The Weekly Consensus: Week of August 9, 2010
Wedded Blitz
Kristen Nill
It's been difficult to miss the reviews of Chelsea Clinton's wedding. The initial outrage at the price tag and the openly disgruntled citizens of Rhinebeck, NY were quickly tempered by a backlash of "mind your own business" and "who cares?". I am a part of the group that feels that Chelsea is the Clintons' only daughter, and they have the money, so why not? Considering the people involved, it's understandable that this wedding has been subject to such scrutiny. What is difficult to understand is why people seem so surprised at what they have seen; this wedding is not the first celebration of such financial magnitude. Megaweddings are an industry unto themselves: WEtv aims to "capture the drama and decadence of wedding planning on an extraordinary budget" on their "Platinum Weddings" series, and TLC's "Say Yes to the Dress" and "Wedded to Perfection" are dedicated to pricey designer gowns and out-of-this-world event planning. Overall, $72 billion is spent in the United States every year on weddings. Granted, the former Miss Clinton's individual cost was higher than the average ($2 million vs. $20,000), but considering even both of these figures begs the larger question: why do people spend so much?
The most obvious answer is also the most traditional: people spend to commemorate the joining together of two families, the public announcement of commitment, the celebration of a lifetime. Weddings are sentimental events and it's hard to put a price tag on the joy of such a milestone.
But the words "I do" should hold the same meaning whether you are standing in a $15 white sundress or a $15,000 hand beaded gown. Why is it that so few people choose the sundress? Despite the traditional rationalizations, underneath I suspect there is a considerable need to "keep up with the Joneses" when it comes to weddings. If this was not the case, there would be no need for the endless magazines, network TV specials, websites and blogs all broadcasting the top trends-of-the-moment in bridal fashion, reception décor, color schemes and invitations. American culture in general revolves around money and what's hot: people want to have (have to have) the latest cars, the biggest TVs, the most expensive handbags. Conspicuous consumption and materialism are inherent in our society and are visible tokens of social status. Why should anything be different when it comes to weddings?
Perhaps, then, weddings aren't about the bride after all. Rather, they are a show (for lack of a better word) put on for everyone else. People analyze everything from the dress to the favors to the cake. Even Chelsea Clinton can't escape this, although in her case, the only thing left to judge is how much she spent on perfection.
Luckily, this idea is part of what makes the wedding industry nearly recession-proof. Most people are going to spend for their special day whether they have the money or not. In other words, weddings are good for the economy! Supporters of Chelsea's nuptials have hailed the amount of money paid to local vendors and venues, and while a $20,000 wedding may not have quite the same effect, there is another important note to consider: nearly all soon-to-be-weds have a registry. In addition to the money (large or small) they themselves spend, their guests and family members contribute another $19 billion each year to the retail industry by way of their gifts.
It's not terribly romantic to talk about the financial side of weddings. It's much nicer to toast an intimate and wonderfully moving commitment ceremony and then dance at the party thrown for the occasion. Still, it's impossible to ignore how expensive the four little words "Will you marry me?" have become.
Apparel/Swimwear/Intimates
Betsy White
The Big Market for Big Kids' Clothes
Overweight children may be the next cash crop for retailers. Childhood obesity is on the rise, and no one is excited about the prospects for affected children. But the public health crisis may prove an opportunity for retailers: Plus-size kids clothing is one of the most promising niche markets in the fashion world. As the waistlines of American adults have expanded, so have those of their kids: According to the U.S. Centers for Disease Control and Prevention, an estimated 17% of children up to 19 years old are obese. That number is far higher than it was just a few decades ago: among preschool children aged 2 to 5 obesity increased from 5% to 10.4% between 1980 and 2008, from 6.5% to 19.6% among those aged 6 to 11 and from 5% to 18.1% among adolescents aged 12 to 19. Plus-size clothing is already a major segment of the fashion business: Sales of women's and girls' plus-size apparel is a $47 billion industry, accounting for 27% of all clothing sales and nearly 40% of all women's and girls' apparel sales. Meanwhile, overweight kids are starting to demand access to the same things their thinner counterparts have: cool, well-made, trendy clothing. And children are a growing market with serious spending power: By 2020 population estimates predict there will be 80 million children in the U.S., accounting for about 24% of the population. Major retailers who already offer plus-size items for children include Sears, Lands' End, JCPenney and specialty tween retailer Justice. But whereas plus-sized adults can shop at their own stores, including Lane Bryant, Ashley Stewart, Avenue and Torrid, don't expect similar options for plus-sized kids. "The way to do it is to take a great children's brand and extend the size offerings," says McSweeney. "Children want to pull the same clothes off of the rack as their friends, not go to a different store and be isolated."
Hilco and Infinity Provide Financing to Frederick's of Hollywood
Hilco Consumer Capital, LLC, (“HCC”), and Infinity FS Brands, LLC, (“Infinity”) announced completion of a $7.0 million term loan to Frederick’s of Hollywood Group Inc. Hilco Brands acted as agent on the transaction. The loan, which is secured in part by the intellectual property of Frederick’s, including the company’s trade name and trademarks, is being used to repay a $.0 million bridge loan provided by Wells Fargo Financial and also for general working capital purposes. One-half of the loan’s principal amount and accrued interest matures on each of July 30, 2013 and July 30, 2014. The loan bears interest at a fixed rate of 9% payable quarterly in arrears, and an additional 6% in payment-in-kind interest that accrues and compounds annually.
Pink Launching NFL-Branded Apparel Line
Victoria’s Secret’s Pink brand this week is launching a line of apparel branded with more than a dozen National Football League teams. The Columbus-based chain set an Aug. 10 launch date for the line of licensed NFL apparel, which will appear in the home markets of the 13 teams in the collection. The apparel, which includes T-shirts, sweatshirts, hoodies and tank tops, will be available starting August 4 at vspink.com. Teams featured in the collection are the Chicago Bears, Dallas Cowboys, Denver Broncos, Minnesota Vikings, New England Patriots, New York Giants, New York Jets, Oakland Raiders, Philadelphia Eagles, Pittsburgh Steelers, San Diego Chargers, Washington Redskins and Carolina Panthers. The NFL line marks Pink’s second venture into professional sports-licensed apparel. The company this spring began selling a Major League Baseball line in more than 100 stores.
Polo: An American Icon Adopts a Global Perspective
Ralph Lauren is into Phase Two. The designer has built an empire with sales of $10 billion and a brand that is recognized worldwide - yet believes Polo Ralph Lauren Corp. is just starting its next phase of growth. "I feel like this is the beginning of our company," said Lauren, chairman and chief executive officer, in his comments to shareholders at the firm's annual meeting Thursday at New York's St. Regis Hotel. "A whole new world is opening up for us. We brought back our licenses in Asia, and we've just visited China. There is a whole new world there that we haven't even seen. We're building our business for time to come.
Athletic & Sporting Goods
Michael O'Hara
Big 5 Sees Slight Profit Gain in Second Quarter
Big 5 Sporting Goods Corporation today reported that second quarter net sales increased to $219.8 million from net sales of $216.0 million for the second quarter of fiscal 2009. As the company previously reported, same store sales for the quarter decreased 0.5% versus the comparable period last year. Gross profit for the fiscal 2010 second quarter increased to $73.0 million from $71.3 million in the second quarter of the prior year. The Company's gross profit margin was 33.2% in the fiscal 2010 second quarter versus 33.0% in the second quarter of the prior year. The improvement in gross profit margin reflected an increase in merchandise margins of approximately 10 basis points and the leveraging of distribution costs, partially offset by increased store occupancy costs. Net income for the second quarter of fiscal 2010 was $4.8 million, or 22 cents per diluted share, compared to net income of $4.7 million, or 22 cents per diluted share, for the second quarter of fiscal 2009.
JanSport: Started for Hikes, Sustained by Students
You can thank the rain in Seattle for helping to make San Leandro-based JanSport a household name when it comes to backpacks. In 1967, when the company first started selling compact backpacks designed for day hikes, students at the University of Washington also found them useful for carrying books. "That pack was actually designed for just day hikes and cross-country skiing," said Skip Yowell, a 64-year-old Pleasanton resident and one of the three co-founders of JanSport who is still with the company. "Some students started buying them and putting books in them because it rains so much in Seattle. In a way, that was the start of the book-bag business." Today, it's hard to go to a college campus, drive past a school bus stop or hop on a subway without seeing someone carrying a backpack with the iconic JanSport logo."I would say they are the largest maker of backpacks," in the world, said Marshall Cohen, chief industry analyst for NPD Group. JanSport was the market leader in backpack sales followed by High Sierra, Adidas and Nike, according to NPD. JanSport's prominent position is no small feat, given there are lots of backpack brands to chose from, including DaKine, Eagle Creek, Nike, The North Face, and Patagonia, to name few.
Gaiam Revenues Drop 6.7% in Q2
Gaiam Inc. reported net revenue for the second quarter ended June 30, 2010 declined 6.7% to $56.4 million from $60.5 million recorded in the same quarter last year. A weakening in the consumer environment and the timing of some orders from retailers, combined with planned reductions in catalog circulation and the closure of unprofitable businesses during last twelve months, resulted in a decline in second quarter revenue. Profitability improved despite lower revenue and additional costs incurred to consolidate warehouses. Gross profit decreased to $28.9 million, or 51.3% of net revenue, for the second quarter of 2010, from $31.4 million, or 52.0% of net revenue, during the comparable quarter last year. The change in gross margin resulted primarily from increased revenues in the lower margin solar segment. Excluding the solar segment, gross profit, as a percentage of net revenue, increased to 61.4% for the second quarter from 59.0% during the comparable quarter last year.
Catalog & Internet
Christopher Ellis
Shops Grapple with Fallout from Group Coupons
Local shops nationwide are pulling in thousands of new customers with group coupons online, but the deals can sometimes work too well, turning marketing into a game of retail roulette. Some of the nail salons, restaurants and other small shops that have sold the coupons have risked both new and existing business as they struggled to handle the surge in clients. For Crystal Nail Salon in Chicago, ratings at web sites like Yelp.com tumbled as owner Phu Bui struggled to serve up the 5,100 manicure-pedicure combinations he sold in June for 65 percent off. Chicago-based Groupon, credited with creating the group discount concept and still the ballooning trend's leader, typically keeps half the coupon's selling price and charges retailers a processing fee. It e-mails deals daily to 11 million shoppers in 150 cities in 19 countries and this month started tweeting about group deals to many millions more. The messages, which cost retailers little up front, typically promote a service at a significant discount and require a minimum number of participants (the group) to take effect. CEO and founder Andrew Mason of Groupon says the company explains the risk shops take when they sign on. It tells its 30,000 clients not to expect to turn a profit on the deals and suggests they limit the number of coupons they sell. The company also thinks the risk of drawing too many customers will ease as it starts drilling down to offer coupons tailored to neighborhoods and smaller cities.
What, Precisely, Constitutes Mobile Commerce?
When Amazon.com Inc. last week announced it hit $1 billion in mobile commerce sales in the last 12 months, retailers and industry experts knew it was an important milestone. But there is an important caveat to this massive figure: It includes the sales not only of e-books through the Amazon Kindle e-reader but of the e-reader itself. Since the e-reader hardware can be purchased through the e-commerce site, which is likely where most are bought, industry observers say, those sales cannot be counted as m-commerce. But then comes the question of selling e-books via portable Kindle devices. Is that m-commerce? Two research firms that follow mobile commerce say no, primarily because an e-reader does not fit their definitions of what constitutes a truly mobile device. “Mobile commerce must involve handsets that require specialized software to render web sites or run mobile apps that facilitate the purchase of physical or digital goods,” says Mark Beccue, senior analyst, consumer mobility, at ABI Research. “Are laptops, netbooks, e-readers and tablet PCs with wireless connectivity considered mobile devices in this context? No. The reason is because these devices have adequate processing power, memory, browser capability, screen size and resolution to conduct regular e-commerce. Mobile handsets require specialized software for consumers and a separate approach by retailers to enable purchases.” Using this definition, ABI Research said earlier this year that U.S. m-commerce sales reached $1.2 billion in 2009, with Amazon.com and eBay Inc. taking the lion’s share. The research firm predicts mobile commerce sales will hit $2.1 billion this year and $10.7 billion by 2015.
Consumer Electronics/Video/Audio
Douglas Stebbins
ISuppli: More Phones to Use Android than Apple iOS by 2012
More smartphones will be using Google Inc.'s Android operating system than Apple Inc.'s platform in 2012, according to research firm iSuppli. Google has seen its platform skyrocket in recent months as it has been featured on a number of high-profile phones, including the Droid X, released in June. Apple's software, available only on its own devices, has also increasingly gotten into users' hands because of blockbuster sales of its iPhone 4. Android will be used in 75 million smartphones in 2012, up from 5 million in 2009, while usage of Apple's iOS will rise to 62 million from 25 million, iSuppli said. Such a shift would give Android 19.4% of the global market for smartphone operating system, while Apple's share would be 15.9%, up from 13.8% last year. "The flexibility Android offers for hardware designs and its appealing business model in terms of revenue sharing have attracted vigorous support from all nodes in the value chain, including makers of high-end smart phone models," iSuppli senior analyst Tina Teng said.
PS3 Sales Advance
Sony's recently released fiscal first quarter, ended June 30, sales results stated the company sold 2.4 million PlayStation3 (PS3) consoles in the period, bringing cumulative global sales of the advanced Blu-ray-based gaming platform to 38.1 million units. The results showed continuously increasing growth in demand for the game system, as cumulative totals begin to catch up to Microsoft's Xbox 360 platform. Comparatively, Sony sold 3.5 million PS3 units in its first fiscal year of availability. In fiscal 2007, annual sales totals rose to 9.1 million units. In fiscal 2008, annual sales rose to 10.1 million units, jumping to 13 million in fiscal 2009, following the release of a streamlined version of the player. For this year, Sony has forecasted sales of 15 million PS3 units in 2010.
B&N to Expand In-Store e-Reader Departments
Barnes & Noble is expanding its in-store Nook displays. A year after entering the e-book market, the book retailer has begun expanding its in-store Nook e-reader displays into what it calls Nook Boutiques. These 1,000-square-foot departments will feature demonstration tables and multiple Nooks available for demonstration. An adjoining wall will display more than 100 accessories, including Nook covers, and a large flat-panel display that will feature video demos of Nook e-book readers. Each Boutique will be staffed by what the company called "knowledgeable booksellers" who will demo the Nook, help consumers download Barnes & Noble's free Nook software to smartphones and to other computing devices, and provide other ongoing support.
Apple Retail Store Revenue Soars on Strength of iPad
"Apple’s retail store revenue increased 72.8 percent year over year to $2.58 billion in the June quarter," John Paczkowski reports for AllThingsD. "That means, according to Needham analyst Charlie Wolf, that Apple Store revenue for that period was greater than the company’s total quarterly revenue from the second quarter of fiscal 1996 through the fourth quarter of fiscal 2004," Paczkowski reports. "The engine driving those rising revenues? The iPad, whose launch generated a 38.7 percent increase in visitors per store, a 52.9 percent increase in same-store revenues, and a stunning 106.3 percent increase in non-Mac revenues," Paczkowski reports.
Cosmetics & Pharmacy
Billy Busko
P&G Aims to Keep Up Market Share
Procter & Gamble Co. made good on its mission to reach more consumers in more places in 2010, helping the firm to reverse market share losses from one year ago. “In fiscal 2010, we reached an additional 200 million consumers, bringing the total we served to 4.2 billion, on track toward our goal of serving 5 billion consumers by 2015,” chairman, president and chief executive officer Bob McDonald told analysts during the company’s fourth-quarter earnings call Tuesday. “We are growing market share now in about 60 percent of our business. It was half that a year ago,” said McDonald. The company plans to increase share by growing globally, as well. McDonald noted that all 36 of the company’s categories are sold in the U.S., but only 16 are sold in China. “That’s the white space,” he said. “We’ve got a lot of work to do to get the categories that we currently are in into all markets.” The company introduced the bulk of its 2010 innovations — including Gillette Fusion ProSeries men’s skin care and the overhauled Pantene hair care range — in the fourth quarter, and expects their impact to carry over into this year.
Mary J. Blige Shatters Sales Records at HSN
For any industry executives wondering if it is possible to launch a fragrance exclusively on a home shopping channel, Mary J. Blige has proven the answer is yes. Blige, whose debut scent, My Life, went live on HSN at midnight Saturday, sold more than 72,000 stockkeeping units of fragrance and ancillaries in 24 hours — an HSN record — generating at least $3 million in retail sales, according to industry sources, and turning the traditional fragrance marketing paradigm on its ear.
Physicians Formula Profits More Than Double
The problem-solution cosmetics company Physicians Formula Holdings Inc. on Thursday reported second-quarter net profits were $1.4 million, or 9 cents a diluted share, compared with $591,000, or 4 cents a share, in the year-earlier period. The quarter included a noncash intangible asset impairment charge of $1.1 million. Sales during the three-month period ended June 30, dipped 1.4 percent to $20.8 million, down from $21.1 million in the year-ago period. Sales were hampered by the loss of Walgreen Co., a major drugstore customer, last year. Excluding the impact of the lost retail partner, sales would have increased 3 percent in the quarter, according to the company. For the first half of the year, net income was $1.9 million, or 13 cents a diluted share, compared to a loss of $1.1 million, or 8 cents a share, in the year-ago period. Sales for the six month period gained 6.1 percent to $43.7 million, compared to $41.2 million.
Salon Firms Try Many Approaches to Drive Business
To each his own. The phrase never rang more true when looking at the various strategies professional firms are utilizing to get salon services and retail sales back on track. While the dark curtain may be lifting — salon and spa owners surveyed by the Professional Beauty Association reported 3.7 percent and 0.4 percent increases in first-quarter service and retail sales, respectively — some professional companies are faring better than others. And it may be relative to how they’re approaching the market. Indeed, value pricing for “affordable luxury” products helped John Paul Mitchell Systems realize double-digit sales gains over the past two years, despite the downturn, but continuing and growing consumer advertising may be at the heart of their success.
Department & Discount Stores
Mark Lenz
Retailers' Big Test: Picking the Right Price
As summer comes to an end and students go back to school, the retail industry is preparing for its first big test of the fall semester—picking the right price. “I think what the retailers are going to have to do is price, price, price,” says Howard Davidowitz, chairman of Davidowitz and Associates, a retail consulting firm. This means retailers will have to continue placing pressure on their margins in order to lower their price points to attract those precious back-to-school dollars. “In the apparel arena it will be again ‘how low can you go?’” Davidowitz says, adding that, “The trick is to go low out of the box, not wait.” The challenge, he explains, is retailers are going to have to price just right while still retaining room for a profit margin as the economic downturn has created an appetite from consumers for lower-priced, but fashion-forward apparel. A survey released by the National Retail Federation predicts families will spend around $225 on back-to-school apparel such as jeans, shirts and other types of clothing, and around $102 on new shoes. That's part of an overall budget that's expected to show an increase compared with 2009. But some are skeptical. “A lot of people are saying it’s going to be up,” says Davidowitz. “I don’t believe it, because I think the economy is going the other way.” For retailers, back-to-school is the second-biggest business season behind the Christmas holiday.
Plus-Size Clothes Come to Home of New York Fashion
The fashion industry isn't renowned for promoting a wide range of body shapes, but a decision by US department store Saks Fifth Avenue to stock plus-sized womenswear by top brands could hasten a change in attitudes. The New York landmark has worked with "well-known designers" who have created autumn/winter pieces up to a US size 16 or 18 in some of their branches. Cutting-edge designers such as Chanel, Dolce & Gabbana, Fendi and Yves Saint Laurent are rumored to be involved in the project. A spokesman for Saks said: "After recent review, we concluded there are customers who desire designer clothing in sizes that are not currently available in our stores. We are especially proud to be leading the way in meeting the needs of this valued clientele."
Footwear
Michael O'Hara
Nike Fights Back Against Toning Shoes: Will It Win?
Over the past couple months, shoe and apparel giant Nike has been beaten down for its seemingly stubborn refusal to enter the toning shoe market, which is projected to surpass $1 billion in sales in 2010. After all, it’s the reason why its share in the women’s shoe market has declined. As Skechers and Reebok emerged as leaders in this new category, whose unique rocker bottom design claims to tone the body just by walking in them, Nike resisted, insisting that it wasn’t comfortable with the claims being made about what the shoe could do for the consumer. Many dismissed Nike’s company line as arrogance. The company that likes to be first was now destined to be last in the marketplace that now included Avia, New Balance and others. But a study released a couple weeks ago might suggest that Nike simply didn’t want to risk its enormous brand equity on a toning shoe category that could come crumbling down just as fast as it grew. The study released by the nonprofit American Council on Exercise (ACE) reflected that, in many cases, the shoes failed to live up to the promises the manufacturers of the shoes made.
DSW Q2 Sales Jump 12.3%; Raises Guidance
DSW Inc. announced net sales for the second quarter ended July 31, 2010 increased 12.3% to $415.1 million compared with $369.5 million for the quarter ended August 1, 2009. Same store sales increased 12.0% for the comparable period versus a decrease of 2.9% last year. Net sales for the twenty-six week year-to-date period ended July 31, 2010 increased 14.5% to $864.7 million compared with $755.3 million for the twenty-six week year-to-date period ended August 1, 2009. Same store sales increased 14.1% for the comparable twenty-six week period versus a decrease of 3.8% last year. The Company now estimates an annual comparable store sales increase of approximately 7% to 9% and annual diluted earnings per share of approximately $1.80 to $1.95 for fiscal 2010.
Asics America Sees More than 17% Growth in First Half
Asics America Corporation said sales grew more than 17% in the first half. For the second quarter (April-June) all categories are seeing double-digit growth, which is in line with the momentum from the first quarter of 2010. In a statement, Asics America said the solid growth can be attributed to an almost 20% increase in the apparel and accessories categories, particularly team sports. Retail distribution has expanded along with product offerings for volleyball, wrestling, track and field and a new category, field hockey. Footwear continues to maintain strong numbers with 15% growth.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Coach Bursts Out of Recession, Eyes China
Coach's fourth-quarter results may be indicative of continued improvement in the luxury goods market as the company posted a 34% jump in profit and issued bullish outlook for fiscal 2011. The leather goods and accessories retailer reported earnings of $195.5 million, or 64 cents per share, up from $145.8 million, or 45 cents per share, in the year-ago period. Coach, which reported a 22% climb in revenue to $950.5 million, beat The Street on both the top and bottom line. The three-month period ended July 3 included an additional week, which added about $70 million to total revenue. Without the extra week, sales would have risen 13% for the fourth quarter. The company believes China holds the biggest growth opportunity as they have already started developing a multichannel distribution model there. At the end of the quarter Coach had a total of 41 stores in China, where sales were robust throughout the quarter, and the company plans to open an addition 30 locations in fiscal 2011. The New York-based retailer is also entering Europe and plans to open its first standalone men's stores throughout the year. Coach operates 342 retail stores and 121 factory outlets in North America where direct-to-consumer same-store sales rose 6.3% on a comparable 14-week basis.
PetSmart Arrives in the Big Apple
This summer, Manhattan-area pets can have their specialty dog food and eat it too. PetSmart will make its Big Apple debut with the opening of two stores this year, offering pet parents a wide selection of products, professional services and advice for the total lifetime care of their pets – all under one roof. “We know the millions of pet parents in Manhattan often have to make multiple stops to fulfill their pet care needs, but now they can go to just one spot - PetSmart - and find all the products and services that will keep their pets happy and healthy” The first store, located in the East River Plaza shopping center, will launch on August 21 while the NoHo store opens in November. Both locations will introduce a home delivery option – a unique feature to meet the needs of the Manhattan pet parent.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Bill Eases Price Rules for Warehouse Clubs
Consumer groups want Gov. Deval Patrick to veto economic development bill provisions that would exempt warehouse clubs such as BJ’s Wholesale and Costco from grocery pricing rules. If passed, warehouse membership clubs would no longer be required to put price tags on items or place accurate price signs on shelves, the groups said. The clubs also would no longer face inspections and fines for scanner overcharges. “Warehouse clubs should be the last ones to be exempt from this law, because they are amongst the state’s worst offenders,” MassPIRG, the Massachusetts Consumers’ Coalition and ConsumerWorld.org wrote to Patrick.
Tops Ordered to Sell Seven Stores
The Federal Trade Commission ordered Tops Friendly Markets here to seek buyers for seven of the stores it had acquired from Penn Traffic earlier this year, following an antitrust review. The FTC, which had allowed Tops to complete the acquisition before the antitrust review was completed, said it found five local areas where "competition was an issue": Bath, Cortland, Ithaca (two stores) and Lockport, all in New York, and Sayre, Pa. (also two stores). "In each market there are no more than three supermarkets within a 10- to 15-mile area," the FTC said, citing the likelihood that Tops' purchase of the stores would lead to higher prices.
Whole Foods Posts 8.8% Comp-Store Gain
Whole Foods Market said comparable-store sales were up 8.8% in the fiscal third quarter, helping drive a 53.5% increase in net income. "We are pleased with our results, which compare very favorably to most other food retailers and show we are continuing to gain market share," said John Mackey, co-chief executive officer, in a prepared statement. The company said identical-store sales, which exclude three relocated stores, were up 8.4% in the 12-week period, which ended July 5. Net income was $65.7 million, and total sales rose 15%, to $2.2 billion.
Bashas’ Bankruptcy Judge to Hear Oral Arguments
Bashas' said a bankruptcy judge will hear oral arguments next Monday before deciding whether or not to confirm the chain's amended reorganization plan. The company and the unsecured creditors committee, which supports the plan, and representatives of the secured creditors, who do not, presented arguments to the judge last week. In a letter to employees, Edward N. Basha 3rd, senior vice president, said he believes the chain presented "a compelling case in support of our plan. And ... the consensus from our attorneys, vendors and members of the official committee of unsecured creditors is that the hearing went well for Bashas'.
Publix Sales, Earnings Up in Q2
Publix Super Markets reported improved sales and earnings in the second quarter. Sales of $6.2 billion increased 3.4% from last year's $6 billion, while comparable-stores increased by 2.4%. Net earnings improved 15.8% to $348.4 million and earnings per share were 44 cents, up from 38 cents. Publix in last year's second quarter saw sales decrease by 2.6%. For the first half of the year, sales of $12.7 billion are up by 2.7% as compared to 2009. Comparable-store sales for the first half increased 1.6%.
Home Improvement/Auto Repair
Billy Busko
PulteGroup Posts Profit for Q2
PulteGroup Inc. returned to a quarterly profit for the first time in more than three years, the nation's largest homebuilder said, boosted by its acquisition of Centex Corp. and as Americans bought homes ahead of the expiration of federal tax credits. Net income for the second-quarter ended June 30 totaled $76.3 million, or 20 cents per share. That compares with a loss of $189.5 million, or 74 cents a share, in the prior-year period. Results were helped by the company's acquisition of Centex, which closed in August 2009 and made the company the largest U.S. homebuilder. Prior-year results are not adjusted for the deal. The quarterly results also include about $45 million in land and mortgage charges, plus an $82 million benefit from income taxes. Revenue rose 92 percent to $1.31 billion from $678.6 million last year. Revenue benefited from the addition of Centex, which helped double closing volumes.
NPD Group: Home Improvement Shows Signs of Recovery
The NPD Group said home improvement market categories saw an overall dollar increase of four percent in the12 months ending in June, compared to the same time last year. Warehouse home centers were up two percent and hardware stores were up 21 percent in sales in the last 12 months. Home improvement categories such as garage storage/organization, kitchen/bathroom cabinets, vinyl tile, stain and interior paint generated the largest double-digit gains in retail dollar sales.
U.S. sales rise 5% in July; mixed results are year's 3rd-best
General Motors Co. and Ford Motor Co. posted their smallest U.S. sales gains of the year, while America Honda Co. and Toyota Motor declined as July results fell short of forecasts. Total industry sales advanced 5 percent from a year earlier for the smallest monthly increase since January. The seasonally adjusted annual selling rate was 11.55 million, the year's third highest. Some analysts had projected July would be the strongest month since last August, when the federal government's cash-for-clunkers incentive lifted the industry from its worst slump in almost 30 years. Demand cooled during the second half of last month after a sharp gain in retail sales at the start of July, J.D. Power and Associates said today.
Mohawk Rises on Q2 EPS Beat; Q3 Profit View In Line
Shares of Mohawk Industries (MHK), the $3.3 billion (market cap) maker of carpeting, tiling and hardwood flooring products for the home, are up 79 cents, or 1.6%, at $49.50 after the company this afternoon missed Q2 revenue estimates but beat on the bottom line and forecast the current quarter’s profit in line with expectations. Q2 revenue was down by a fraction at $1.4 billion, missing analysts’ estimate by $35 million. Profit per share of 77 cents was 6 cents better than expected. The residential flooring market improved from a year earlier, the company said, while the commercial floorings business was showing a slower rate of year-over-year decline in sales. For the current quarter, the company sees 70 cents to 79 cents per share in profit, in line with the average estimate of 74 cents.
Housewares/Furniture
Billy Busko
Green Mountain Coffee Leads The Single-Serve Revolution
Never underestimate the power of convenience, especially in a country that gave us the TV dinner, remote control and instant lotto winner. It stands to reason that the market leader in helping folks brew a quick cup of coffee would have no problem delivering robust sales and profits. So it goes at Green Mountain Coffee Roasters (GMCR). The company routinely serves up double-digit financial growth, thanks mainly to the popularity of its single-serve K-Cup brewing system. The system, made by Green Mountain's Keurig unit, lets consumers brew a single cup of coffee at home, work or at various commercial establishments. Sure, it sounds simple, so simple you'd think the market would be overrun by copycats. But Green Mountain's proprietary technology and aggressive campaign to build brand strength have kept it well ahead of the pack.
Newell beats estimates, but cautious on economy
Newell Rubbermaid (NWL.N) beat quarterly profit estimates, but warned that it expected weakness in the global economy to continue through the year. While the maker of Rubbermaid containers and Sharpie pens got help from developing markets like Latin America and Asia in the latest second quarter, it raised concerns about uneven sales trends in key markets like North America and Europe. "It has become unlikely that we will see a meaningful improvement in the macroeconomic situation over the next six months," Chief Executive Mark Ketchum said on a call. A U.S. Commerce Department report on Friday showed U.S. economic growth slowed in the second quarter as companies invested heavily in equipment from abroad and consumers spent less, raising concerns about the recovery in the rest of 2010.
Furniture Brands posts 2Q profit
Furniture Brands International reported a fiscal second-quarter profit of $4.2 million compared with a loss of nearly $16 million in last year’s period. The St. Louis-based Furniture Brands is the parent company of several North Carolina furniture manufacturer, including Thomasville Furniture and Broyhill. For the quarter ended June 30, the furniture maker said its revenue was nearly flat, up just 0.4 percent, to $289.5 million compared with $288.3 million in the 2009 quarter. Sales in the recent quarter reflect a net decrease of $12 million in the company's ready-to-assemble business as a result of exiting two unprofitable lines of business, the company said.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Economic Indicator: Even Cheaper Knockoffs
In this economy, even counterfeiters are trading down. After years of knocking off luxury products like $2,800 Louis Vuitton handbags, criminals are discovering there is money to be made in faking the more ordinary — like $295 Kooba bags and $140 Ugg boots. In California, the authorities recently seized a shipment of counterfeit Angel Soft toilet paper. The shift in the counterfeiting industry, which costs American businesses an estimated $200 billion a year, plays to recession-weary customers looking for downmarket deals, the authorities say. And it has been fueled in part by factories sitting idle in China. Almost 80 percent of the seized counterfeit goods in the United States last year were produced in China, where the downturn in legitimate exports during the recession left many factories looking for goods — in some cases, any goods — to produce. The answer is increasingly knockoffs of lesser-known brands, which are easy to sell on the Internet, can be priced higher than obvious fakes, and avoid the aggressive programs by the big luxury brands to protect their labels, retail companies and customs enforcement officials say. The results: Faux Samantha Thavasa bags for $113 and Ed Hardy hoodie sweatshirts for $82.50. And, bizarrely, imitations that are more expensive than the real ones: In 2007, Anya Hindmarch sold canvas totes that said “I’m Not a Plastic Bag” for $15. Now fakes are available on the Web for $99.
Levine Leichtman Acquires Franchise Business from NexCen
Levine Leichtman Capital Partners (LLCP), through its affiliate Global Franchise Group, LLC, has acquired the franchise business of NexCen Brands, Inc., a brand management company. LLCP is an investment firm. Both the entities are based in the US. LLCP, through its affiliate Global Franchise Group, has entered into an agreement to acquire the franchise business of NexCen Brands. The transaction is valued at $112.5 million. Under the agreement, LLCP's affiliate, Global Franchise Group, will acquire the subsidiaries of NexCen Brands that own the franchise business assets including all of NexCen Brand's interest in the Great American Cookies, MaggieMoo's, Marble Slab Creamery, Pretzelmaker, Pretzel Time, The Athlete's Foot (TAF) and Shoebox New York. In addition, it will also acquire NexCen Brand's franchise management operations in Norcross, Georgia, US and its manufacturing facility in Atlanta, Georgia, US.
ANTA Sports Signs Kevin Garnett in China
ANTA Sports Products Limited, a leading branded sportswear enterprise in China announced that it has signed NBA superstar Kevin Garnett as its second endorsed NBA player following Luis Scola. “Kevin Garnett's list of sporting achievements includes the title of NBA Champion, and NBA Most Valuable Player of the regular season and the All-Star Game, as well as NBA Defensive Player of the Year. Kevin Garnett will kick off his China tour in Beijing, Xiamen and Shanghai where he will take part in a series of basketball events to mark the NBA's highest-paid and greatest power forward joining the family of ANTA Sports. The theme of the tour is ‘For Basketball. Choose China.’"
Google Will Sell Brand Names as Keywords in Europe
The Internet giant Google said that it would change its search policy for most of Europe to allow advertisers to buy and use as keywords terms that have been trademarked by others. Previously, brand owners could file a trademark complaint with Google to prevent third-party ads from being returned alongside the results of a search of a trademarked name, like Louis Vuitton or Prada. Google’s move stems from a decision by the European Court of Justice in March. The court broadly ruled that Google had respected trademark law by allowing advertisers to bid for keywords corresponding to third-party trademarks. Brand owners, led by the French luxury goods company LVMH Moët Hennessy Louis Vuitton, had argued that only they or authorized sites should be able to buy and use such trademarked terms in searches, so as to protect their brand value.
Jewelry/Mining
Mark Lenz
Kay Jewelers Eyes Glamour to Boost Sales
Kay Jewelers parent Signet Jewelers Ltd (SIG.N) is raising its glamour quotient by introducing a line of diamond rings by celebrity designer Neil Lane in a bid to keep its market share gains going. The line, introduced at a recent Los Angeles event attended by celebrities like talk show host Ellen DeGeneres and entertainer Carmen Electra, includes 36 engagement and wedding ring designs ranging in price from $2,599 to $7,799 and will go head to head with upscale jeweler Tiffany & Co. Signet is initially testing the collection in about 100 Kay Jewelers stores and 30 stores in its upscale Jared chain, and plans to roll out the line into the rest of its stores next year if it meets sales targets.
Zale Shareholders OK Golden Gate Stake Up to 25%
The shareholders of chain retailer Zale Corp. have overwhelmingly approved the company's plan to give private equity firm Golden Gate Capital (GGC) up to a 25 percent stake in the company in exchange for a much-needed $150 million loan. According to Form 8-K filed Wednesday with the Securities and Exchange Commission, on July 23, Zale's shareholders approved the issue of approximately 6.4 million and 4.7 million in common stock upon the exercise of warrants by Z Investment Holdings LLC, a wholly owned subsidiary of GGC. The vote was 17,418,832 "for" and 235,945 "against," with 19,287 shareholders abstaining, the filing states.
Cartier Hits HauteLook with Lawsuit Over Watches
Cartier has filed a lawsuit against HauteLook in federal court in New York, alleging that the online designer goods retailer has been offering secondhand Cartier merchandise without authorization. In the suit, filed Tuesday in U.S. District Court in the Southern District of New York in Manhattan, Cartier describes its own 163-year-old history and its status as "one of the world's most prestigious and sought-after brands," and depicts Los Angeles-based HauteLook, Inc. as a newcomer "attempting to build its reputation as a company offering 'flash sales' of designer goods (claiming that they are never secondhand.)" The "never secondhand" claim is not true in the case of Cartier products sold on the site, asserts Cartier, which accuses HauteLook of false advertising, unfair competition and trademark infringement, among other allegations.
Blue Nile 2Q Sales +10% But Profits Flat
Blue Nile's second-quarter sales rose nearly 10 percent to $76.6 million and cost of sales rose 10.1 percent to $60.4 million, leaving the online diamond retailer with gross profit of $16.2 million. Net income though was basically flat at $2.8 million, or a penny lower per share from one year ago. The news sent Blue Nile shares tumbling after hours by 12 percent to $41.70 as of 5 p.m. in New York. Blue Nile grew international sales by 28.2 percent to $9.1 million, and excluding the impact from foreign exchange rates that increase was 21 percent. Based upon Rapaport calculations, Blue Nile's U.S. sales in second quarter rose 7.4 percent to $67.5 million.
Branding Diamonds
"A product is something made in a factory; a brand is something that is bought by the customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless," Stephen King, WPP Group, London. Reports from the World Diamond Council meeting recently held in St. Petersburg heralded the end of the International Diamond Board initiative to develop generic marketing for the industry, almost a year to the day that it was established. Back in July 2009, the five major diamond mining companies — De Beers, ALROSA, Rio Tinto, BHP Billiton and Harry Winston — set up the body, proclaiming that the “overarching mission of the IDB is to create and sustain strong consumer demand for diamonds worldwide through effective category marketing.”
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Barnes & Noble Up for Sale
Barnes & Noble, the number one U.S. book store chain, is putting itself up for sale as business suffers in the high-stakes battle for a leading role in the digital books market. The Company said its founder and top shareholder Leonard Riggio is considering bidding for the company as part of a larger investor group. An auction for Barnes & Noble could draw interest from several other quarters, including billionaire investor Ron Burkle, as well as raise speculation about a combination with smaller rival Borders Group Inc. But valuing a deal for Barnes & Noble, beset by competition from the likes of Amazon.com Inc. and Apple Inc. in the electronic books market, could prove difficult. The company's share price has lost more than half its value in the last year. "How do you value an asset for the future when the entire market is being essentially turned upside down?" said Forrester analyst James McQuivey.
Jo-Ann Stores Announces Second Quarter Sales Results
Jo-Ann Stores, Inc. reported that net sales for the second quarter ended July 31, 2010, increased 4.7% to $439.3 million compared to $419.4 million for the same period last year. Same-store sales increased 4.4% versus a same-store sales increase of 1.8% for the second quarter last year. Traffic increased 3.8% and average ticket increased 0.6%. Large-format store net sales for the quarter increased 3.9% to $238.2 million compared to the same period last year. Same-store sales for large-format stores increased 3.0% compared with an increase of 0.1% in the second quarter last year. Small-format store net sales increased 5.4% to $192.4 million compared to the same period last year.
OfficeMax Posts Q2 Profit
OfficeMax reported a net income of $11.8 million on sales of $1.65 billion for its second quarter, ended June 26. Sales were down slightly, 0.3 percent, compared with the same period last year during which the company posted a loss of $17.7 million. Sam Duncan, OfficeMax chairman and CEO, attributed the growth to the company's continued discipline and margin expansion. However, the remainder of 2010 may not be as bright as the second quarter. Bruce Besanko, Officemax chief financial officer, said continued tough economic conditions will negatively impact the third quarter and the remainder of 2010. Sales for the year will be flat to slightly lower than 2009, he said.
Restaurants/Food Service
Mark Boucher
California Pizza Kitchen's 2Q Sales Slide
California Pizza Kitchen Inc. reported a 31-percent dive in second-quarter profit as the shift of its Thank You Card program put a dent in sales. For the quarter ended July 4, the Los Angeles-based company had net income of $4.2 million, or 17 cents per share, compared with earnings of $6.1 million, or 25 cents a share, a year ago. Second-quarter revenue declined 4.6 percent to $163.1 million, reflecting a same-store sales drop of 5.9 percent. The company blamed the sales decline on tough comparisons with last year's second quarter, when CPK ran its popular Thank You Card promotion, which offers guests the chance to win prizes on return visits.
Investor Sardar Biglari Buys Stake in Sonic
Sardar Biglari, a well-known activist investor and the chief executive of Steak n Shake and Western Sizzlin, has disclosed a 5.9-percent stake in the struggling Sonic Corp. The filing this week by Biglari, whose San Antonio-based Biglari Holdings Inc. owns the Steak n Shake and Western Sizzlin brands, follows a disclosure earlier this summer that he now holds a 6-percent stake in Red Robin Gourmet Burgers Inc.
E-Brands Restaurants Files for Ch. 11
E-Brands Restaurants LLC, the owner of a dozen high-end restaurants located around the country, has filed for Chapter 11 bankruptcy protection as a result of economic pressures. According to court filings, E-Brands said its restaurants "have been severely affected by the U.S. macro economy, which has resulted in a transient decline in earnings and cash flow." The seven-year-old company said net sales fell from $56.7 million in 2008 to about $43.8 million in 2009, a 22.8-percent decline.
Wendy's May Expand to Russia
Wendy's may be planning to open stores in Russia next year, according to local reports in the country. While an item posted on the international website of parent Wendy's/Arby's Group Inc. said the company was "actively seeking qualified, prospective franchisees throughout Russia," a spokesman would not confirm plans for the Russian expansion. "Wendy's/Arby's Group has said previously that we plan to sign development agreements for three to four new international markets in 2010," spokesman Bob Bertini said. "We announced a development agreement for Arby's restaurants in Turkey in May, but it's premature to discuss any other specific plans or target markets." A report Thursday in The Moscow Times, however, said the company is planning to open 20 franchised units in the first quarter of 2011, 10 in Moscow and 10 in St. Petersburg. According to the report, Wendy's executives are interested in opening stores at highway rest stops and in railway stations and smaller towns throughout both regions.
Banking & Lending
Douglas Stebbins
Regulators Close Banks in Four States
Regulators last week shut banks in Florida, Georgia, Oregon and Washington, lifting to 108 the number of U.S. banks to fail this year as the industry has struggled to cope with mounting loan defaults and recession. The Federal Deposit Insurance Corp. took over the banks: Bayside Savings Bank in Port Saint Joe, Fla., with $66.1 million in assets; Coastal Community Bank, based in Panama City, Fla., with $372.9 million in assets; NorthWest Bank and Trust, based in Acworth, Ga., with assets of $167.7 million; Cowlitz Bank in Longview, Wash., assets of $529.3 million; and LibertyBank, based in Eugene, Ore., assets of $768.2 million. Centennial Bank, a subsidiary of Home BancShares Inc. based in Conway, Ark., agreed to assume the assets and deposits of Bayside Savings Bank and Coastal Community Bank. State Bank and Trust Co., based in Macon, Ga., is assuming those of NorthWest Bank and Trust. Florida and Georgia are among the states with the highest concentrations of bank collapses and where the meltdown in the real estate market brought an avalanche of soured mortgage loans. The failures of Bayside Savings Bank and Coastal Community Bank brought to 20 the number of Florida banks that have fallen this year. Northwest Bank and Trust was the 11th Georgia bank to fail. Also high on the list of failure-heavy states are California and Illinois.
Program Risks $30B to Save Weak Banks
People are fed up with bank bailouts that risk taxpayer billions. The government's apparent solution: call them something else. Congress is at work on a new program that would send $30 billion to struggling community banks, in a process similar to the huge federal bailouts of big banks during the financial crisis. This time, money is more likely to disappear as a result of bank failures or fraud. At its core, the program is another bank rescue. Some lenders need the bailouts to survive. Others could take the bailouts and crumble anyway. That's what happens when banks run out of capital — the money they must keep in case of unexpected losses. Banks with too little capital can be shuttered to protect the taxpayer-insured deposits they hold. Or, under this proposal, many could get bailouts. The new money would be available to banks that are short on cash. It's supposedly reserved for banks deemed "viable." But regulators won't consider whether banks are viable now. They'll envision how strong a bank would be after receiving a fresh infusion cash from taxpayers and private investors. If the bank would become viable because of the bailout, the government can make it happen.
The Real Reason Banks Aren't Lending: Americans Just Aren't Creditworthy
Our Treasury Secretary has conceded that it is still a "tough economy" for most Americans, and warned it's possible the unemployment rate will go up for a couple of months before it comes down. Given the constellation of recent economic data that has come out, Tim Geithner is probably correct. The US economy is showing signs of slowing, as the fiscal stimulus is dissipating and spending contractions at the state and local government level increasingly undermine the injections from the federal sphere. Worse, it appears that much of the growth has resulted largely from a replenishment of inventories, a process which largely seems to have run its course. Excluding this inventory re-stocking, underlying growth was a very tepid 1.5% annualised. Fiscal drag from state spending contraction could well reduce overall consumption even further in the quarters ahead, an ominous trend for future growth and employment prospects.
AT&T, Verizon May Pick Texas, Utah for 'Mercury' Test
AT&T Inc. and Verizon Wireless, the two biggest U.S. mobile carriers, picked cities in Texas, Minnesota and Utah to test a smartphone payments system that may one day supplant plastic debit and credit cards, according to two people with direct knowledge of the plan. The venture, which includes Deutsche Telekom AG unit T- Mobile USA as a minority partner, chose Austin, Minneapolis and Salt Lake City for the project, code-named Mercury, the people said. A pilot is set to start in the middle of next year, the people said, speaking anonymously because they are subject to confidentiality agreements. Atlanta may be a fourth city, other people have said. "It's heartening to see," said Samee Zafar, who leads the advanced payments practice at consulting firm Edgar, Dunn & Co., in a telephone interview from London today. "The U.S. has been lagging behind many parts of the world."
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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