisco, said Doug Williams, president and CEO of HMX Group, Inc., the company that took over much of the assets of Chicago-based Hartmarx Corp. last August. Williams attributed the sales increase to shoppers noticing subtle tweaks and softenings in the clothing as well as a skilled sales team at the store. Shoppers will see even softer textures and suit structures this spring and next year, as HMX remakes traditionally bulletproof construction into "light-as-a-feather" suits with slimmer silhouettes and more textured fabric. Much of the assets of the former Hartmarx, a 125-year-old Chicago-based men's suit maker that made and tailored President Obama's suits for his inauguration, were sold last August to London-based Emerisque Brands in partnership with SKNL North America BV. If the deal had failed, Hartmarx, which was in bankruptcy, would have been forced into liquidation. The new owners formed HMX Group to operate the former Hartmarx assets.
Toddland: All Funny, Business
Fun stuff—Toddland is proving—is serious business. With its “Worst Gift in the Universe” sets of underwear and socks, sweats that say “super duper,” and funny T-shirts emblazoned with quirky phrases such as “Let’s die friends,” Toddland isn’t known for its serious approach to fashion. “We’re not cool; we don’t wear black,” said Todd Masters, founder of the nearly 2-year-old menswear line. Still, the Newport Beach, Calif.–based company is enjoying strong growth and earning plenty of kudos. An alum of brands such as Paul Frank Industries, Modern Amusement and Abercrombie & Fitch, Masters launched Toddland in 2009 to fill a niche. “There was a hole in the market for men, and [after leaving Paul Frank] I still wanted to make fun stuff,” he said. There was also a financial incentive. “This is what I love to do, but we are all in this business to make money.” Toddland is the result of leveraging Masters’ design and production savvy and retail relationships in combination with his offbeat sense of humor. “We make fun stuff for ourselves and our friends—and it sells,” he said.
American Eagle Promotes Apparel with Free Phones
American Eagle Outfitters Inc. is giving away smartphones to shoppers who try on the company's jeans, the latest aggressive promotion in a summer that has seen retailers experiment with deeper discounts after a disciplined start to the year. Teen retailers in particular have struggled against gadget makers for control of younger buyers' wallets. Since the recession, cash-strapped teens have opted to spend what little discretionary income they have on electronics, forcing retailers to compete heavily on price. Roughly 497,000 teens ages 16 to 19 found jobs in June, the lowest number of jobs added by teens since 1951, according to the Bureau of Labor Statistics. American Eagle has had a particularly difficult time finding its place in the teen apparel landscape. The Pittsburgh-based company has lowered its prices sharply in many categories, putting it in contention with bargain-priced Aeropostale Inc. It's a marked shift from prerecessionary times, when American Eagle was competing more closely with high-priced peer Abercrombie & Fitch Co. The chain's latest promotion runs from July 21 to Aug. 3. Customers who try on a new pair of jeans will receive an instruction card directing them to a website to select one of dozens of free phones, including the BlackBerry Bold, the Motorola Backflip and the HTC Aria—provided they agree to a two-year contract with either AT&T, Sprint-Nextel, T-Mobile or Verizon Wireless. The new device will be shipped to the customer along with a $25 American Eagle gift card.
Few High Points Among June's Tepid Retail Results
June retail sales were marked by tepid growth during a period when cash registers should have been ringing in strong sales, according to many Wall Street analysts. American chain stores reported an increase of 3 percent in June compared with the same time in the previous year, according to a compilation of 31 chain-store sales reports tracked by the International Council of Shopping Centers, a New York–based trade group. ICSC chief economist Michael P. Niemira called the month’s sales uneven. “The June performance was relatively uneven as lower prices and discounting held back the reported pace of spending,” he said in a prepared statement. Typical sales catalysts include weather changes and holiday weekends. The Memorial Day and Fourth of July weekends, which bookended the month of June, had many Wall Street analysts hoping for much better sales, said Liz Pierce, an analyst with Newport Beach, Calif.–based Roth Capital Partners. “It was not a blowout month, even with calendar shifts and hot weather,” she said. “It leads to increased uncertainty.” Retailers might be hoping to surf a big wave of more-robust retail sales during the upcoming Back-to-School season, Pierce said.
Athletic & Sporting Goods
Michael O'Hara
Could RVCA Be Next in Billabong's Buying Spree?
It has been a period of flux and regrouping for some of the biggest names in the surf industry, but Billabong International Ltd. has proved the exception as the company embarks on an ambitious buying spree. The Australian-headquartered surfwear brand, which maintains headquarters for its North American division in Irvine, Calif., last week made the largest retail acquisition in its 37-year history. The surf giant purchased the 138 stores of Canadian retailer West 49 Inc. for $99 million CAD. In May, it purchased Becker Surf & Sport, a five-store, core-surf boutique chain based in Hermosa Beach, Calif., for an undisclosed amount. Last November, the company acquired San Clemente, Calif.–based e-commerce boutique Swell. Billabong may not be finished shopping. It is widely rumored to be buying celebrated Costa Mesa, Calif.–based fashion brand RVCA. After several surf-industry publications and websites speculated on the rumor in the past couple of weeks, both Billabong and RVCA remain mum on the possible acquisition. (Neither company responded to requests for comment.) However, the possibility of an acquisition and new opportunities arising from the retail acquisitions have kept many analysts and surfwear watchers wondering what path Billabong intends to take with its properties.
Big 5 Sporting Goods Cuts 2Q Earnings View on Soft Sales
Big 5 Sporting Goods Corp. cut its second-quarter earnings guidance as it posted a surprise 0.5% drop in same-store sales. The regional sporting-goods retailer now expects earnings of 20 cents to 23 cents a share, compared with May's view of 24 cents to 30 cents. It had expected same-store sales to rise by the low-single digits on a percentage basis in the quarter. Big 5's same store sales increased 0.3% during the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008. In the year-ago quarter, it earned 22 cents a share.
Fire Sale: LeBron Jerseys Going Cheap in Cleveland
They’re almost giving away LeBron James jerseys in the city he left behind. All over Cleveland, No. 23 jerseys can be found at discounted rates as merchants look to get rid of their inventories for the superstar, who left the Cavaliers this week to play for the Miami Heat. At Dick’s Sporting Goods in Westlake, James jerseys have been reduced to $29.99 with the store offering a further 75 percent reduction. T-shirts and other merchandise with James’ face or number on it are also at bargain prices. Elsewhere, businesses are offering perks in exchange for James’ jersey. At McNulty’s Bier Markt in Ohio City, anyone turning in a James jersey or T-shirt got a free beer. Anyone with a T-shirt, hat or tattoo featuring another Cleveland sports star got a free second round.
Catalog & Internet
Christopher Ellis
Retailers Fight the Doldrums with Daring (and 3-D)
Never mind the store detectives that retailers hire to keep an eye on the customers. Maybe the industry needs a Sherlock Holmes or Jessica Fletcher type of detective to solve this most puzzling of mysteries: Will the latest signs of a weakening economy discourage consumers from spending money in the back-to-school, fall and holiday shopping seasons? Barneys New York is publishing a denim catalog with images in 3-D. Some retailers, particularly those that appeal to the well-heeled, are not waiting for Sam Spade or Nancy Drew to turn up. They believe that the Almighty — or the almighty dollar — helps those who help themselves and are planning elaborate efforts in the coming weeks to try stimulating demand.
My-Wardrobe Secures $9 Million Series A Lead by Balderton to Expand Abroad
E-commerce continues to provide a rich seam of businesses for European tech investors and this is represented today by a series A funding in an online retailer of ‘affordable’ designer fashion. My-wardrobe.com announced a $9 million Series A investment round led by Balderton Capital, the first institutional investor in the company, supported by existing angel investors. The site offers what it calls ‘accessible luxury’ womenswear and menswear ranges from over 180 of the world’s leading designer brands such as Mulberry, Polo Ralph Lauren, Paul Smith, and Joseph. In practice that means discounted items, but the difference is that my-wardrobe.com only sells current season collections.The company plans to use the capital injection to add more premium brands, improve the product and drive into international markets. So far it says it’s attracting over 800,000 visitors to the site every month, up 110 per cent from last year, and has had some success with “click-to-buy” video content. The company has 85 employees in London and Nottingham.
Consumer Electronics/Video/Audio
Douglas Stebbins
Apple Follows Retailer Push into China
Liu Chuanzhi, the founder and chairman of Lenovo, says his company—China's leading PC-maker, with 30% of the market—has been "lucky" that Apple hasn't been focused on China. Or in his own words: “We are lucky that Steve Jobs has such a bad temper and doesn’t care about China. If Apple were to spend the same effort on the Chinese consumer as we do, we would be in trouble.” That's all about to change, as Liu's remarks to the Financial Times were made on the eve of Apple opening its second store in China. Apple's gleaming new standalone retail outlet opens in Shanghai on Saturday just a stone's throw from the city's famed Oriental Pearl Tower in the Pudong business district. It joins Apple's first China store, located in Beijing's Sanlitun district.
Philips Taps Restructuring Expert as New CEO
Restructuring expert Frans van Houten will take over as chief executive of Philips Electronics (PHG.AS) next year as the Dutch group looks to boost profits at its healthcare and consumer electronics divisions. Van Houten, 50, made a name for himself by whipping the former Philips semiconductor unit NXP into shape. He was CEO of NXP when Philips spun it off in 2006 and stayed until 2008. "Frans is someone who is not afraid to take decisions, he has a certain vigour. He is someone who dares to make decisions, to set ambitious goals and who dares to take responsibilities," outgoing Chief Executive Gerard Kleisterlee told Reuters.
QuikTrip Stores to Rent $1 Movies
Iowa's access to cheap movie rentals should soon swell, thanks to a deal slated to bring Blockbuster Express kiosks to each of the 22 QuikTrip stores in the Des Moines area. NCR, the Ohio company that runs Blockbuster's kiosk business, on Tuesday announced plans to roll out new machines at 555 QuikTrip stores in nine states, including Iowa. The Tulsa, Okla., company recently ended a Dallas test run and hopes to have kiosks in place throughout the chain by the end of August, said Jim Denny, QuikTrip vice president of marketing.
Cosmetics & Pharmacy
Billy Busko
Rite Aid Shares Slip at Heels of Declining Comparable Sales
Rite Aid’s stock closed at just under $1 for the first time in more than a year on June 30, one day before the chain reported declining comparable sales. The stock value has been declining slightly ever since, closing at 93 cents on July 1 and 92 cents on July 2. “Overall, comps continue to be pressured by the weak consumer, less flu and allergy activity, increased competition — dollar stores, supermarkets, mass merchants, etc. — and Rite Aid’s efforts to improve liquidity, [including] inventory, expense, capex cuts,” wrote Ed Kelly, Credit Suisse research analyst, in a July 1 note. Rite Aid had dramatically reversed its stock performance from a low of 21 cents on March 5, 2009, and watched it steadily climb until the stock closed above $1 on May 11, 2009. The stock has closed at more than $1 since, a factor that allowed Rite Aid to maintain its listing on NYSE organically. Earlier in 2009, Rite Aid shareholders had approved a reverse-stock plan in an effort to prevent its delisting from NYSE.
Walgreens Toys with Fresh Food Idea
Walgreens is looking to make a bigger play in the fresh food market by testing this fall chilled foods at up to a dozen store locations. Walgreens spokeswoman Tiffani Washington told Dow Jones that the test would be limited to 12 locations; however, sources indicated that the test is likely occurring in as many as 50 locations in September in the Chicago area. Washington did say that the company may sell sandwiches, fresh cut fruit, soups and wraps. Earlier this year, Walgreens acquired Manhattan-based retailer Duane Reade, which has made headlines with its food initiatives. While Washington told Dow Jones that Walgreens was pondering fresh food before it acquired Duane Reade, there's no doubt that it will take some "learnings" from the regional chain.
Sales Rise in June for Walgreens
Sales at one of the nation's largest drug store chains increased 8.4% for the month of June. Walgreens disclosed its earnings for the month on Tuesday, stating that its $5.67 billion June sales were aided by Duane Reade stores, which contributed 3 percentage points to the total sales increase. Sales in comparable stores increased 2%. Duane Reade stores, however, are not included in any comparable store results. Meanwhile, June pharmacy sales also saw a positive gain of 6.8%, while comparable pharmacy sales increased 1.8%. The effect of calendar day shifts positively impacted comparable pharmacy sales by 0.2 percentage points. Comparable-pharmacy sales were negatively impacted by 1.9 percentage points due to generic drug introductions in the last 12 months and by 0.3 percentage point due to lower incidence of flu. Pharmacy sales accounted for 65.6% of total sales for the month. Total front-end sales increased 10.9% in June, including 5.1 percentage points from Duane Reade. Comparable-store front-end sales increased 2.2%. Customer traffic in comparable stores increased 2%, while basket size increased 0.2%.
Department & Discount Stores
Mark Lenz
Life's a Beach for Bloomingdale's New Smaller Store Concept in Santa Monica
First it was a slick 90,000 square foot space in the heart of SoHo. Now Bloomingdale’s (M) is hitting the beach in California — Santa Monica to be specific – for the company’s second toe-in-the-water test of smaller stores. Michael Gould, Bloomingdale’s chairman and CEO, thinks this will be the ultimate proving ground to roll out the concept, and if he’s right, retail may well be on its way to giving big box department stores the boot for good. Gould told WWD that in order to stay relevant with a new generation of shoppers, Bloomingdale’s is working to showcase well-edited assortments in an “environment that appeals to a significant community within the context of the character and DNA of Bloomingdale’s.”
Retail Surprise: Luxury Beats Discounters
Many investors and analysts had expected discount retailers to do well last month. At a time when the U.S. economic recovery appears to be slowing, it makes sense that shoppers would be looking for bargains. Apparently not. The most striking trend in June retail sales figures is by how much pricier department stores and luxury retailers beat expectations. Discounters, meanwhile, largely disappointed investors. Sales at Nordstrom jumped 14.1 percent at stores open at least a year, more than the 9.1 percent average estimate from Retail Metrics. Sales at J.C. Penney climbed 4.5 percent, compared with a 3.7 percent projection. Macy’s rose 6.5 percent, also topping estimates. Overall in June, same-store sales at department stores rose 5.9%, according to the International Council of Shopping Centers, and same-store sales rocketed 8.8% higher at luxury chains. Discount stores, meanwhile, saw sales rise 2%.
U.S. Retailers Pushing to Expand Overseas
As Americans' love affair with shopping cools, retailers are venturing overseas in search of growth. Bloomingdale's and Crate & Barrel each opened their first store outside the U.S. in Dubai this year. Abercrombie & Fitch just opened its first store in London. Sears has begun shipping tools and clothing to 90 countries. Macy's is looking at going into China. And Target, the discount chain that for a decade has resisted Wall Street pressure to expand internationally, revealed this spring that it wants to open stores outside the U.S. and is looking at Canada, Mexico and Latin America. Even Wal-Mart Stores Inc. — the retail behemoth that has been operating internationally since 1991—made clear at its annual meeting in June that it was counting on consumers outside the U.S. to make up for stalled sales at home.
Footwear
Michael O'Hara
Ernest Hemingway’s Son Approves New Footwear Line
The 82-year-old son of writer Ernest Hemingway says his famous father would approve of a new line of shoes named after the Pulitzer and Nobel prize-winning author that are divided into angler, literary and sportsman collections. Patrick Hemingway tried on a pair of loafers Friday at Schnee’s Boots and Shoes and says the best part is he can wear them without socks, and that his father also hated socks. Thomas Raymond & Co. is launching the Hemingway line of men’s footwear and plans to distribute them to 12 different retailers around the U.S. this fall. The Hemingway shoes are made in El Salvador using bison and calf hide and cost from $150 to $235.
Heelys Launches First Non-Shoe Product
Heelys, Inc. announced the launch of the patent-pending Nano, a footboard using Heelys' patented bracket and new 'Sole-Link' technology. The Nano was designed in house at Heelys and works by removing the wheel from one of the Heelys skate shoes and snapping the patented wheel bracket into the Sole-Link like a ski or snowboard binding. For use on a single foot, the board is designed to create the same sensations and freedoms felt while slalom skiing and wakeboarding. "Binding a single foot to the board allows for greater freedom to jump, grind, tumble and vault over different landscapes, similar to parkour or free running. Because of the hybrid way of skating and flexibility of tricks, we have started calling the sport Free Boarding," says Heelys CEO, Tom Hansen. "The Nano will appeal to this new base of users and give our existing Heelys wearers another way to enjoy their Heelys."
Vietnamese Footwear Exports Touch a High of $2.3 Billion
Leather and footwear exports for the first half of the current year, as compared to the corresponding period last year, have gone up by 10.9 percent, to touch US $2.3 billion. According to the Vietnam Leather and Footwear Association, during the period under consideration, US emerged as the leading importer, with a 28.9 percent share in total exports. A decline was noted in the exports to EU, as European Commission levied anti-dumping duties for importing leather-capped shoes, manufactured in Vietnam. At present, a majority of the footwear manufacturers have orders to suffice till last part of the year. Also, when compared to last year, this year the quantum of orders has gone up by almost 15-20 percent. Vietnam mainly exports sports shoes, cloth and leather shoes, and sandals to over 50 countries and terrains. Several companies counting Biti's, Vina Giay, and T&T have effectively developed their own brands.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Best Friends Opens Pet Resort at Disney
Pet lovers visiting Walt Disney World Resort in Florida now can plan to board the family pet in fun, luxurious new accommodations. Reservations are being accepted for pet-boarding stays beginning Aug. 27 for the new Best Friends Pet Care Resort. The resort is made up of more than 50,000 square feet of indoor and outdoor space, including 17,000 square feet of air-conditioned indoor space, 10,000 square feet of covered outdoor runs and play areas and a private dog park for the use of pet resort clients and their dogs. The facility will accommodate as many as 270 dogs and 30 cats for boarding. A selection of suite choices for dogs includes air-conditioned indoor rooms, 48-square-foot indoor-outdoor suites, and four suites with television, raised bedding and private outdoor yards. Feline guests will spend their visit in the separate "Kitty City" pavilion in two- and four-room condos.
Applejack Art Partners Declares Bankruptcy
Applejack Art Partners filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court District of Vermont, according to the Bennington Banner. The company's CEO, Jack Appelman, acquired Bruce McGaw Graphics in August 2009. The acquisition gave Appelman control over some images owned by the Disney Corp., as well as iconic images by artist Andy Warhol. The plan was to license McGaw artists under the Applejack Art name. "The company made some expansion decisions in the past few years which turned out to be improvident in light of the circumstances surrounding the purchases and the declining state of the economy," said Appelman in an affidavit. "It has recently received an offer for the purchase of a substantial part of its assets and operations which the company believes to be in the best interest of its creditors."
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Trader Vic's to Expand to India
Casual-dining and tiki bar pioneer Trader Vic’s said it has signed a franchise agreement that will see three of its concepts developed in India and Sri Lanka. The new franchisee group is a partnership of JSM Corp. Pvt. Ltd. of Mumbai, India, and Gourmet Gulf Co. of Dubai in the United Arab Emirates. The 75-year-old Trader Vic’s, which is based in Concord, Calif., operates or franchises 30 Trader Vic’s, Senior Pico, Mai Tai Lounge and Island Bar and Grill restaurants, including 16 locations overseas.Trader Vic’s joins a growing number of U.S.-based chains with restaurants in operation or under development in India, including Chili’s, Coffee Bean & Tea Leaf, Domino’s, KFC, McDonald’s, Pizza Hut, Subway, Taco Bell and T.G.I. Friday’s.
Larry King Signs on with Bagel Brand
Talk show host Larry King has signed on with the budding Original Brooklyn Water Bagel Co. concept both as a franchisee and brand promoter. The brand, which currently consists of a single unit in Delray Beach, Fla., that specializes in bagels prepared in water that has been adapted to replicate the water of Brooklyn, N.Y., said the Brooklyn-born King will support the brand in print, radio and online promotions. King, who recently announced that he would be leaving his long-running CNN talk show, “Larry King Live,” also will develop Brooklyn Water Bagel stores in the franchise territory of Southern California and is expected to open his first location in Beverly Hills. In addition, King has agreed to assist with the chain’s domestic and international franchise seminars and training, said Steve Fassberg, president and chief executive of Brooklyn Water Bagel.
Family Dollar Sales Rise, Stock Falls
Family Dollar Stores posted third-quarter sales and earnings gains, but investors sent the stock tumbling about 8% after the company reduced its earnings guidance for the year. The dollar chain is continuing to expand its selection of traffic-driving consumables and adding more national brands, however. "We are also leveraging stronger quality-control processes and investing to raise the quality of our private label, and we are protecting our strong price image and increasing our promotional efforts," said Howard R. Levine, chairman and chief executive officer. "While these investments have slowed the expansion of gross margin, they provide a platform for further top-line growth and position us well to expand our market share and deliver even stronger financial results."For the quarter net income rose 19% o $104.4 million, while sales, as previously announced, increased 8.4% to $2 billion, and comparable store sales jumped 7%; for the year to date net income rose 22.9% to $284.2 million and sales climbed 5.7% to $5.6 billion.
Kroger Raises $300M in Debt Sale
Kroger Co. raised $300 million through the sale of senior unsecured notes due in 2040. Proceeds from the offering were to be used for general corporate purposes, Kroger said in a prospectus filed with the Securities and Exchange Commission. The offering was rated as stable by rating agencies. The size of the deal was increased from an originally planned $250 million.
Home Improvement/Auto Repair
Billy Busko
Automakers Hold Line on Discounts as Sales Moderate
Automakers disappointed by June sales are extending discounts -- and in some cases modestly increasing rebates and enhancing loan terms -- on new cars and trucks to entice skittish shoppers. Light vehicle sales rose just 14 percent in June from depressed levels in June 2009. And demand dropped from May to June, taking some momentum out of the recovery and dashing hopes for a stronger second-half rebound. “We will see more generous incentives in July,” said Jessica Caldwell, senior analyst at Edmunds.com. Edmunds estimates July average per-vehicle incentives will be at or above the $2,600 level in June, said Caldwell. While inventories rose from July 1 compared to June 1 for most brands, they remain low by historical standards. That gives automakers room to be prudent with discounts, analysts say.
Fitch: Modest Upswing Likely for Home Improvement
U.S. spending on home improvement projects may rebound modestly this year as a gradually improving economy and a more stable housing market boost confidence, Fitch Ratings said. Fitch said the home improvement industry is showing early signs of a moderate recovery from a three-year decline. The ratings agency also cited early indications that homeowners are "somewhat more willing" to take on projects and purchases that are considered discretionary. Fitch projects home improvement spending to rise 3.5 percent this year. Near-term spending also may be boosted by congressional efforts to expand federal incentives for energy-efficient home improvement projects.
Housewares/Furniture
Billy Busko
FurnitureOrigins Buys Shadow Mountain
Shadow Mountain, the furniture company known for its rustic-inspired products, has been acquired by FurnitureOrigins. Terms were not disclosed. FurnitureOrigins, which describes itself as a “fully integrated furniture” resource, purchased Zocalo last year and the acquisition of Shadow Mountain, from previous owner First Capital, gives it another unit in the furniture business. Shadow Mountain, which holds licenses for Dick Idol and Woolrich, will continue to operate under its own name and former executives Chad Turney and Bob Eller, along with some of the company’s sales force, will be retained. Turney will be president and chief executive officer, and Eller vice president.
Helen of Troy Sets Records for First-Quarter Net, Sales
Helen of Troy broke its previous marks for net income and net sales in its fiscal first quarter. The company’s bottom line totaled $18.4 million, up 26.7 percent from the first quarter of last year, while net sales increased 11.3 percent to $160.2 million. The top-line results included a gain of 10.9 percent in sales from Helen of Troy’s personal-care segment and a pickup of 12.3 percent in sales from its housewares segment. The company’s results received a major boost from a 450 basis-point jump in gross margin, which finished the quarter at 45.2 percent. This and the gain in net sales helped offset a 25.1 percent increase in selling, general and administrative expenses.
Former Elder-Beerman Boss Rolls Out New Retail Concept
Fred Mershad, the former chairman, president and chief executive officer of Elder-Beerman Stores Co., knows the retail business. Through the years, Mershad has successfully overseen a number of different retail ventures, bringing Elder-Beerman out of bankruptcy and consulting a number of other companies. But his latest job, CEO of Brookfield-based Linens & More for Less, offers a unique challenge. This is the first company he is helping to build from the ground up. “It’s a lot different to do a start-up than to go into an operating, existing company,” Mershad said in a recent phone interview. By being with the company from the beginning, Mershad has helped craft all aspects of the company. The company is lean by design, with only 15 employees in the corporate office, and has no debt. Mershad said this will help the business grow, and he will add personnel as needed.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Li & Fung Signs Seven Deals
Blue-chip consumer-goods trading firm Li & Fung Ltd. said Thursday it signed seven deals, including three acquisitions totaling around US$140 million, in the past few months. The company, which sources products for U.S. clients such as Wal-Mart Stores Inc. and Abercrombie & Fitch Co., has been on the lookout for acquisition targets in the U.S., Europe and Hong Kong as part of its plans to expand beyond its core sourcing operations and into higher-margin businesses such as retailing and brand licensing. The company said in a statement it bought Hong Kong-based Jackel Group, which handles cosmetics packaging, fragrances and other personal-care products, in May. Li & Fung said the acquisition will complement its existing health, beauty and cosmetics business. In June, Li & Fung acquired Hong Kong-based jeanswear maker HTP Group in a bid to strengthen its capabilities in denim sourcing. That same month, Li & Fung bought all the assets of Cipriani Accessories Inc. and affiliate The Max Leather Group Inc., which are design and distribute men's and women's accessories in the U.S., Mexico and Canada.
Stars Take a Broader Interest in Building Brands
Beyond simply taking fees to endorse products and star in ads, celebrities increasingly are looking for broader agreements that offer a bigger piece of the action. People in the endorsements business say the trend is being driven by the growing sophistication of consumers, who are becoming skeptical of celebrity pitchmen. "The deeper relationship, that has more authentic layers to it, helps validate the relationship" in the eye of consumers, says Steven Lashever, co-head of the commercial-endorsement division at Creative Artists Agency, a Hollywood talent agency. These types of deals, says Mr. Lashever, are the "next wave of the merging of celebrities and brands." In a similar deal earlier this year, Lady Gaga was named chief creative officer of Polaroid, recently acquired by a venture led by Gordon Brothers Brands LLC and Hilco Consumer Capital LP.
Gaiam Inks Deal with Travel Channel
Gaiam announced Thursday a new exclusive home video license agreement with Travel Channel. Under the two-year agreement, Gaiam will be the exclusive home video distributor for Travel Channel programming, providing Gaiam the opportunity to manufacture, distribute and sell DVDs via traditional retail, direct and home shopping channels as well as digitally on the Gaiam website. "We are thrilled to begin working with such an innovative and forward-thinking entertainment group such as Travel Channel," said Gaiam president of entertainment and worldwide distribution, William Sondheim. "We're confident that our expertise and established distribution relationships will continue to grow Travel Channel's well established presence in the home entertainment market."
Jewelry/Mining
Mark Lenz
Jewelry TV Positioned for Return to Profitability
Jewelry Television has completed a $60 million equity deal with a Singapore-based company that positions the Knoxville-based jewelry and gemstone retailer to go public and operate profitably. The investment gives Gems TV Holding Limited, which shut down a competing home shopping network earlier this year, a 32.7 percent shareholding interest in Multimedia Commerce Group, parent company of Jewelry Television. In addition, Jewelry Television was granted a three-year extension of its bank credit agreements, which the company said will help fuel its return to profitability and preparation for a public offering.
Gitanjali to Open 500 Jewelry Stores in World's Biggest Gold-Buying Nation
Gitanjali Gems Ltd., India’s biggest jewelry retailer, plans to open about 500 stores by the end of the financial year as it seeks to tap demand in the world’s biggest gold-buying nation. The company plans to add 300,000 square feet of retail space in the year through March 31, up from its current 1 million square feet, Mehul Choksi, chairman of Gitanjali, said in a telephone interview from New Delhi. The company also plans to expand in China and the Middle East, he said. The retailer is expanding in Asia’s third-biggest economy as economic growth and rising incomes raise demand for gold and diamonds, especially for use at weddings and religious festivals, such as the Akshaya Tritiya holy day when many Hindus buy gold.
Polished Diamond Prices Higher in June
Global polished diamond prices continued their recovery in June, extending a trend that began near the end of 2009. The IDEX Online Global Polished Diamond Price Index stood at an average of 117.2 for the month of June 2010. This was 7.7 percent higher than a year ago (June 2009), and 0.6 percent higher than the average for May. While these percentage increases in polished diamond prices are above long-term historic trends, they represent gains that are reasonable in a recovery cycle, such as the industry is currently experiencing.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Borders Group CEO Bennett LeBow Moving to Boost Ownership
The tobacco executive and investor who became CEO of Borders Group Inc. last month is positioning himself to gain more control of the Ann Arbor-based book store chain. Bennett LeBow is moving to acquire a stock purchase warrant giving him the right to purchase an additional 35.1 million shares of the company's common stock, according to a news release. He bought 11.1 million shares, or 15.5 percent of the company, in May and was appointed CEO and chairman in June. LeBow, the company's largest individual shareholder, has not yet spoken to the media or said anything publicly about his vision for the struggling company. But he's widely considered an activist investor. If LeBow acquires 35.1 million additional shares, Borders shareholder and New York hedge fund Pershing Square Capital Management would receive an additional 8.6 million warrants, giving it 26 million total.
Barnes & Noble Banks on Digital
Barnes & Noble is betting big on digital—it plans to invest $140 million in digital initiatives in 2011. The retailer says it has the data to back up the financial commitment. For example, over 25% of consumers who own the retailer’s Nook e-readers are new to BarnesandNoble.com and Nook buyers increased their combined physical and digital weekly spending by 17% after purchasing the e-book reader. Barnes & Noble executives provided the data to investors last week in a presentation outlining and supporting the retailer’s digital strategy. BarnesandNoble.com Inc. says it now has 15 million BN.com accounts and 7 million unique monthly visitors to its e-commerce site. When it comes to digital, Apple Inc. also is aiding the book retailer’s growth. 2.4 million consumers have downloaded Barnes & Noble e-reader apps from iTunes that allow readers to download e-books from the retailer, the company says.
Office Depot Loses Local BBB Membership
Office Depot has lost its membership in the Better Business Bureau of Southeast Florida. The BBB on June 16 revoked Office Depot’s membership after the company settled a pricing dispute with the state of Florida. Earlier in the month, Florida Attorney General Bill McCollum said his office negotiated a settlement with Office Depot over allegations the Boca Raton-based company (NYSE: ODP) overcharged government agencies for office supplies. As part of the deal, Office Depot agreed to pay about $4.5 million in refunds to eligible customers.
Restaurants/Food Service
Mark Boucher
A Few Notes about Bravo Brio
Bravo Brio Restaurant Group, the Ohio-based company that earlier this month filed papers to sell $172.5 million in shares on the public markets, has seemingly withstood the recession quite well. The company's two chains, Bravo Cucina Italiana, and Brio Tuscan Grille, have both expanded in recent years, adding a total of nine restaurants last year. Revenues have grown on average of 12 percent a year and the company is planning another 45 to 50 restaurants over the next five years. Yet Bravo has also lost money annually, including $8.2 million last year. And the restaurants themselves have hardly avoided the recession's impact -- comp sales fell 7.4 percent companywide last year thanks to an 8.2 percent drop in guest counts. While the company has improved on those numbers so far this year, they still look little different from the casual dining sector as a whole and may make its stock a difficult sell on the open market.
Uno Restaurant Holding to Exit Bankruptcy
Uno Restaurant Holding Corp. won approval of its bankruptcy reorganization plan, according to documents filed this week in the U.S. Bankruptcy Court of the Southern District of New York. The plan would allow the Boston-based company, which is parent to the 168-unit Uno Chicago Grill, to exit Chapter 11 bankruptcy about six months after seeking protection from creditors. The company filed for Chapter 11 in January. Uno attorney Joseph Smolinsky of Weil, Gotshal & Manges LLP, said that as part of the reorganization plan, holders of some $142 million in senior secured debt would obtain all of the stock in the reorganized company and unsecured creditors could recover about 13 cents on the dollar. Total debt would fall to about $40 million, from about $180 million.
Moe's to Roll Out New Prototype
The 406-unit Moe’s Southwest Grill is introducing a new prototype, in time for the 10th anniversary of the fast-casual Mexican chain, a company spokeswoman said. The redesign, which will be incorporated into the design of 34 new Moe’s restaurants this year, will include new furniture, signage, more sustainable equipment and a warmer color scheme in the dining room, said spokeswoman Lauren Barash. “All of the new locations will have this new updated look and some of the existing ones will be retrofitted,” she said. “This is the 10th year of business for Moe’s, and we thought it was time for an upgrade. The idea was to get a cleaner, neater, brighter look that’s more sustainable and easier to maintain in terms of the equipment.” Barash did not offer details on the cost of implementing the redesign, saying it would depend on the “level of what [the operator] decides to do and whether it is retrofitted or built brand-new.”
Can O'Charley's Find a Recipe for Success?
O'Charley's, the Nashville-based restaurant chain battling dozens of competitors for casual diners' dollars, has gone through two CEOs, a host of menu changes and a couple of rounds of corporate cost cutting in a bid to stay relevant and profitable. So far, it has been an uphill battle for the chain.Many customers say the chain has lost ground in the past three years in all the areas that determine where people like to dine out: food quality, value for the dollar, perceived reputation and service. Throw in that little matter of declining sales during the U.S. recession and you can begin to understand why no one has managed to stay in the corner office long enough to keep the CEO's chair very warm. The latest top executive to depart was Jeff Warne, who left as CEO a month ago. "When the team is losing, the coach gets fired," said Bryan Elliott, a restaurant stock analyst with Raymond James and Associates.
Banking & Lending
Douglas Stebbins
Private Equity Investors Take a New Look at Retail, but Will Likely Remain Cautious
After taking a beating in 2009, private equity firms are once again in the market prowling for retail buyout opportunities. But while private equity players might once again be looking to the retail sector to generate returns, don’t expect the volume of deals to come anywhere close to the levels seen at the peak of the market, in 2006, industry sources say. For one thing, private equity firms have cash on hand, but securing acquisition financing remains difficult. A major driver of the last buyout wave was that buyout debt could be securitized in collateralized loan obligations. In 2009, CLO issuance in the U.S. totaled $26.5 billion, the lowest volume in more than 10 years, according to Moody’s Investors Service. It’s only been in recent months that the CLO market has started to pick up. Since leverage is central to generating the returns private equity firms are pursuing, a robust credit environment is central to a lively takeover market.
Sam's Club will Offer Small Business Loans
Sam's Club announced it will offer small business loans of up to $25,000 to its small business members. The division of Wal-Mart Stores Inc., which is based in Bentonville, Ark., is testing a program with Superior Financial Group, one of 13 federally licensed nonbank lenders, and will offer $5,000 to $25,000 loans to members who qualify. Sam's Club says 15 percent of its business members reported they were denied a loan in a November survey. That's up from 12 percent in April 2009. The program will focus on minority-, women- and veteran-owned businesses. Sam's Club members who apply for a small business loan during the pilot will receive $100 off the application fee, a 20 percent discount and a discount on interest rates.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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