The Weekly Consensus: Week of August 2, 2010
Fun Facts about the ACT
Billy Busko
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama on July 21st. The bill is tens of thousands of pages long and represents the most complete piece of financial reform legislation since the reforms of the Great Depression. The Act’s objective is to “restore responsibility and accountability in the financial system to give confidence that there is a system in place that works and protects.” Its impact is far reaching and affects banks, thrifts, depository holding companies, mortgage lenders, insurance companies, industrial loan companies, broker-dealers and other securities and investment advisory firms, and private equity and hedge funds.
What will be the impact to private equity and hedge funds, many of which provide capital to the Retail/Consumer Industry? Prior to the Act, investment advisors to funds, including private equity and hedge funds, were exempt from registration with the SEC as investment advisors – this is no longer the case. However, exemptions will exist for venture capital funds and family offices and for private equity and hedge fund advisors with less than $150 million under management. It’s important to note, though, that even exempt advisors will be subject to certain processes established by the SEC.
Who will oversee these private funds is not yet known. The Government Accountability Office (GAO) will conduct a study on the feasibility of the creation of a self-regulatory organization, but this won’t be completed for up to one year.
Beyond registration, new record keeping and mandatory disclosure of certain financial and operational information will be required. Further, examinations and inspections by the SEC will be routine.
Specifically, those required to register will have until July 2011. The registration obligations will include 1) designation of a chief compliance officer, 2) establishment of a compliance program and 3) annual assessments. Required information in reports to be filed include 1) assets under management, 2) use of leverage, 3) counterparty credit risk, 4) trading and investment positions, 5) valuation policies, 6) types of assets held, 7) side arrangements and 8) trading practices.
The Act also restricts the ability of banks to sponsor or invest in private equity or hedge funds. First, banks are prohibited from investing more than 3% of their Tier 1 capital in such funds. Second, they cannot own more than a 3% interest in any such fund. Lastly, banks are prohibited from bailing out a fund in which they’re invested regardless of size. Given the illiquid nature of these funds, banks will most likely have four to seven years to comply depending upon how certain regulations are finalized.
The Act also affects those individuals who invest in these funds by raising the standard to qualify as an “accredited investor.” The net worth threshold remains $1 million, but that amount no longer includes the equity value of the investor’s home. Given what’s happened to the housing market, this amendment will impact many of the smaller investors.
And to make sure that these regulations, among many many more, are actually followed, the Act has enhanced the SEC’s powers. First, the SEC’s budget will be doubled in five years, and it has the ability to tap into a new $100 million reserve fund. Secondly, the SEC is mandated to recruit market specialists, who will be well-equipped to provide oversight. Lastly, the SEC is authorized to reward “whistleblowers” 10% to 30% of any settlement in excess of $1 million.
Apparel/Swimwear/Intimates
Betsy White
Apparel-y not!
Dov Charney continues to rip his company's stock price to shreds. Four months after American Apparel was warned by its auditor of the "possibility of collusion or improper management" of its financials, the retailer disclosed yesterday that its accountant, Deloitte & Touche had resigned. Deloitte, in a letter to Charney and the rest of the American Apparel board, said the retailer's financial statements for 2009 may not be reliable. The news sent shares of the 280-store chain plunging.
A Fashion Identity Crisis at Wal-Mart
Wal-Mart Stores Inc. cannot seem to find the right fit when it comes to selling clothing. By quietly ousting its U.S. division apparel chief last week, the world's largest retailer acknowledged that its clothing strategy has been a dud. Again. Over the past decade, Wal-Mart has veered from one approach to clothing to another. The discount giant has even tried to emulate rival Target Corp. by stocking its own lines of trendy outfits. At other times the retailer has placed its bets on bulk packs of everyday wear, like tube socks and T-shirts. The retailer said last month that it was going to focus more on basics like underwear, socks, T-shirts and jeans. Part of the issue for Wal-Mart is that it devotes a relatively smaller space to apparel than Target, where apparel represents about 20% of its revenue. At Wal-Mart clothing is only 10% of sales, so fashion items can crowd out basics but the company has been reluctant to give it more space.
Wet Seal CEO to step down Oct. 8
Teen retail chain Wet Seal Inc. announced that its chief executive and president, Edmond S. Thomas, is stepping down after three years. Wet Seal is a specialty retailer of contemporary apparel and accessories for young women. As of July 3, the company operated 503 stores in 47 states, the District of Columbia and Puerto Rico under the Wet Seal and Arden B brands. The Orange County retailer, based in Foothill Ranch, made the announcement Tuesday. The company said Thomas, 57, would step down from both positions Oct. 8, when his employment agreement is scheduled to expire.
Teen Retailers Reach Ever Younger
American Eagle Outfitters this month opened 77kids, a new concept focusing on apparel for children and babies. American Eagle is among several teen chains currently shifting resources to concepts targeting kids, having found little luck opening ones targeting adults. P.S. from Aeropostale, which targets 7- to 12-year-old kids, opened last year and was exceeding expectations in the first quarter. The company now has 31 P.S. from Aeropostale stores in 12 states. Last year it closed Jimmy'Z, a California lifestyle-oriented chain targeting the 18-to-25-year-old crowd. Abercrombie & Fitch in January closed the last of its Ruehl stores, which had been aimed at men and women aged 22 to 35. It has been slowly expanding its Abercrombie Kids concept since launching it in 1997. Shifting their sights to children between 7 and 16, the retailer now has 202 Abercrombie Kids locations. In June comps at Abercrombie Kids were up 14%. Meanwhile, Gap is said to be in the midst of expanding its kids and baby lines. It opened GapKids in 1986 and babyGap in 1989. American Eagle itself first tried expanding its base by targeting older customers with the Martin + Osa brand, which proved unsuccessful and is now winding down. 77kids, which takes its name from the year American Eagle was founded, started out a year-and-a-half ago as an online offering.
Athletic & Sporting Goods
Michael O'Hara
Cabela's 2Q Profit Nearly Doubles to $18 Million
Outdoor outfitter Cabela's Inc. says its second-quarter profit nearly doubled over last year when restructuring charges weighed down results. The Sidney-based company said Thursday that it earned $18 million, or 26 cents per share. That's 98 percent higher than the $9.1 million, or 14 cents per share, Cabela's reported a year ago. Cabela's also announced plans to open a new retail store in Edmonton, Alberta, Canada, in the fall of 2011.
Brunswick Swings to 2Q Profit on Higher Sales
Boat maker Brunswick Corp. said that it swung to a profit in the second quarter, helped by a jump in marine engine and boat sales. The company also said it sold its Triton Boats unit to Fishing Holdings LLC, an affiliate of Platinum Equity, for an undisclosed sum. For the quarter ended July 3, Brunswick earned $13.7 million, or 15 cents per share, compared with a loss of $163.7 million, or $1.85 per share, in the year-ago quarter. Revenue climbed 41 percent to $1.01 billion, beating analyst expectations for $960.3 million. Brunswick said its total marine revenue rose 52 percent to $814.2 million. As part of the Triton Boats sale, Triton fiberglass boat production will move from Ashland City, Tenn., to Flippin, Ark. Brunswick will move its Lund fiberglass manufacturing operations to the Brunswick Boat Group's Tellico fiberglass facility in Vonore, Tenn. and keep making Trophy fiberglass boats in Ashland City this year while looking at strategic alternatives for Trophy. Brunswick will keep rights to some intellectual property and other rights related to Triton aluminum boats, and said it will keep selling them under a license within its aluminum product line. The company expects to log $18 million to $20 million in restructuring charges related to the sale, including $15 million in the second quarter.
K-Swiss Acquires MMA-Inspired Clothing Brand
Footwear and athletics apparel company K-Swiss is focusing on Orange County after purchasing Form Athletics. Laguna Beach resident Mark Miller in January launched Form, an apparel and lifestyle brand inspired by mixed martial arts. Miller's experience as senior vice president at Quicksilver's DC Shoes and focus on the athletic side of MMA made acquiring Form an opportunity for K-Swiss, Executive Vice President David Nichols said. Terms of the deal were not disclosed. Miller will now serve as president of Form Athletics and become president of K-Swiss Orange County. In addition to leading Form, which caters to 19 to 34-year-old men, Miller will work on building a younger audience for K-Swiss, which was founded in Van Nuys in 1966.
Sturm, Ruger Sees 11% Q2 Revenue Decline
Sturm, Ruger & Company, Inc. reported sales in the second quarter fell 11% to $64.4 million from $72.4 million a year ago. Earnings slid 5.7% to $8.2 million, or 43 cents a share, from $8.7 million, or 46 cents, a year earlier. For the six months ended July 3, 2010, net sales were $132.7 million and earnings were 86¢ per share. For the corresponding period in 2009, net sales were $135.9 million and earnings were 76¢ per share.
Catalog & Internet
Christopher Ellis
Buy.com Acquired
E-commerce pioneer Buy.com has been bought by Japanese e-tailer Rakuten in an all-cash transaction. Buy.com will continue as a wholly-owned subsidiary of Rakuten, and will maintain its current management team, staff and headquarters. The price tag for the all-cash deal, which closed on July 1, was not released. Founded in 1997 by chairman Scott Blum and run by president/CEO Neel Grover, the privately-held company nearly succumbed to the tech-sector rout in 2000, but went on to become the second-largest full-line, Web-only retailer after Amazon.com with over 14 million customers. CE sales were $300 million last year according to TWICE estimates, landing Buy.com in 39th place on the TWICE Top 100 CE Retailers report. Its new $3.2 billion corporate parent is a leading Asian Internet company whose online shopping mall, Rakuten Ichiba, combines shopping and entertainment, and encourages strong customer relationships with its 33,000 merchants, the company said.
GameStop Buys Social Gaming Hub Kongregate
Major video game retailer GameStop, which does a significant share of its business on the second-hand market, has long promised it will stay ahead of the curve in the industry's shift to digital. Today, the company took a step in demonstrating that, announcing it's buying social gaming and indie game community Kongregate. Kongregate is a free-to-play site that lets indie and social game designers host their Flash games -- and even monetize them via an application platform that enables indie developers to implement a virtual transactions model. It's home to over 10 million users a month, the company says. It also offers social features like profiles, leaderboards, achievements and communication interfaces for players, who collectively spend 23 million hours on the site. The company's even begun going mobile, recently inking a deal with Adobe to bring its Flash titles to the Android platform.
Consumer Electronics/Video/Audio
Douglas Stebbins
RIM Said to Plan Tablet for November to Take on Apple's IPad
Research In Motion Ltd., maker of the BlackBerry smartphone, plans to introduce a tablet computer in November to compete with Apple Inc.’s iPad, according to two people familiar with the company’s plans. The device will have roughly the same dimensions as the iPad, which has a 9.7-inch diagonal screen, said the two people who wouldn’t be identified because the plans haven’t been made public. The device will include Wi-Fi and Bluetooth wireless technology that will allow people to connect to the Internet through their BlackBerry smartphones, the two people said. RIM is racing to come out with a product to rival the iPad in the fast-growing market for devices that bridge the gap between smartphones and notebook computers. Apple, based in Cupertino, California, last month said it sold 3 million iPad tablet computers in 80 days after they debuted in the U.S.
Time Inc.'s iPad Problem is Trouble for Magazine Publishers
Time Inc. likes to show off its iPad apps as a symbol of the company's future. But inside the publisher, the digital editions have become a source of hair-pulling frustration. That's because the magazine giant has been unable to get Apple to let it sell and manage subscriptions for its iPad apps--much to Time Inc.'s surprise. Last month, the publisher was set to launch a subscription version of its Sports Illustrated iPad app, where consumers would download the magazines via Apple's iTunes but would pay Time Inc. directly. But Apple rejected the app at the last minute, forcing the Time Warner unit to sell single copies, using iTunes as a middleman, multiple sources tell me. Since then, Time Inc. executives "have been going nuts," trying to figure out how to get Apple to approve a subscription plan. One of the more desperate suggestions, which apparently didn't get traction: pulling the publisher's apps out of the iTunes store altogether.
'The Shack' Downsizes, Opens Bullseye Mobile Kiosks in Many Target Stores
Radio Shack is at it again, expanding your perceptions of the place that once actually sold radio components. A year after that ill-received 'The Shack' marketing campaign the company is now making a rather more substantial move, securing an arrangement with Target stores to see the creation of so-called Bullseye Mobile kiosks. This has started with a 100-store pilot program but, throughout this year and into summer next, the expectation is to prop them up in 1,750 big box locations. Something tells us they won't all be wired up for WiMAX, but we can hope.
Cosmetics & Pharmacy
Billy Busko
Redbox Parent Coinstar Explores Beauty Kiosk Business
Coinstar Inc. may try to do for makeup what its Redbox unit has done for movie DVDs. The DVD-vending and coin-counting machine maker is recruiting a vice-president-level manager to oversee a new venture in the beauty or cosmetics space. And while the Bellevue, Wash., company wouldn't comment on its plans, advertisements for the job posted on the Internet this month indicate Coinstar is trying to develop partnerships in the beauty and cosmetics industry and to develop vending machines that eventually might be rolled out across the U.S. The venture would jibe with the company's efforts to test various automated retailing concepts as it seeks growth opportunities aside from its mature coin-counting business and its Redbox Automated Retail movie-rental kiosks, Merriman Curhan Ford & Co. analyst Eric Wold said. Redbox "still has a pretty good, solid three or four years of growth left in terms of new machines before starting to hit a wall," Wold said. Redbox's roughly 22,000 kiosks at grocery stores, McDonald's Corp. restaurants and convenience stores and their dollar-per-night movie rentals have added to competition faced by movie-rental giant Blockbuster Inc. and by-mail service Netflix Inc.
Rite Aid Same-Store Sales Keep Sliding in July
Drugstore chain Rite Aid Corp. reported its 14th consecutive decline in monthly sales at stores open at least a year, as business continued to be hit by the introduction of new generic drugs and fewer prescriptions were filled. Rite Aid, based in Camp Hill, Pennsylvania, said that sales in the four weeks ended July 24 at stores open at least a year, or same-store sales, fell 1.1 percent. Front end same-store sales, including items such as toiletries, cleaning products and stationery, dipped 0.5 percent during the period. Pharmacy same-store sales fell 1.4 percent as the introduction of new generic drugs, which are typically less expensive than brand name drugs, hurt sales by about 1.97 percentage points. Prescriptions, which made up more than two-thirds of drugstore sales, were down 1.5 percent. Total drugstore sales for the four-week period fell 2.2 percent from a year earlier to $1.89 billion.
CVS Announces Deal with Aetna, 2Q Profit Falls
CVS Caremark Corp. reported weaker quarterly earnings and lowered its profit forecast, but shares rose as investors approved of a large pharmacy benefit management services contract struck with Aetna. CVS Caremark will administer Aetna's retail pharmacy store network and manage customer service. It will also handle prescription drug purchasing, manage inventories, and fill prescriptions for Aetna's mail order and specialty pharmacy operations. The contract will ramp up over several years and bring in revenue of $8.2 billion next year. CEO Tom Ryan said the 12-year contract is the largest and longest contract in the industry. The contract offsets other major contracts lost in the past year. That lost business pushed second-quarter net income down 7 percent to $821 million from $886 million. The Woonsocket, R.I., company's revenue fell 3 percent to $24 billion from $24.87 billion. Revenue from its drugstore network rose 4 percent to $14.31 billion, but because of the contract losses, Caremark's revenue fell 9 percent to $11.84 billion. Revenue at locations open at least a year grew 2.1 percent. The metric is a key measurement of retailer health because it excludes results at stores that have opened or closed over the past 12 months. The company runs 7,109 stores nationwide, about 400 less than Walgreen Co.
Nu Skin Earnings Up 46.5%
Skin care direct seller Nu Skin Enterprises reported that its second-quarter profits jumped 46.5 percent to $32.4 million, or 50 cents a diluted share, from $22.1 million, or 35 cents, a year ago, topping analysts’ average estimates by 4 cents. Elevated 4 percent by currency fluctuations, revenues for the quarter ended June 30 came in at $388.4 million, a 20.4 percent increase from $322.6 million in the prior-year period.
Department & Discount Stores
Mark Lenz
Peltz Gets Family Dollar's Attention
An activist retail investor has bought a large stake in Family Dollar Stores and is pushing the Matthews-based discount chain to boost shareholder value. Calling Family Dollar stock "undervalued," billionaire Nelson Peltz disclosed in a regulatory filing that he owns more than 8.7 million shares. He has met with management, including CEO Howard Levine, to discuss strategy such as increasing sales per square foot. Peltz buys large chunks of retail businesses and seeks improvements. His investment arm, Trian Fund Management, owns large stakes in jeweler Tiffany's and fast-food chain Wendy's/Arby's Group, The Associated Press reports. Peltz said he may propose one or more nominees to Family Dollar's board. Family Dollar has seen sales increase during the recession as shoppers seek bargains. It has expanded food offerings and taken other steps to boost results.
Timberlake's Clothing Line Headed to Target
Justin Timberlake is making his designer clothing label affordable for fans - he's set to release a limited edition William Rast collection at U.S. department store Target. The SexyBack hitmaker launched the William Rast line with his childhood friend Trace Ayala in 2005 and the pair has now partnered with Target bosses to debut a special range for customers later this year.
Retailers Pay More to Get Cargo (No Guarantee)
The grills shaped like kegs and toolboxes, ordered for a Father’s Day promotion at Cost Plus World Market, arrived too late for the holiday. At the Container Store, platinum-color hangers, advertised in a summer sale catalog, were delivered days after the sale began. At True Value Hardware, the latecomers were fans and portable chairs. Fighting for freight, retailers are outbidding each other to score scarce cargo space on ships, paying two to three times last year’s freight rates — in some cases, the highest rates in five years. And still, many are getting merchandise weeks late. The problems stem from 2009, when stores slashed inventory. With little demand for shipping, ocean carriers took ships out of service: more than 11 percent of the global shipping fleet was idle in spring 2009, according to AXS-Alphaliner, an industry consultant. Carriers also moved to “slow steaming,” traveling at slower and more fuel-efficient speeds, while the companies producing containers, the typically 20- or 40-foot boxes in which most consumer companies ship goods, essentially stopped making them. “All my customers, they’re having a terrible time,” said Steven L. Horton, principal at Horton Global Strategies, which negotiates freight contracts for companies. “With the increased cost and them not knowing if they’re even going to get the space or equipment, it’s a weekly battle.”
Footwear
Michael O'Hara
Puma's Q2 Profit Climbs 16%, Americas Sees Double-Digit Growth
Puma's second-quarter profit rose 16.4%. Revenue rose 2.5%, boosted by sales in the Americas, which advanced 26%. Puma's second-quarter profit rose 16.4%. Revenue rose 2.5%, boosted by sales in the Americas, which advanced 26%. With a "strong outlook" for the second half, management continues to expect sales growth in the low to mid single-digits for the full year. Consolidated sales in the second quarter increased by 2.5% to $787.7mm. Currency neutral, consolidated sales softened by 4.8% on high comparables after closeout sales and a high inventory availability last year. Deliveries in June were impacted by late product deliveries and there were no pre-shipments unlike last year. On a currency-neutral basis, Footwear sales were down by 9.7% at $410.9mm. Apparel sales fell by 5.3% to $267.0mm. Due to first time consolidations, Accessories sales improved significantly by 20.6% to $109.6mm. On an actual basis, sales were down 2.7% in Footwear, up 2.3% in Apparel and climbed 28.9% in Accessories.
Timberland Posts Wider Loss in 2Q
Footwear maker Timberland Co. posted a wider loss in the second quarter dragged down by a one-time charge, but the company enjoyed revenue growth across all regions. Timberland, based in Stratham, N.H., lost $23.5 million, or 44 cents per share, in the quarter ended July 2. That compares with a loss of $19.2 million, or 34 cents per share, in the year-ago period. The 2010 second-quarter results includes a $13.2 million noncash, pretax charge for the impairment of certain goodwill and intangible assets. The company didn't provide per share results that excluded the charge. Timberland couldn't be immediately reached. Revenue reached $189 million, up from $179 million in the year-ago period.
Crocs Unveils New Sneaker Line
Crocs, a brand that became famous for its comfortable clogs with holes, recently launched a sneaker line as part of its efforts to create more fashion-forward pieces to its clients. Still made from its trademark Croslite material, Crocs' new additions come in sneaker styling, hybrid construction and with a zippy colored band around the sole. Crocs was first introduced in 2002 as comfortable clogs with holes. The shoes became a hit in several parts of the globe, but the look didn't sit well with some fashion-conscious individuals. Because of this, Crocs eventually branched out to offer a variety of styles as well as flip flops and phone accessories. Recently, the brand unveiled pairs that look more like “regular” footwear.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Guess to Open Manhattan Flagship
Guess has a lot on its plate these days. In December, the brand will open its largest U.S. store, a two-level, 13,000-square-foot flagship at 575 Fifth Ave., on the corner of 47th Street. In addition, Guess plans to double the number of accessories-only stores to 450 worldwide in three years and round out its list of product categories. “One category that is so much a part of Guess is underwear and lingerie,” said Guess Inc. vice chairman and chief executive officer Paul Marciano, who is the architect of the company’s provocative advertising. “We have it in Europe and Asia, but not in the U.S. We’ve been testing it. It’s so much a part of the image. Every ad I’ve done has had bras or lingerie or a bustier. It could be huge. It’s where we think we have an opportunity.” A home collection could complete the brand, Marciano said. “Home will happen,” he added. “It’s a category that clearly would be a natural for Guess. Once we find the right partner, we will do a partnership or licensing agreement.”
Brookstone Announces Second Quarter and Year-to-Date 2010 Financial Results
Brookstone, Inc. announced financial results for the second quarter ended July 3, 2010. For the 13-week period ended July 3, 2010, Brookstone reported total net sales of $76.4 million, a 4.7% increase from the 13-week period ended July 4, 2009. Same-store sales for the 13-week period ended July 3, 2010 increased 4.1% as compared to the comparable 13-week period last year. For the 13-week period ended July 3, 2010, Brookstone reported a loss from operations of $12.5 million, compared to a loss from operations of $10.5 million for the 13-week period ended July 4, 2009. Excluding a charge of approximately $0.9 million related to certain share-based compensation, for the 13-week period ended July 3, 2010, Brookstone reported a loss from operations of $11.6 million, compared to a loss from operations of $10.5 million for the 13-week period ended July 4, 2009. For the 26-week period ended July 3, 2010, Brookstone reported total net sales of $146.1 million, an 8.7% increase from the 26-week period ended July 4, 2009. Same-store sales for the 26-week period ended July 3, 2010 increased 8.5% as compared to the comparable 26-week period last year. For the 26-week period ended July 3, 2010, Brookstone reported a loss from operations of $29.5 million, compared to a loss from operations of $31.3 million for the 26-week period ended July 4, 2009. Excluding a charge of approximately $0.9 million related to certain share-based compensation, for the 26-week period ended July 3, 2010, Brookstone reported a loss from operations of $28.6 million, compared to a loss from operations of $31.3 million for the 26-week period ended July 4, 2009.
Ick! Bedbug Invasion Hits Stores, Offices
Move over, Dracula. There's a new bloodsucker in town. Just ask lingerie chain Victoria's Secret. Earlier this month, after news reports surfaced of a bedbug infestation at a downtown retailer, the Ohio-based company proactively checked its 10 Manhattan sites and found what officials described as “isolated areas that may have been impacted.” It closed one midtown store for several hours and discarded contaminated inventory. Such measures cost a bundle, but Victoria's Secret can at least take comfort in the fact that it's in good company. “This summer alone, we've treated about 20 stores,” says Diego Vasquez, general manager at West Village-based exterminator EcoChoice. “Last year, it was mostly residential, but this year, we're getting a lot of calls from federal and city buildings, libraries. It's growing.” Bedbugs—nocturnal, bloodsucking insects about the size of an apple seed and notoriously tough to eradicate—are taking a bite out of Manhattan business this summer. Once perceived as an outer-borough residential scourge, they've been found nesting in some of the city's priciest spaces in recent weeks. The bugs may be little, but their effect can be big, from damaging a brand's image, to sparking major changes in retailers' return policies, to requiring frequent pest-control checkups that can cost thousands of dollars a visit. So far, infested stores in Manhattan include Abercrombie & Fitch's South Street Seaport shop, its Hollister division's SoHo flagship, the Bed Bath & Beyond-owned BuyBuy Baby in Chelsea.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Winn-Dixie to Cut 120 Jobs, Close 30 Stores
Winn-Dixie Stores Inc. said that it will close 30 of its underperforming stores and cut more than 120 jobs to cope with weak sales. The company said the difficult economic and retail environment have hurt its sales. As a result, it will close certain stores and an unspecified number of employees at those sites. In addition, it will cut 120 corporate and field support staff and consolidate its four operating regions into three. Winn-Dixie plans to save $12 to $17 million annually as a result, starting in the first quarter. "We continue to operate in a particularly difficult economic and retail environment in the Southeast," Chairman, CEO and President Peter Lynch. The store closures and position eliminations are expected to be completed by the end of the company's 2011 first quarter, which ends on Sept. 22.
Report: Magic Hat Brewing Company Sale Imminent
A beer industry publication reports Magic Hat Brewing Company -- Vermont's top beermaker -- is expected to be sold "within days" to a large national brewery, North American of Rochester, N.Y. -- makers of Genesee Cream Ale. Company CEO Alan Newman had no comment. Newman co-founded Magic Hat in 1994 on Flynn Avenue in Burlington, moving to larger headquarters off Bartlett Bay Road two years later. Magic Hat is a regional "craft" brewery, according to the Brewers Association trade group, and Vermont's largest producer, employing about 130 people.
Safeway Files Debt Offering
Safeway filed a prospectus to sell an unspecified amount of new, 10-year notes and use the proceeds to repay $500 million in notes due Aug. 16. The company said it would use a portion of the proceeds to repay outstanding short-term borrowings and the rest, combined with additional short-term borrowings, to repay the $500 million in 4.95% notes. Fitch Ratings said it assigned a rating of "BBB" to Safeway's new offering with a rating outlook of "stable."
Home Improvement/Auto Repair
Billy Busko
O'Reilly Automotive's Profit Up 16 Percent
O'Reilly Automotive Inc. posted a 16 percent increase in profit on higher sales. The automotive parts retailer said that net income was $99.6 million, or 71 cents per share, in the second quarter, up from $85.5 million, or 62 cents per share, a year earlier. The company earned 81 cents per share on an adjusted basis, which excludes a charge of $15 million for estimated costs set aside to resolve an investigation undertaken by the Department of Justice. Sales rose 10 percent to $1.38 billion, as comparable-store sales rose nearly 8 percent.
Tractor Supply to Split Stock 2-for-1
Farm and ranch store chain Tractor Supply Co. said its board has approved a two-for-one stock split of its shares. Shareholders of record as of Aug. 19 will receive an additional share for each one they own. As a result of the split, Tractor Supply's number of outstanding shares will increase to about 72.6 million from about 36.3 million. The company also declared a regular quarterly dividend of 14 cents. The dividend is payable Aug. 31 to shareholders of record as of Aug. 16. Shareholders will get the dividend based on the number of shares they own before the split. The company expects the newly issued shares to be distributed on Sept. 2.
NADA: Dealer Profits Soared Through May
The average dealer's net profit before taxes nearly doubled in the first five months of the year over last year, to $278,814, the National Automobile Dealers Association said. The average net pretax profit margin was 2.3 percent, up from 1.3 percent in May last year. Net margins above 2 percent have been rare over the past 30 years, NADA records show. NADA attributed the strong results to healthy sales increases in new- and used-vehicle departments, higher new- and used-vehicle profit margins, radically reduced vehicle inventory and low interest rates.
Housewares/Furniture
Billy Busko
HauteLook Sets Its Site on Home
The online private sale and auction business—a retail model that virtually didn’t exist just two years ago—continues to grow in home and HauteLook is one of the players making that happen. As with many of its competitors—all of whom feature name brand goods at a discount, available for a limited amount of time to members—HauteLook focuses primarily on fashion apparel, but since moving into home 18 months ago it has watched that category boom. “It’s one of our fastest growing areas,” said Kecia Hielscher, vice president of home for the Los Angeles-based company. The site, which launched in September 2007 and now has two and a half million members, has held more than 2,000 sale events with more than 900 brands. Since moving into home in January of last year, HauteLook has held more than 230 home events with over 160 home brands. Hielscher said her company differentiates itself from the competition—which includes Gilt, One Kings Lane and Rue La La, among others—by having a “more West Coast chic aesthetic.”
Keurig Boosts Green Mountain Third-Quarter Results
Keurig and its Single-Cup Brewing System played a significant role in parent company Green Mountain Coffee Roasters’ dramatic sales and bottom-line growth in the company’s fiscal third quarter. Net income for the quarter jumped 31 percent to $18.6 million, and net sales rose 64 percent to $311.5 million. The statement said shipments of Keurig’s K-Cup portion packs and brewers had a major impact, with K-Cup shipments increasing 72 percent over the third quarter of last year and brewer shipments almost doubling in the quarter. The statement said these shipment increases were “the two primary drivers” in Green Mountain’s overall sales growth. In addition, Green Mountain reported a 159 basis-point rise in its third-quarter gross margin, which finished at 35.2 percent. Selling and operating expenses increased 62 percent, and general and administrative expenses doubled. However, thanks to Green Mountain’s sales growth, both cost figures remained in check as a percentage of sales.
iRobot Goes from Loss to Profit in Second Quarter
Riding the wave of a significant increase in home-robot sales, iRobot posted second-quarter net income of $5.3 million, compared to a net loss of $2.6 million in the second quarter of last year. The company said in its statement on the quarter’s results that international home-robot revenues jumped by more than 80 percent in the quarter, while domestic revenue from home robots rose 20 percent. This helped boost net revenue by 59 percent to $97.8 million. Among iRobot’s home-robot products is the Roomba floor-vacuuming robot. iRobot’s gross margin finished the quarter at 34.7 percent, 800 basis points ahead of the second-quarter gross margin last year. Total operating expenses increased 27 percent, but dropped 670 basis points as a percentage of total sales to 26.2 percent.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Behind Disney's Digital Shopping Spree
Four years ago, Bob Iger, the chief executive officer of Walt Disney (DIS), tried to build a cell-phone business. Disney created a family-oriented mobile service that included a global positioning system so parents could track their kids. Too few consumers signed up, and the company killed the operation after 15 months. Disney Interactive, the division that ran the ill-fated cell service, is still unprofitable. It lost $55 million last quarter. Iger retains his enthusiasm for digital business and has switched strategies to buying rather than building. He wants to acquire social games and other online services that come with established customers and talented creators—and can help sell Disney's famous brands. "You don't get the kind of growth we want by building from the inside," he says. Since paying $350 million for the kids' social network Club Penguin three years ago, Disney has purchased Wideload Games, whose founder helped create Microsoft's (MSFT) hit Halo franchise. Early last month, the entertainment giant acquired Tapulous, a publisher of music-related games for Apple's (AAPL) iPhone. On July 27, Disney made its biggest video game bet yet, agreeing to pay $563 million for privately held Playdom, the Mountain View (Calif.) maker of Sorority Life and Mobsters, which are played on Facebook, MySpace, and mobile phones.
Iconix Brands' Fieldcrest Lagged Despite Record Results in Q2
Iconix Brand Group Inc. had a "record" second quarter, ringing a 35% increase in total revenue and a 25% gain in net income over the prior year, despite sales slowness for its Fieldcrest home products at Target. " Another home segment for Iconix that has lately shown "general softness" is Waverly. But Cannon, which sells at sister retailers Sears and Kmart, is giving the brand company reason for optimism - and expansion efforts, especially with new products in store this season. Charisma, which sells at Costco Wholesale Club, was also singled out as a "strong" brand in Iconix's growing portfolio. For the company, second-quarter results included many highlights. Total revenue grew by 35% to $76.0 million, compared to $56.4 million in the year-ago period. EBITDA attributable to Iconix was approximately $49.4 million, an 18% increase as compared to approximately $41.8 million in the prior year.
Jewelry/Mining
Mark Lenz
Golden Gate Raises Zale Stake, Now Biggest Investor
Private equity firm Golden Gate Capital has increased its stake in Zale Corp and become the jewelry store operator's largest shareholder. Golden Gate, which took a 19.9 percent stake in Zale in May and lent the struggling retailer $150 million, exercised warrants to buy another 4.7 million shares, bringing its stake in Zale to 34.5 percent, according to a filing on Thursday with the U.S. Securities and Exchange Commission. With that stake, Golden Gate has vaulted past Breeden Capital Management LLC, which owns 28.3 percent of Zale and is controlled by former U.S. SEC Chairman Richard Breeden, as Zale's largest investor.
Zalemark to Debut Shopping Channel
Jewelry design and development agency Zalemark Holding Co. is buying the remaining assets of now-defunct multimedia retailer Gems TV, and plans to launch a new home shopping network this fall, National Jeweler has learned. Steven Zale, the award-winning design director of Zalemark, said that by the end of July or in August, his company expects to close on the purchase of the television studio and equipment that once belonged to Gems TV, the home shopping channel that filed for bankruptcy and went off the air this past spring. Zale would not disclose the purchase price. On Sept. 1, Zalemark expects to introduce a new player on the home-shopping scene: LuxTV, which will offer nearly all the Zalemark brands--Demeter, Steven Zale Beverly Hills, B. Smith and Paris Blues (Badgley Mishka and Seventeen jewelry will not be included)--as well as other jewelry lines, at steep discounts both on-air and on the Internet at ShopLuxTV.com.
Fewer Jewelry Firm Closures in H1 2010
For the first six months of 2010, the U.S. jewelry industry lost only 48 retail jewelry firms versus a loss of 300 firms for the first six months of 2009, according to newly released data from the Jewelers Board of Trade. We view this as good news: the recession-driven exodus of American jewelers has finally tapered to a dribble. The news is similarly positive at the wholesale and supplier leve. For the first six months of 2010, the number of U.S. jewelry wholesalers exiting the business dropped by half: a net of 44 firms closed this year versus 88 closings in the same period last year. Among U.S. jewelry manufacturers, a net of 32 firms have closed this year through June, down from last year’s 45 closings for the same six-month period.
Bridgepoint Set to Buy French Jewelry Chains for $783 Million, Merge Them
Bridgepoint Capital Ltd., a U.K. buyout firm, is in exclusive talks to acquire and merge French jewelers Histoire d’Or and Marc Orian. Bridgepoint may purchase the two jewelry chains for a total 600 million euros ($783 million), according to a person familiar with the transaction, who declined to be identified because the discussions are private. “The transaction will allow the new group to become the European leader” in jewelry retail, according to a statement from Silverfleet Capital Ltd., owner of Histoire d’Or. A spokesman for Bridgepoint declined to comment. Buyout firms announced $75.6 billion of takeovers this year, more than double that in the same period of 2009, as they started doing deals again following the global financial crisis, according to data compiled by Bloomberg. Bridgepoint bought HobbyCraft Group Ltd. for an undisclosed amount in April and Care U.K. Plc for 281 million pounds ($441 million) in March.
Stephen Webster to Open First U.S. Retail Store
Stephen Webster, the London-based jewelry brand known for its dramatic creations and glam-rock marketing, has announced plans to cross the pond to open its first U.S. flagship store. The U.S. opening will reinforce the brand's position as one of the leading global luxury jewelry brands and highlight the rapid expansion of Stephen Webster's retail portfolio, the company said in a media release. Set to open in November 2010, the store will be located on Rodeo Drive in Beverly Hills, Calif., an apt location given the brand's celebrity following, which includes fans such as pop stars Christina Aguilera (who is also the face of the brand's advertising campaign), Jennifer Lopez and Madonna.
Men's Jewelry: A Recession-Proof Luxury
The luxury market took a beating in the down economy. No surprises there. But one segment has unexpectedly doubled since 2007: the men's jewelry market. Spending on men's jewelry now accounts for 20% of consumers' high-end-jewelry expenditure. "Men are buying jewelry to show they pay attention to their appearance. In this competitive work environment, it's a necessity to stand out," says Pam Danziger, founder of Unity Marketing. Her company's "Personal Luxury Report 2010" found that while affluent consumers' purchases of women's jewelry increased 6.5% from 2007 to 2009, men's jewelry buying increased 10% in the same period. Unity surveys a sample of the top 20% of affluent Americans, with an average annual income of $220,200. What's more, men are in most cases buying themselves the jewelry. "Men's jewelry is not a popular gift choice. So it's not wives buying jewelry for their husbands. It's men buying it because they like a piece," says Danziger. Unity's research has shown young affluents — under 40s — are the fastest-growing and most voracious consumers of luxury brands. In essence, the perception that masculine men don't wear jewelry has lost out to the metrosexual era.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Toys `R' Us Said to Seek $1.8 Billion Credit Line Ahead of Public Offering
Toys “R” Us Inc., the retailer acquired by KKR & Co., Bain Capital Partners LLC and Vornado Realty Trust in 2005 for $7.5 billion, is said to seek a $1.8 billion revolving line of credit. The largest U.S. toy-store will use the revolver to refinance a $1.61 billion credit line that matures in May 2012, the people said, who declined to be identified because the terms are private. The financing will be secured by the company’s receivables and inventory. Toys “R” Us is seeking to extend the maturity on its credit line as the Wayne, New Jersey-based company tries to improve its credit profile since the 2005 leveraged buyout added debt to its balance sheet. The company, which had long-term debt of $4.9 billion as of May 1, plans to raise as much as $800 million in an initial public offering.
Jo-Ann Revamps Products, Stores
Jo-Ann Fabric and Craft Stores announced that it is offering many new products this summer including an exclusive collection called "Life's Little Occasions." This affordable line of embellishments focuses on "little" life events and activities that might not be included in typical papercrafting sets, such as pet firsts, baby's first haircut, learning to ride a bike, homeschooling and even funerals, the company said. "Summer is a great time to explore new hobbies," said Brent Beebe, VP crafts merchandising for Jo-Ann Fabric and Craft Stores, the country's leading fabric and craft specialty retailer. "Whether an experienced crafter or someone just dipping their toe in the crafting pool for the first time, our expanded selection of products will spark their imagination and get their creative juices flowing."
Restaurants/Food Service
Mark Boucher
CPK May Have a Bidder
California Pizza Kitchen Inc. shares got a boost earlier this week from reports that private-equity firm American Securities Capital Partners was preparing a bid for the casual-dining chain. Citing unidentified sources, the New York Post reported that New York-based American Securities was in “advanced talks” with the Los Angeles-based chain and securing financing. California Pizza Kitchen said in April that it had hired financial advisory firm Moelis & Company to look at a range of strategic alternatives to enhance shareholder value, including a possible sale or merger. Spokeswomen for both CPK and American Securities declined comment on the reports.
Uno Emerges From Chapter 11 with Financing from WFCF
Uno Restaurant Holdings Corporation announced that it has emerged from Chapter 11 pursuant to its plan of reorganization, confirmed by the U.S. Bankruptcy Court for the Southern District of New York on July 6, 2010. In connection with the emergence from Chapter 11, the company arranged for $55 million of permanent, long-term exit financing comprised of a $30 million revolving credit facility, due in July 2015, provided by long-standing lender Wells Fargo Capital Finance, part of Wells Fargo & Company, and $25 million of new notes, due February 2016, provided by a majority of the new equity holders. The exit facility allowed the company to repay all outstanding amounts under its former debtor-in-possession credit facility, implement the provisions of the Plan, pay transaction costs and provide significant liquidity going forward to fund working capital needs and the company's growth and investment plans. Pursuant to the Plan, 100% of the company's $142 million, 10% senior secured notes, due in February 2011, has been converted into substantially all of the equity of the company, thereby eliminating $14.2 million in annual interest payments and reducing total debt from $176.3 million to approximately $40 million.
Banking & Lending
Douglas Stebbins
Retailer Bonds Pull Away: Credit Markets
Retailers, buoyed by sales growing at the fastest pace in four years, are outperforming the U.S. corporate bond market as investors wager the economy will avoid a double-dip recession. The bonds have returned 2.8 percent since the end of May as the market gained 1.9 percent, according to Bank of America Merrill Lynch index data. Greensboro, North Carolina-based apparel maker VF Corp., the index’s best performer in June, returned 5 percent for the month. Retail sales expanded at an average monthly rate of 3.8 percent in the first five months of the retail year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said today. Retailer debt returns exceeded the average for U.S. corporate bonds in each of the past three months, Bank of America Merrill Lynch index data show. Retailers returned 3.25 percent in June, compared with 1.89 percent for the market. Bonds from Bentonville, Arkansas-based Wal-Mart, the world’s biggest retailer, returned 3.61 percent last month. Target Corp. of Minneapolis, the second-biggest U.S. discount retailer, gained 4.2 percent.
Big Firms Win in Small-Business Bill
A Senate bill promoted as a boon to small businesses includes significant tax benefits for large companies, too. The costliest provision in the bill is a tax break for companies that make large capital purchases, including airlines and telecommunications firms. The "bonus depreciation" tax break expired at the beginning of this year, and the bill would extend it for equipment purchased in 2010, permitting firms to write off 50% of the cost of equipment this tax year, rather than over a longer period. The provision would reduce federal revenue by $5.5 billion over the next 10 years. Small businesses are less likely to benefit from bonus depreciation, because they can already write off 100% of equipment costs up to $250,000. The Senate bill proposes to increase that limit to $500,000. "A really large firm, or medium-sized firm will be more interested in bonus depreciation," said Alan Viard, an economist at the American Enterprise Institute, a conservative think tank.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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