The Weekly Consensus: Week of July 26, 2010
Alternative Energies
Billy Busko
Back in January of this year, the National Retail Federation (the “NRF”) projected that 2010 retail industry sales would increase 2.5% over 2009. The NRF believed the housing market and employment were showing positive signs, which would lift consumer confidence throughout the year. This is in comparison to the decline in retail sales of 2.5% in 2009.
The consensus is that the first four months of the year showed results in keeping with NRF’s expectations. However, according to a Bloomberg News survey, retail sales fell 0.3% in June after a 1.2% drop in May. Bloomberg also reported that economists on average had trimmed their expectations for increased 2010 consumer spending from 2.5% to 2.4%. Ongoing high unemployment, the waning stock market and a dragging housing market were to blame.
So what are retailers doing about this? Traditionally, retailers would try to capture more sales by increased advertising, reducing prices and/or opening more stores. However, some have found that advertising is too splintered today, most slashed prices in 2008 and 2009 and don’t want to repeat the loss margin pain and many believe that the US market is overstored.
There are leading retailers today who are using their energies in alternative ways to maintain sales or attract incremental sales. Wal-Mart’s Sam’s Club is perhaps the most daring by acting as a lending institution through assisting its customers in obtaining SBA loans of up to $25,000. This is timely as SBA loans fell in June to their lowest point in decades. The reason being the recent expiration of stimulus measures, largely a decrease in government guarantees from 90% to 75%.
As government programs have come to an end, some of which will be extended, but others not, Sam’s and others are doing what they can to enhance the shopper’s spending ability. Target has given shoppers with Target-branded credit/debit cards discounts of 5% of purchases. Toys “R” Us, which has filed to go public and wants revenue momentum behind this, has created a holiday fund program where it contributes an interest payment to these “toy savings.” Staples and Office Depot are battling it out over customers by offering products at a penny or no cost at all.
Will these retail stimulus plans drive sales today? Most likely, yes. The real questions are whether customer loyalty is being created and what’s the long-term impact to sales and margins? Just like the energy crisis, it’s all about sustainability.
Apparel/Swimwear/Intimates
Betsy White
Wal-Mart's U.S. Apparel Chief Resigns
The Walmart U.S. apparel chief, Dottie Mattison, has resigned, marking the third turnover at the retail giant's largest division in less than one month, a company spokeswoman said. Struggling with slow clothing sales, Wal-Mart Stores Inc. in June split Mattison's responsibilities, assigning her to oversee brand merchandising, product development and sourcing, while Lisa Rhodes was put in charge of merchandising for such categories as jewelry and women's apparel, company spokeswoman Melissa Hill said. Apparel accounted for about 10% of Walmart U.S.'s $258.2 billion in sales, or about two-thirds of the company total, in the year ended Jan. 31, the Bentonville, Ark.-based company said in a regulatory filing. That was down from 11% in the previous year. Rhodes will now oversee the entire U.S. apparel operation and lead the company's apparel office in New York. Mattison previously reported to Chief Merchandising Officer John Fleming, who also resigned this month. The announcement of Fleming's departure came just days after Walmart U.S. Chief Executive Eduardo Castro-Wright said he was leaving his post to attend to his ill wife.
For This Job, No ‘Uglies’ Allowed
From the relentless attacks on American Apparel, you might think we’re witnessing the greatest civil rights violations of our time. At issue: The trendy fashion chain store retailer won’t let its employees pluck their eyebrows. Or wear hair gel. Or slip on gladiator sandals. American Apparel strives for the “girl next door” look and its dress code demands that workers fit the brand. It also unapologetically pushes the “sexually available right now look,” based on suggestive poses in its print and online advertising. Leading the charge that the company won’t hire “uglies” is the popular gossip site Gawker.com, which has published company e-mails instructing managers to micromanage their employees’ hair-care products: “Please keep in mind that American Apparel is a retailer that celebrates natural beauty. We encourage employees to feel comfortable in their natural skin and natural state. This aesthetic is a part of the company image; as we do not Photoshop our advertisements and our models appear in their natural state, it’s important that this image is cohesive in the stores.”
Snoop Dogg Shutters Clothing Line
After two years in stores, Rich & Infamous is kaput. Nothing, not even a rapper's lifestyle clothing company, is safe from the recession. WoooHaHa reports that Snoop Dogg's Rich & Infamous clothing line has reportedly been shut down after two years at retail carriers. Snoop himself had talked about the economic crisis having an effect on his apparel brand last year and he spoke of keeping prices down. The line initially launched in the summer of 2008, but Snoop and company have officially suspended all online sales of the clothing company and shut down the Rich & Infamous online store and website. No official plans have been set to relaunch the line or if Snoop plans to permanently shut it down. Snoop even stopped wearing Rich & Infamous gear in public, which set off alarm bells that something was amiss or afoot with his line.
Teen Wasteland
The kids are not alright. Teenagers -- traditionally some of the most resilient consumers of discretionary goods like apparel -- are not spending at their usual robust rate this summer, hampered in large part by a lack of cash amid the worst job market since the late 1940s. The latest evidence of teenagers not spending: heavy markdowns at the retail chains that cater to them. So far this month, the average price of an item of clothing sold at teen mainstay Abercrombie & Fitch has tumbled more than 40 percent from last month. Teens’ dismal unemployment rate, which soared to its highest level in June in 59 years, appears to be taking its toll at the mall, forcing markdowns on retail trendsetter Abercrombie as it tries to lift sales.That's an "alarming" rate that doesn't augur well for profits as teen retailers gear up for the crucial back-to-school season, he adds.
Liz Claiborne Inc. Announces Plans to Exit its Liz Claiborne Branded Outlet Stores
Following a comprehensive review, Liz Claiborne Inc. announced plans to exit its Liz Claiborne branded outlet stores in the United States and Puerto Rico. As a result of this decision, the Company expects the meaningful operating losses related to this business to be eliminated in early 2011 when this action is anticipated to be completed. The Company's other outlet stores in the United States and Puerto Rico for its Juicy Couture, Lucky Brand, Kate Spade and Kensie brands are not impacted by this decision.William L. McComb, Chief Executive Officer of Liz Claiborne Inc., said: "With the launches of the Liz Claiborne brand at JCPenney and Liz Claiborne New York at QVC -- both next month -- we're announcing today that we will be exiting our 87 Liz Claiborne branded outlet stores in the United States and Puerto Rico, the majority of which will be exited in the coming months."
Athletic & Sporting Goods
Michael O'Hara
Columbia Sportswear Reports 24% Surge in Q2 Sales
Columbia reported net sales of $221.8 million for the quarter ended June 30, 2010, an increase of 24% compared to net sales of $179.2 million for the same period of 2009, with 2 percentage points of that increase resulting from changes in foreign currency exchange rates. Second quarter 2010 net loss was $10.6 million, or 31 cents per diluted share, compared to net loss of $9.9 million, or $(0.29) per diluted share, for the second quarter of 2009. The company raised its outlook for full year 2010 net sales to increase 14 to 16% and maintained its outlook for operating margin of approximately 7%. The board of directors declared a quarterly dividend of 18 cents per share, payable on Aug. 26, 2010 to shareholders of record on Aug. 12, 2010. The company’s cash and short-term investments at June 30, 2010 totaled approximately $398 million with no long-term debt.
Sales No Stretch for Maker of Yoga Mats
As the region stumbles around in a recession hangover, Dean Jerrehian is an odd assemblage of calm, cheerfulness, and optimism for a guy making a living in one of the economy's hardest-hit sectors — manufacturing. He credits yoga. No, not his practice of it, though he does an impressive downward dog. Jerrehian's happy place is the result of an estimated 500,000 to a million people around the world trying to get to that place by stretching, meditating, and deep breathing while perched on the natural-rubber yoga mats produced by Jerrehian's JadeYoga in Conshohocken. Those mats now sell in 50 countries and account for half of his company's sales and revenue. The rubber is tapped from trees on plantations in Vietnam. How a rug company with Philadelphia origins dating from 1916 evolved into what is now a steadily growing (it is even hiring!) green business specializing in eco-friendly exercise mats is a story with a lesson Jerrehian said all business owners would be wise to heed: Never blow off a suggestion.
Cheerleading Not a College Varsity Sport, Judge Rules
Competitive cheerleading is too "underdeveloped" to qualify as a full-fledged sport for women under federal gender equality rules, and the university which proposed it discriminated against women, a federal judge in Connecticut ruled. In the 95-page ruling, U.S. District Judge Stefan Underhill said Quinnipiac University, located in Connecticut, had discriminated against women when it sought to eliminate the school's varsity volleyball team and create a competitive cheerleading squad in its stead. Universities are mandated under a federal statute called Title IX modified in 1975 to provide equal opportunity for men and women in athletics programs.
Catalog & Internet
Christopher Ellis
Google Makes it Easier to Track Mobile Clicks
Google has launched Mobile ValueTrack for advertisers to track clicks on mobile devices. "The ValueTrack parameter has long allowed you to track the clicks that you get via search and the Google Display Network separately," says Miles Johnson with Google's Inside AdWords crew. "We know that many of you would like to be able to see the clicks you get from mobile ads separately as well." The new mobile version works the same way as the other, adding a tag to the site's URL. To utilize the feature, advertisers can add the Mobile ValueTrack parameter to the destination URL field, when creating a text ad. Advertisers can use automatic re-directs to mobile optimized sites or third-party tracking tags. "Note that non-Google-ads traffic to your site won’t have the ValueTrack parameter, so it’s still a good idea to send all users to your mobile-optimized site," says Johnson.
Amazon.com Falls as Spending, Kindle Cuts Trim Profit
Amazon.com Inc., the largest Internet retailer, declined after a report showed price cuts on the Kindle and record capital spending are taking a toll on profit. Operating income in the current period will be between $210 million and $310 million, Amazon said. Analysts surveyed by Bloomberg had forecast operating profit of $361.6 million. Amazon’s second-quarter per-share profit also missed analysts’ predictions. Under Chief Executive Officer Jeff Bezos, capital spending ballooned to $196 million last quarter as Amazon.com built more warehouses to help ship a growing array of products that range from books to car parts. He’s also adding data centers to beef up a business of providing computing services to companies.
Consumer Electronics/Video/Audio
Douglas Stebbins
Apple Attacks Droid X Antenna
This is turning into one of those charming cage matches in which wrestlers desperately try to maim each other with chains and chairs and blows to very private regions. In a new video, posted to both its own Web site and to YouTube, Apple attempts to show that the dazzling new Motorola Droid X, which many seem to rather appreciate, also has something of an issue when it comes to being held in the Death Grip. You know, the grip where you wrap your fingers round your cell phone, and the onscreen signal bars drop like a swooning '50s starlet?
Walmart, Best Buy in Sub-$300 Laptop Price War
Walmart and Best Buy appear to have kicked off a price war in time for the back-to-school shopping season, with both retailers offering Compaq laptops with 15.6-inch screens for under US$300. Walmart is selling Hewlett-Packard's Compaq Presario CQ62-219WM for $298 through its online store. Best Buy is selling a Compaq Presario CQ60-615DX for $299 on its website. The price war is similar to one that broke out before last year's back-to-school season, said Stephen Baker, vice president of industry analysis at The NPD Group. That battle ignited last July when Best Buy offered an Acer laptop for $299, and Walmart undercut the price by $1 with a Compaq machine.
Cosmetics & Pharmacy
Billy Busko
Takeover Fever Grows as Reckitt Agrees £2.5bn Takeover of Durex Firm
Reckitt Benckiser, the consumer goods group behind brands such as Cillit Bang, Lemsip and Nurofen, today agreed a £2.5bn buyout of SSL, the business behind Durex condoms and Scholl shoes, in the latest in a spate of takeover deals. Merger and acquisitions activity is currently one of the few bright spots in the City: other types of trading are stagnating. This week alone engineering firm Tomkins and International Power have both been the subject of bids. Bart Becht, the Reckitt boss who was the highest-paid FTSE 100 chief executive last year, said today's deal added two "power brands" to the Anglo-Dutch company's portfolio, both of which had potential for further growth. The agreement also increases Reckitt's exposure to the growing health and personal care business as well as inceasing its presence in China. SSL operates the world's largest condom factory in Qingdao. Durex has been manufactured since the early 1930s and has become a globally recognised brand. The name was a shortening and amalgam of the words durability, reliability and excellence. SSL has been a stock market darling in recent years, its products proving recession-proof.
Cosmetics Bill Seeks Full Ingredient Disclosure, FDA Oversight
The cosmetics industry would no longer be self-regulating and would have to disclose all product ingredients under the proposed Safe Cosmetics Act, introduced earlier this week in the U.S. House of Representatives. The bill, which would affect all kinds of personal care products from shampoo to lipstick, would change the Food & Drug Administration's (FDA) role and current federal cosmetics law as established more than 70 years ago in the Food, Drug and Cosmetics Act of 1938. Cosmetics companies are currently the ones who determine if their products are safe, with practically no federal oversight, and they do not need to disclose all product ingredients. The Safe Cosmetics Act would introduce a number of reforms and require companies to provide testing and safety data on their ingredients, list all ingredients on product labels and their websites, pay fees to support the FDA's Office of Cosmetics and Colors (this would only apply to companies with $1 million or more in annual gross receipts or sales), and register with the FDA annually, providing details on their products and suppliers, among other information.
Department & Discount Stores
Mark Lenz
Marshalls Discount Stores Coming to Canada
The apparel discount segment is about to expand in Canada. TJX Cos. Inc., which runs Winners low-cost fashion stores in Canada, will launch its Marshalls discount chain here next spring. “We believe Marshalls will offer Canadians yet another avenue to great brands, great fashions and excellent values for the entire family” Carol Meyrowitz, chief executive officer of TJX in Framingham, Mass., said on Tuesday. “This is another example of our emphasis on international expansion.” The company, which also runs the HomeSense chain of home decor stores, envisions 90 to 100 Marshalls stores in Canada eventually.
Why Wal-Mart is Spending Millions to Fight a $7,000 Fine
Everyone who knows me knows that I’m a big fan of public-private sector partnerships, but in the case of the Occupational Safety and Health Administration (OSHA) vs. Wal-Mart, the government is going too far. OSHA is going after Wal-Mart for a $7,000 (yes seven-thousand dollar) fine, and the company has spent millions fighting the case. A recent Fox News headline begs the question, “Why is Wal-Mart spending millions to fight $7,000 fine?” OSHA has complained to news outlets that it has devoted a tremendous number of man hours to the case and seems befuddled that Wal-Mart won’t just pony up the money. But the company has a good reason not to. According to Wal-Mart, the citation from OSHA “has far-reaching implications for the retail industry that could subject retailers to unfairly harsh penalties and restrictions.” NRF agrees. Wal-Mart is fighting this battle for the industry, and we should all be thankful.
Wal-Mart May Open Hundreds of India Stores if Foreign Restrictions Lifted
Wal-Mart Stores Inc. may open hundreds of stores in India, the world’s second-most populous nation, should the government lift a ban on foreign direct investment in multi-brand retailers. “If the laws of the country change to opening up to foreign direct investment in retailing we could open hundreds of stores,” Raj Jain, managing director of Bharti-Walmart Pvt., a wholesale joint venture between Wal-Mart and India’s Bharti Enterprises Pvt., told reporters in New Delhi. Wal-Mart, the world’s largest retailer, and rivals including Carrefour SA are urging India’s government to allow overseas investment after the trade ministry invited views from the industry on removing the restriction. Ending the ban will increase investment in farming and reduce prices, according to a discussion paper from the ministry.
Stores Push 'Christmas' Sales to Beat Recession
Santa in the summer? Retailers are pumping still more energy this year into trying to get shoppers to loosen their purse strings early for Christmas with sparkly ornaments, holiday music and special prices. In July. Target is entering the game for the first time, with a one-day online sale starting Friday on 500 items from clothing to Blu-ray disc players that's modeled after sales typically held Thanksgiving weekend. And Sears and Toys R Us are dramatically promoting "Christmas in July" online based on the success they saw in last year's efforts. "We really wanted to create that sense of excitement, that sense of urgency," said a Target spokesperson.
Target Takes Manhattan with East Harlem Store
After years of flirting with Manhattan, the bull's-eye has landed in East Harlem. Target's first store on the New York island officially opens Sunday - with merchandise tailored to the neighborhood, including Spanish-language greeting cards, multicultural dolls, religious candles and renowned Southern food produced locally. It's a key step in the discounter's push into urban markets to fuel its growth. "This is the (company's) largest single investment on any single project," John Griffith, executive vice president of property development for Target Corp., said during a press tour. Griffith expects the new store to produce Target's strongest return - eventually - and to land among the top five revenue generators of its 1,700 stores. The store is projected to generate $90 million in the first year; a typical suburban store does about $25 million in the first year, he said.
Footwear
Michael O'Hara
Soaring Sales, Wary Words for Toning Shoes
A little instability is creating a whole lot of cash for sneaker makers. Toning shoes — which are sneakers designed with an unstable sole so leg muscles have to work harder to maintain balance during everyday activities — are the fastest-growing segment in the footwear industry, with sales expected to jump fivefold to $1.5 billion this year. But the shoes, advertised as sculpting your legs while you walk, are also raising concerns about false fitness promises for consumers. Some sneaker manufacturers are hawking these toning shoes, roughly $100 a pair, as burning more calories, reducing joint stress, and improving posture. “Change your life’’ and “Get in shape without setting foot in a gym’’ are among the promotions Skechers is using for its best-selling Shape-ups toning shoes, which have a rolling bottom that simulates walking on soft sand. But some fitness specialists suggest the shoes could be doing more harm than good. A study released Wednesday by the nonprofit American Council on Exercise found that toning shoes failed to live up to promises made by manufacturers.
Deckers Outdoor's Ups Guidance on Strong Q2
Deckers Outdoor Corporation reported second-quarter diluted EPS increased 155.6% to a record 23 cents compared to 9 cents for the same quarter a year earlier. The strong performance, adjusted for a 3-for-1 stock split paid out July 2, prompted the owner of UGG, Teva and other outdoor footwear brands to boost its earnings and sales guidance for the year. Net sales increased 33.7% to $137.1 million versus $102.5 million last year, while gross margin improved 450 basis points to 44.3% versus 39.8% a year ago. Diluted EPS increased 155.6% to $0.23 compared to non-GAAP diluted EPS of $0.09 a year ago, which excluded a pre-tax non-cash impairment of $1.0 million on intangible assets, or $0.02 per diluted share. The company completed a three-for-one stock split, in the form of a stock dividend paid on July 2, 2010. All share and per share data in this release and accompanying tables have been adjusted to reflect the impact of such split for all periods presented.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Tiffany Provides Online Peek at $17,500 Satchel Ahead of Handbag Debut
Tiffany & Co. showed off its first handbag collection in 20 years, including a $17,500 glazed- crocodile “Manhattan” satchel, on the Web today as part of a strategy to extend its brand beyond jewelry. The full collection appeared on the website following piecemeal information released in recent months. Many of the handbags will be priced at $1,000 to $2,000, said Mark Aaron, a spokesman for the New York-based jeweler. He declined to provide sales projections. Tiffany’s 12 largest U.S. stores will begin selling the bags, made of materials like suede, snakeskin and natural-grain calf, in September. The line may generate sales of “highly profitable” wallets and small leather accessories around the world, Chief Financial Officer James Fernandez said last month. Tiffany previously sold leather goods about two decades ago.
PetMed Express 1st-Quarter Net Income Falls
PetMed Express Inc., formerly known as 1-800-PetMeds, said its net income fell 11 percent in its fiscal first quarter as cash-conscious consumers spent less on medication for their animals. Results missed expectations and shares fell as much as 15 percent during the trading session to a 52-week low of $15. Shortly before the closing bell, shares had pared their losses and traded down 90 cents, or 5 percent, at $16.72. Net income fell to $7.2 million, or 32 cents per share, from $8.1 million, or 36 cents per share last year. Revenue slid 4 percent to $74.4 million from $77.2 million last year. Online revenue rose 1 percent to $52.3 million as 70 percent of order were generated from the company's website during the quarter versus 67 percent in the prior quarter.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
CEO Mackey Ushers Whole Foods' Resurgence
This is the year that the shopping public learned a lot more about John Mackey, the person — from Mackey himself. “I have my own views and they’re not necessarily the same as Whole Foods’,” the 56-year-old founder of Whole Foods Market told an interviewer in a January profile in The New Yorker. “People want me to suppress who I am.” Over the past year, Mackey has become more vocal, expressing opinions and commenting on current events that have taken him outside of his role as Whole Foods’ co-founder and chief executive officer. Last August, he wrote a controversial editorial in the Wall Street Journal opposing President Obama’s health care reforms, prompting calls for a Whole Foods boycott. Many were surprised by his “crunchy conservative” nature that directly contradicted what they thought Whole Foods was all about. The chain itself, however, has undergone a resurgence. After a period of sluggish sales, Mackey and company were able to recast the business around a value-driven strategy. For the most recent quarter, sales increased 13% to $2.1 billion, and comparable-store sales were up 8.7%.
Alcohol Profits Up from At-Home Consumption
Mintel research has found that more consumers are consuming alcoholic beverages at home instead of in bars or restaurants. Among drinkers, 90 percent consume alcoholic beverages at home, compared with 77 percent who drink outside the home. Furthermore, those surveyed consume almost twice the amount of drinks at home in an average month than they do in restaurants or bars (10 vs. 5.7). The nearly $80 billion off-premise alcoholic beverage market has grown 21 percent since 2004 as more consumers cut back on eating out in light of trying economic times. Drinkers are also cutting back in terms of the alcohol they’re purchasing for at-home consumption: 28 percent of respondents who drink alcoholic beverages at home have traded down to less expensive brands than last year to save money.
Technomic Expects Alcohol Sales to Climb
Technomic has raised its projections for away-from-home alcohol sales for 2010, based on a small uptick in traffic at restaurants and bars. Consumers still will trade down from the priciest bottles of wine and top-shelf liquors when they return to dining out, officials of the Chicago-based research firm said, but Technomic now expects total alcohol sales to grow 1.1 percent in 2010. At the end of 2009, the firm had anticipated a decline of 2.5 percent in alcohol sales for this year. Experts expect wine sales to lag behind the small growth of beer and spirits sales. Technomic projected growth of 1.2 percent for beer sales and 1.6 percent for spirits. Wine sales are expected to fall 0.6 percent for 2010, based on the lingering trend of consumers opting for less expensive bottles of wine or drinking it by the glass instead of ordering bottles.
Interest in BJ’s Grows as Stock Hits High
Stock in BJ’s Wholesale Club closed at a 52-week high of $44.91 per share Tuesday — its highest price level in more than eight years — as speculation about a potential deal with a private equity firm appeared to strengthen. Leonard Green & Partners earlier this month said it had acquired a 9.5% stake in the retailer and intended to discuss potential financing deals, including a “going-private” transaction with the retailer. On Monday, private equity group SAC Capital Advisors reported a 4.5% stake to federal regulators; the filing indicated that SAC had acquired the 5% stake that triggered a disclosure but had sold some stock since the filing.
Home Improvement/Auto Repair
Billy Busko
Griffon Announces Acquisition of Ames True Temper for $542 Million
Griffon Corporation announced that it has entered into a definitive agreement to acquire Ames True Temper, Inc. (“ATT”) from Castle Harlan Partners IV, a fund of Castle Harlan, Inc., for total consideration of $542 million, subject to certain adjustments, plus related transaction fees and expenses. ATT, headquartered in Camp Hill, PA, is the leading North American manufacturer and marketer of non-powered lawn and garden tools, wheelbarrows, and other outdoor work products to the retail and professional markets. The acquisition, expected to be financed by a $500 million term loan commitment from Goldman Sachs Lending Partners LLC and approximately $75 million of Griffon cash, is expected to close by September 30, 2010; the committed financing will include a $150 million asset based lending facility. The combined assets of ATT and the Company’s Clopay Building Products and Performance Plastics subsidiaries will secure the borrowings under the financing commitments. Following consummation of the transaction, Griffon expects to have cash in excess of $200 million available for general corporate purposes.
AutoNation Posts Stronger-Than-Expected Profit
AutoNation Inc, the biggest U.S. auto retailer group, posted a stronger-than-expected quarterly profit as its sales outstripped the industry's. The company also said it sees a "solid" auto recovery going forward. Net income in the second quarter rose to $47.2 million, or 29 cents a share, compared with $36.7 million, or 21 cents a share, in the year-earlier quarter. Excluding one-time items, earnings from continuing operations were 38 cents a share, 2 cents above what analysts had expected. Revenue rose 20 percent to $3.1 billion, compared with industry retail sales growth rates of 10 percent to 12 percent.
Homebuyer Tax Credit Causes 'Mini-Bubble'
Retailers who get a chunk of their business from new homeowners may feel like empty nesters in coming months with the recent boost to sales from the government's homebuyer tax credit fading in the rearview mirror. KeyBanc Capital markets analyst Bradley Thomas told investors that the nation's housing market will continue to ride the tax-credit wave through 2010, but next year has the investment bank "increasingly cautious" about companies that furnish goods to spruce up homes. "We expect home-related spending to slow and believe investor sentiment for our coverage may continue to weaken," he wrote in a research note. As many as half of all home sales in recent months have involved buyers cashing in on the $8,000 credit for first-time home buyers, courtesy of Uncle Sam. That's been good news for stores like The Home Depot Inc., Lowe's Cos. Inc. and Bed Bath & Beyond, because people who are buying or selling homes leave those stores with shopping carts filled to the brim.
Housewares/Furniture
Billy Busko
Jennifer Convertibles Files Voluntary Petition for Chapter 11 Reorganization
Jennifer Convertibles, Inc., a leading retailer in the field of home furnishings, announced today that the Company and its subsidiaries have filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Company has reached an agreement with its largest creditor and key foreign supplier Haining Mengnu Co. Ltd.Group ("Mengnu"), under which Mengnu will continue to supply goods to the Company and will convert a large portion of its pre-petition debt into common equity of the Company. The agreement is in the form of a Plan Support Agreement which will be incorporated into a Plan of Reorganization and thereafter subject to approval of the bankruptcy court and any other regulatory approval (if any).
Electrolux Net Jumps 54 Percent in Second Quarter
Net income for Electrolux increased 54 percent in the second quarter, totaling $131.1 million. The global appliance manufacturer managed to improve its profit thanks to reduced production costs, a 2.8 percent rise in net sales to $3.5 billion and increased profitability from all of its business areas, according to a statement from Hans Straberg, president and chief executive officer. Straberg cited Electrolux’s North American operation, which registered increased sales and greater market share under both the Electrolux and Frigidaire brands. The U.S. government’s rebate program to stimulate energy-efficient appliance purchases was a key factor in the results from this area, he said.
Whirlpool Second-Quarter Net Jumps 163 Percent
Second-quarter net income for Whirlpool totaled $205 million, a whopping 163 percent increase over last year’s second-quarter. While net sales did grow 9 percent to $4.5 billion in the quarter, cost-reduction and productivity initiatives also played a key role. Gross margin rose 350 basis points to 16.8 percent, and selling, general and administrative expenses were held relatively in check—rising 2.8 percent on a dollar basis but falling 60 basis points as a percentage of total sales.
Electrolux Net Jumps 54 Percent in Second Quarter
Net income for Electrolux increased 54 percent in the second quarter, totaling $131.1 million. The global appliance manufacturer managed to improve its profit thanks to reduced production costs, a 2.8 percent rise in net sales to $3.5 billion and increased profitability from all of its business areas, according to a statement from Hans Straberg, president and chief executive officer. Straberg cited Electrolux’s North American operation, which registered increased sales and greater market share under both the Electrolux and Frigidaire brands. The U.S. government’s rebate program to stimulate energy-efficient appliance purchases was a key factor in the results from this area, he said.
Tempur-Pedic Nearly Doubles Second-Quarter Net
Net income for Tempur-Pedic reached $33.5 million in the second quarter, almost twice as much as in the second quarter of 2009. The company accomplished this on a whopping net-sales increase of 42 percent to $263 million, along with a gain in gross margin of 210 basis points to 48.7 percent. In a conference call with investment analysts yesterday, Mark Sarvary, Tempur-Pedic’s president and chief executive officer, said both domestic and international sales grew significantly, in spite of “an environment that is still quite unpredictable.”
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Li & Fung Returns to Debt Market as It Eyes More Purchases
Li & Fung, the biggest supplier to retailers including Wal-Mart Stores and Target, has increased its funds for acquisitions to about $1,15bn with the sale of 10-year debt. The supplier of consumer goods ranging from Tommy Hilfiger clothes and Kate Spade bags to furniture, cosmetics and toys said on Friday it had raised 350m selling a second batch of dollar-denominated notes, after a sale in May. The announcement came a day after Hong Kong-based Li & Fung announced three acquisitions and four agreements that may increase sales by $1bn next year. The company was reviewing more possible purchases with “the deal pipeline being extremely strong; maybe never as strong as today”, CLSA analysts Aaron Fischer, Huei Suen Ng and Mariana Kou said. President Bruce Rockowitz said the same day that the company had about 800m left in its takeover fund.
A Closetful of Opportunity
VF Corp. sells more than 25 brands of apparel, accessories and sneakers, but the Greensboro, N.C., manufacturer still is looking to fill out its closet. VF spent more than $3 billion in the past decade or so to snap up popular labels such as The North Face, Nautica and Vans, even as many consumers snapped their wallets shut. The shopping spree has transformed the company into the largest and arguably most diversified apparel maker in the industry, and helped it weather the recession in good shape. Sales slipped just 6% last year, to $7.2 billion, as products such as Wrangler and Lee jeans, which often retail below $20, found willing buyers. Other, pricier brands, including outerwear maker North Face and Lucy, an activewear label, could fire up growth as consumer spending rebounds.
Jewelry/Mining
Mark Lenz
Petra Boosts Diamond Output, Sees 'Strong' Market Recovery
JSE- and Aim-listed Petra Diamonds' production increased by 6% to 1,16-million carats in the year ended June 30, 2010, compared with the 1,09-million carats produced the year before. Diamond sales were up by 11% to 1,13-million carats, compared with 1,01-million carats the year before, while revenues surged by 88% to $177,7-million, compared with $94,4-million in the 2009 financial year. "These results signify a further step change for Petra, with substantially higher revenues reflecting our continued production growth and a strong recovery in rough diamond prices," said CEO Johan Dippenaar. Petra noted in a statement to shareholders that by the end of June, rough diamond prices had returned to June 2008 and July 2008 levels, before the onset of the global economic crisis
In Vegas, Jewelers Didn't Gamble on Product
In a few short sentences, Robin Levinson, co-owner of Levinson Jewelers in Fort Lauderdale, Fla., summed up what seemed to be the strategy of many retailers who attended the recent Las Vegas jewelry shows. "Even though the economy is trending up, I was just trying to be smart about dollars spent," Levinson said in a post-show interview. "I chose to be very conservative in my open-to-buy." Attendance figures confirm that jewelers were back in body, but it seemed that they had not quite returned in spirit to full-blown buying mode, and, like Levinson, many were shopping conservatively on price, in step with budget-conscious customers who are gradually returning to jewelry stores.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
OfficeMax COO Leaves for Another Company
OfficeMax Inc. said its chief operating officer has left to become the chief executive of another public company, the latest executive to leave–or plan to leave–its ranks. The office-supplies retailer said Sam Martin, who was also an executive vice president, stepped down from his role effective Wednesday. OfficeMax didn’t say which company Martin would take the helm of as CEO. Chief Executive Sam Duncan will take on Martin’s responsibilities, effective immediately, and the company said it doesn’t intend to look for a new operating chief at this time. CEOs have been taking greater control of day-to-day operations or delegating control to division heads, squeezing out chief operating officers and presidents.
The Balloon That May Save KaBloom
In 2002, four years after opening his first store, KaBloom founder David Hartstein said his retail chain wanted to be to flowers “what Starbucks is to coffee.’’ But Hartstein’s business plan did not work out the way he envisioned. Flower-shopping habits changed as more consumers flocked to online retailers and supermarkets took an ever-bigger bite out of impulse purchases by offering cut-rate floral arrangements. KaBloom, which once had 120 stores, is down to two dozen, along with a website where customers can place orders. And now Hartstein is betting on an innovation he calls the Moses Miracle in an attempt to reinvent the privately held Brookline company. In a state where cutting-edge products are more likely to involve biotechnology drugs, Rock Band video games, or robots that vacuum living rooms, the Moses Miracle doesn’t seem like much of a technology stretch. At first glance, it looks like a glorified water balloon that has been tightly cinched around a bouquet’s stems. And that’s pretty much what it is. Hartstein said the Moses Miracle has other benefits besides keeping flowers fresh during long distance deliveries. By sealing bunches of fresh-cut flowers, KaBloom can sell flowers in low overhead kiosks that don’t need extensive plumbing or multiple buckets of water.
Mall Owners Lean on Promotions in Attempts to Boost Back-to-School Sales
U.S. mall owners are doing everything they can to turn the back-to-school shopping season into a success, but their sales projections are falling short of ICSC and NRF forecasts. Earlier this summer, ICSC forecast a 5.4 percent year-over-year increase in same-store sales between mid-July and mid-September, while NRF forecast an 11 percent increase. Back-to-school sales registered declines during the past two years, including a 2.8 percent drop in 2009. This year is shaping up better at properties that have already started running back-to-school promotions and many landlords expect to see increases in same-store sales across their portfolios. But their projections tend to be more temperate than those of industry trade groups.
Little Joy at Carlyle’s Party Supply Company
For most of the 78 years since its founding in Omaha, the Oriental Trading Company has been the life of the party. In the market for hibiscus hula skirts ($5.99 apiece)? Ring-shaped shot glasses ($4.99 a dozen)? Perhaps neon vampire teeth ($7.99 a gross)? All that and more can be found inside the Oriental Trading catalog, a dizzying compendium of enough plastic doodads and cheap whatsits to satisfy the sugared-up 6-year-old in anyone. Only now, the company’s business seems to be deflating faster than a cow print latex balloon ($9.95 for 25). Oriental Trading is struggling to pay its creditors after being sold for $1 billion in 2006 to the Carlyle Group, a big private investment firm with long, deep ties to Washington powerbrokers, The New York Times’s Julie Creswell reports. It is just the latest setback for the venerable Oriental Trading, which made headlines last year when the son of its founder lost nearly $189 million in a single year on the gaming tables of Las Vegas.
Restaurants/Food Service
Mark Boucher
U.S. Restaurant Count Continues to Fall
The number of restaurants in the United States has fallen by 5,204 units, a 1-percent decline from the total number of eateries recorded in spring of 2009, according to The NPD Group. Independent restaurants took the hardest hits, while chains kept their unit counts relatively stable, the market research firm’s “Spring 2010 ReCount” found. ReCount takes stock of domestic commercial restaurant locations twice a year, in the spring and fall. In the fall of 2009, the industry’s unit count contracted 0.3 percent, or by 1,652 locations. The spring 2009 numbers were worse, with the industry losing a little more than 4,000 restaurants, comprising a 1-percent decrease in total overall locations. For the 12 months ended March 31, the number of quick-service restaurants declined by 2,521 locations and the number of full-service restaurants fell by 2,683 units, resulting in a 1-percent decrease overall for both segments.
Starbucks 3Q Profit Up, Co. Lifts Outlook
The launch of customizable Frappuccinos and sales of Via instant coffee and Seattle’s Best Coffee helped boost Starbucks Corp.’s third-quarter performance, continuing the turnaround that began a year ago, the company said. After reporting a 37-percent increase in profit, Seattle-based Starbucks chief executive Howard Schultz increased the company’s outlook for the rest of the year and into 2011. For the quarter ended June 27, Starbucks reported a profit of $207.9 million, or 27 cents per share, compared with $151.5 million, or 20 cents per share, in the year-ago third quarter. Latest-quarter revenue increased 9 percent to $2.6 billion, including domestic revenues of $1.9 billion, an increase of 7 percent. At the end of the third quarter, Starbucks operated or licensed 16,737 stores, including 11,131 in the United States, after it had closed 144 underperforming company stores in the past year.
Earnings Preview: Ruby Tuesday Turnaround?
Ruby Tuesday Inc. will report its latest quarterly results Thursday, and analysts say they expect the casual-dining company to outpace most of its competitors with positive sales, marking what could be one of the most dramatic industry turnaround performances in recent years. Several securities analysts following the Maryville, Tenn.-based company now indicate that Ruby Tuesday is well on its way to a recovery benefitting from an improved brand position, following a successful turnaround effort completed during the past few years.
Banking & Lending
Douglas Stebbins
Private Equity Group Buys 3 Failed Banks
North American Financial Holdings, run by the former chief of Bank of America’s investment banking unit, bought three failed United States lenders, as the number of banks taken over by the Federal Deposit Insurance Corporation this year hit 96, Bloomberg News reported. North American has taken over two banks in Florida and one in South Carolina, the F.D.I.C. said Friday. The private firm acquired First National Bank of the South, based in Spartanburg, S.C., with $682 million in assets; Miami-based Metro Bank of Dade County, with assets of $442.3 million; and Turnberry Bank of Aventura, Fla., with assets of $263.9 million. North American, headed by Gene Taylor and backed by other longtime Bank of America executives, has raised $900 million from investors to buy banking assets. Under F.D.I.C. rules, a bank acquired by private investors has to keep an extra cushion of capital to protect against losses in the first three years of ownership. This has deterred many private equity shops from buying more distressed lenders.
Retailers Welcome Break From Debit Card Fees
When President Obama signs the financial regulation overhaul bill, he'll usher in sweeping changes for everything from Wall Street investment firms to Main Street banks. The bill also gives a break to retailers who say they have suffered years of high fees on debit card transactions. When people pay with plastic, about 2 cents on the dollar gets eaten up with fees. The money goes to the banks that issue the cards and to the payment networks Visa and Mastercard. It may not sound like much, but Sonja Hubbard, CEO of E-Z Mart, a chain of 300 convenience stores in the South, says it adds up fast. "Within our company, we average almost $10 million a year ... on fees," she said. Hubbard said it's the company's second-largest expense, right behind payroll. She said those fees mean E-Z Mart actually loses money on small transactions such as a cup of coffee or a newspaper. She says one day a college kid came into one of her stores three times. "The highest purchase was $2.35 and then the other two were below that," she said. "And so I thought, it's a frequent customer who you have to value was there three times in one day, and I lost money on every transaction." Hubbard is thrilled about the amendment in the financial regulation bill that aims to rein in the fees on debit card transactions. It directs the Federal Reserve to set a new fee structure that is reasonable and proportional.
US Bank Failures Top 100 in 2010
Seven more banks failed last Friday, bringing the number of failed U.S. banks to 103 this year. The Federal Deposit Insurance Corp. took over all seven. The FDIC estimates that the hit on its insurance fund cost $432 million in total. The seven affected banks are Sterling Bank of Lantana, Fla., Crescent Bank and Trust Company of Jasper, Ga., Williamsburg First National Bank of Kingstree, S.C., Community Security Bank of New Prague, Minn., SouthwestUSA Bank of Las Vegas, Nev., Thunder Bank of Sylvan Grove, Kan., and Home Valley Bank of Cave Junction, Ore.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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