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Retail Industry Trends |
HenryTo
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 Posted: Wed Oct 31, 2007 4:58 pm Post subject: Retail Industry Trends |
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Retailiers already bracing for the worst. The $64 billion question is, as always, how bad will this get and how much of this has already been factored into retail stocks?
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Retail Holiday Season May Be Modest
Tuesday October 30, 5:15 pm ET
By Betsy Vereckey, AP Business Writer
Sluggish US Economy May Weigh on Holiday Sales for National Retailers
NEW YORK (AP) -- U.S. retailers are bracing for a difficult holiday season, some industry watchers say, as higher gas prices and a sluggish housing market are expected to continue crimping consumer spending.
At a conference on Tuesday hosted by the Retail Marketing Society, a membership-based organization focused on the retail industry, some industry executives said holiday sales may be sluggish.
"This holiday season will be somewhat Grinch-like," said Carl Steidtmann, chief economist at Deloitte Research.
Steidtmann said retailers are preparing for the worst, especially given tightening credit and problems in the housing market. Steidtmann said it will be at least 18 months to two years before the housing market bottoms.
Merrill Lynch analyst Jaime Sheinheit said higher energy costs will weigh on consumer spending, noting that retailers have had trouble getting customers in the door. However, it's hard to tell whether the sluggish traffic is related to softening consumer spending or warm weather, Sheinheit said.
"Cold weather may spark shopping," she said.
In the luxury sector, Sheinheit said handbag maker Coach Inc. has warned of sluggish traffic in its U.S. stores. The company recently issued a fiscal second-quarter same-store sales outlook it called "conservative." Same-store sales are sales at stores open at least a year, and the industry metric is considered a key barometer of a retailer's health.
David Wolfe, creative director at Doneger Group, a buying office, said Coach has reached its saturation point with aspirational customers, who may not have the money to spend on these handbags but still want quality at a price.
Meanwhile, wealthy customers may help other luxury retailers this season, like Tiffany & Co., as spending patterns among the affluent tend to stay the same, regardless of changes in the economy.
Sectors that might fare better include teen retailers, Sheinheit said, noting that the income of their main customer, teenagers, usually stays the same. Companies in this sector include American Eagle Outfitters Inc. and Abercrombie & Fitch Co.
One company that may emerge stronger, Sheinheit said, is AnnTaylor Stores Corp., which has leaner inventory and a new product assortment at its lower-priced Loft division. In August, the company said it increased markdowns to reduce inventory heading into fall seasons at both its Ann Taylor and Loft stores.
"There is a lot of opportunity for Loft to improve margins this holiday season," Sheinheit said. "As always, what it comes down to is having the right product."
Last edited by HenryTo on Wed Jul 16, 2008 8:40 am; edited 2 times in total |
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HenryTo
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| Posted: Fri Aug 19, 2011 3:32 pm Post subject: |
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Morningstar on Ann Taylor's 2Q earnings:
| Quote: | | Our thesis that Ann ANN will benefit from the repositioning of its namesake and Loft brands, a revamped merchandise and design team, leaner cost structure, and inventory-management efficiencies played out in the second quarter. Ann's second-quarter earnings per share came in at $0.47, putting the company on the short list of apparel retailers to beat consensus expectations this quarter. EPS performance was driven by higher sales, a record gross margin rate (partly the result of Ann's reduced exposure to cotton-based input costs), and improved results at the Loft brand. The company also benefited from its continued focus on managing costs and share-repurchase activity. Total sales grew 15% to $558 million, driven by 8.6% comparable-store growth, which was on top of 6.1% comparable-store growth in the second quarter of 2010. The gross margin remained flat year over year as better product execution was offset by additional promotional activity at Ann Taylor stores to offload remaining summer inventory. Although management said inventory is in line with its fall plans, we note that inventory increased 9% through quarter-end, which could affect pricing and thus margins in the quarter ahead if a nervous macro environment affects consumer spending. We think management has mitigated this risk by allocating a significant proportion of its inventory growth to the faster growing Factory Outlet channel rather than its traditional channels. We are not changing our $26 fair value estimate. Total brand comparables at the Ann Taylor and Loft brands were up 5.3% and 11.0%, respectively. The company continues to reposition the business, closing the few unproductive stores that remain. Ann Taylor downsized seven locations in the quarter to its new form at and opened seven new stores for a total of nearly 20 new concept stores at quarter-end, which are performing above expectations. Management amended its outlook for the year ahead. It expects revenue to approach $2.225 billion, an increase from its $2 billion estimate at the end of last quarter. However, its lowered gross margin forecast--from 55.8% to 55.5%--will probably mute the revenue growth. We expect management will be able to achieve its 2011 goals as gross margins expand in the quarter ahead and the company closely manages inventory and expense concerns. |
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rffrydr
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| Posted: Sat Aug 13, 2011 8:29 am Post subject: |
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| Quote: | | Investors appear to be pricing in some safety due to the expectation of continued high-end consumer spending. |
--Did not think I'd live to see this day.
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HenryTo
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| Posted: Fri Aug 12, 2011 11:59 am Post subject: |
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Morningstar on JWN's 2Q earnings:
| Quote: | | High-end retailer Nordstrom JWN reported better-than-expected earnings for the second quarter 2011 on a solid (previously announced) 8% comparable store sales increase. Inventories remained controlled, and clearance inventory was lower, suggesting full-price selling can continue to have a favorable impact on margins. Management did not directly comment on consumer behavior during the recent wild swings in the financial markets, but the company maintained a positive stance for the second half, and increased its comparable stores sales outlook for the full year to four to six percent, compared to an admittedly conservative outlook of two to four percent at the end of the first quarter. We plan only a modest increase in our fair value estimate, partially due to the time value of money, and partially due to the improved annual operating forecast. With the price increase in Nordstrom shares, we now see them as roughly fairly valued, trading just around 17 times forward earnings. Investors appear to be pricing in some safety due to the expectation of continued high-end consumer spending. While we see Nordstrom's customers as persevering through the latest financial crisis, we believe the shares of retailers serving more value-conscious consumers are now more attractively priced on a relative basis. Sales and margins in the quarter were driven by full-price selling and fresh merchandise in the full-line Nordstrom stores, and online, which is now included in the full-line Nordstrom comparable stores sales figures. Gross margins are not being affected by cost increases, improving 90 basis points in the quarter, although management explained that the mix of higher price and higher-margin products sold in the quarter contributed more to both sales and margins, and that their consumer is not really being impacted by cost increases. While gross margins are expected to improve again in the back half of 2011, management was cautious, saying margins improved in the second quarter partly due to a better anniversary sale, with lower clearance, which might be hard to improve on next year. Nordstrom is also making technology investments to drive online sales, and improve the customer experience in stores, such as the previously announced mobile check-out devices, which management believes are having a positive impact on both customer service and sales. Online sales, which are no longer disclosed, are driving increases in both ticket amounts and margins for existing customers, and also contributing roughly one third of new customers. Management believes that online can continue to grow and positively affect both top and bottom lines, net of investments, for years to come. Attention for the acquired HautLook division seems to have waned, although the division reduced second-quarter earnings by roughly five cents, suggesting the core business is even stronger than at first glance. Most of HautLook's negative SG&A impact of $13 million was also noncash, due to purchase accounting. HautLook increased reported SG&A by $27 million, and although a sales break out was not disclosed. If we assume a break-even 40% gross margin, we could estimate roughly $68 million in sales, or about 2.5% of the increase. We view HautLook slightly more favorably, now that we believe it's going to continue to drive the growing online sales segment. At worst, we fear it could become a distraction for management from the core business. |
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HenryTo
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| Posted: Wed Jun 29, 2011 12:11 pm Post subject: |
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Morningstar on the PE buyout of BJ's Wholesale Club:
| Quote: | | Ending a year of speculation, BJ's Wholesale Club BJ announced a definite agreement to be acquired by private equity firms Leonard Green & Partners and CVC Capital Partners for $51.25 per share in cash, a 7% premium to Tuesday's closing price. The total transaction value of about $2.8 billion represents 7.3 times our 2011 (ending January 2012) EBITDA estimate. We don't find the news surprising, as the board had been exploring strategic alternatives since February, Leonard Green had previously amassed a 9.5% stake in the company, and BJ's possessed characteristics that made it an attractive leveraged buyout candidate (limited debt position and healthy cash flow generation). We view the offer favorably for shareholders in light of our $38 fair value estimate, which assumed 6%-7% revenue growth and flat operating margins over the next five years, and we plan to raise our fair value estimate to the offer price based on our view that the transactions will be successful. Nevertheless, we believe BJ's management has agreed to a transaction value below prevailing transaction multiples in the defensive retail category. Based on our leveraged buyout analysis, using $1.5 billion in new debt (4.5 times our projected January 2012 EBITDA), an enterprise value/EBITDA exit multiple of 7 times, mid-single-digit revenue growth, EBITDA margins of 3.5%, and an internal rate of return requirement from BJ's potential suitors of 15%-18%, we believed that a reasonable takeout value would be $52-$55 per share. Our preliminary valuation ranges represented total transaction sizes between $2.9 billion and $3.0 billion, or between 7.6 and 8.0 times our 2011 EBITDA estimate. Additionally, 99 Cents' NDN agreement to be acquired by Leonard Green in March for $1.3 billion and Trian Group's unsuccessful offer to buy Family Dollar FDO in February for $7.6 billion both represented forward EBITDA multiples of about 9 times, suggesting BJ's management team may have left some profit on the table. Despite our concerns about the transaction price, we believe BJ's will be in good hands. Leonard Green has a long history with retail- and consumer-related investments, including Whole Foods Market WFM, The Container Store, Petco, and Sports Authority, while CVC has been successful with a number of supermarket and department store investments across Europe. Under the their guidance, we believe BJ's will be better prepared to expand past its traditional Northeast markets and compete with larger rivals Costco COST and Sam's Club WMT. |
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HenryTo
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| Posted: Thu Jun 02, 2011 1:24 am Post subject: |
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Morningstar on PVH's 1Q earnings, which includes those at Tommy Hilfiger and Calvin Klein.
| Quote: | | Phillips-Van Heusen PVH posted steady internal revenue gains and solid adjusted profit gains in its fiscal first quarter, and the results were slightly ahead of our internal projections. Management also raised its full-year outlook, based on the first-quarter outperformance, and although we believe the firm and the apparel industry have numerous near-term headwinds--including sporadic consumer spending and commodity inflation--we will increase our fair value estimate slightly, mainly because of the time value of money. Consolidated first-quarter sales increased to $1.4 billion from $619 million in the prior-year period, driven almost entirely by the inclusion of Tommy Hilfiger ($715 million), though the Calvin Klein business provided an incremental lift (up 23%). Calvin Klein retail comp sales were up 14%, which helped to offset relatively flat year-over-year sales in the Heritage Brands segments. Like many other retailers, Phillips-Van Heusen experienced unseasonably cold weather during its first quarter, and while this single occurrence doesn't affect our fair value estimate, we will be watching margin trends closely to see whether normalized shopping patterns have returned. Quarterly results were still somewhat clouded by adjustments related to restructuring charges and Tommy Hilfiger integration costs. However, after accounting for these one-time items, we are still encouraged by management's execution; adjusted operating margins came in at 12.2% (100 basis points above initial 2011 guidance provided in March). Adjusted diluted earnings per share rose nearly 50% year over year to $1.23, $0.08 above consensus and our own internal estimate. We still expect the firm to steadily support its brands and prudently execute in order to achieve its financial targets this year, though we are aware of external headwinds that could turn 2011 into a relatively choppy year. Raw-material inflation, dependence on international market expansion, and inconsistent consumer spending patterns are all top of mind; however, we are comfortable in our near- and long-term outlook for the firm. With shares trading at a modest discount to our fair value estimate, we would look for a wider margin of safety before building a position, but we are keeping Phillips-Van Heusen on our watch list and would become more active if the shares pull back. |
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HenryTo
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| Posted: Sat May 21, 2011 6:59 pm Post subject: |
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Morningstar on ARO's 1Q earnings:
| Quote: | | Aeropostale ARO set the stage for a difficult 2011, as it confirmed the dismal first-quarter results announced earlier in the month and warned that the second quarter would not be much better. As previously released, same-store sales for the quarter fell 7% (against an 8% increase a year ago), which management attributed to fierce industry competition, elevated teen unemployment rates, and a women's merchandise assortment that failed to resonate with its customers (men's category same-store sales increased 2%, while women's category same-store sales plummeted 10%). The excess inventory left by this fashion miss forced the retailer to be more promotional than initially planned, with merchandise margins falling 740 basis points and gross margins falling more than 1, 000 basis points to 29.1%. Additional markdowns will be necessary to clear merchandise before the back-to-school season, leading management to guide to a 70% decline in earnings per share during the second quarter ($0.11-$0.16 versus $0.47 a year ago). For the full year, we now anticipate a low-single-digit same-store sales decline at Aeropostale stores (despite earlier estimates of a 1% increase and management's plan for selective price increases in the back half of the year) and high-single-digit operating margins (compared with 16.1% last year). We're also planning a moderate reduction in our fair value estimate. Despite the gloomy top-line trends and margin pressures that are likely to take several quarters to cycle through, teen apparel retailers are inherently cyclical and current pressures may offer value for long-term investors. We continue to view Aeropostale's current issues as more cyclical than structural--especially considering teen unemployment rates and sourcing cost inflation--but acknowledge that merchandising issues can have a potentially lingering impact on Aeropostale's brand perception. Assuming our updated model estimates play out and the firm can return to operating margins in the low double digits over the next several years (versus its three-year historical average of 15.5%), we believe the current stock price offers considerable value. However, if merchandising issues persist, our updated estimates may prove overly optimistic. |
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HenryTo
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rffrydr
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| Posted: Tue May 10, 2011 7:28 am Post subject: |
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Like '07, don't look for much of a driving season:
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rffrydr
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rffrydr
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| Posted: Thu Apr 07, 2011 7:17 am Post subject: |
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It's different this time:
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rffrydr
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| Posted: Wed Apr 06, 2011 8:54 am Post subject: |
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Smoking out the shorts:
Retail Takes a Big Step Forward
By Jim Cramer
| Quote: | | Lotta baffling moves today, but the most baffling was the trade in retail, motivated in part by Abercrombie & Fitch's stunning declaration of health, with strong mid-single-digit comps and the possibility for better-than-expected earnings, some of it from international, in the future. The better-than-10% spike quickly radiated to everything from Costco, which hit an all-time high, to Ross Stores, TJX, Kohl's, Limited, J.C. Penney and even Target. This group has been among the doggiest of all sectors, just a minefield, as everyone figures that it will be the first to be thrown over by the bulls when gasoline trades north of $4. But so far, the bears have little to show for the negativity. The apparel plays that the shorts came after, Columbia, Polo Ralph Lauren, Timberland (have you seen that one?), VF Corp., Phillips-Van Heusen, have been nightmares. The worries about cotton's spiral seemingly being dismissed entirely. ... |
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HenryTo
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| Posted: Thu Mar 24, 2011 8:48 am Post subject: |
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Morningstar on the short-term and long-term attractiveness of department stores:
http://news.morningstar.com/articlenet/article.aspx?id=374615
| Quote: | | Our current outlook for the department store industry is mildly positive, based on our opinion that the early stages of an economic recovery are among the few times in the retail landscape where competition is more rational and expansion is more controlled. Current valuations are mostly in line with our fair value estimates, with high-end stores slightly above fair value and stores serving more economically sensitive customers trading at small discounts. |
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HenryTo
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| Posted: Thu Mar 24, 2011 8:17 am Post subject: |
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Morningstar on Dollar General's 4Q earnings and fiscal 2011 outlook:
| Quote: | | Dollar General DG announced solid fourth-quarter results and a fiscal 2011 outlook that came in just ahead of our expectations. However, given the possibility of trade-up trends and higher sourcing costs on the horizon, we continue to take a more conservative stance and project that earnings will come in at the low end of the management's forecast. As a result, we plan to only modestly increase our fair value estimate and believe Dollar General shares remain overvalued. While shares do not look excessively expensive (trading at forward fiscal-year price/earnings of 14 times and an enterprise value/EBITDA of 6 times), we anticipate diminishing fundamentals as the firm cycles out of peak earnings trends over the next few years. Total quarterly revenue increased 9.4% to $3.49 billion, driven by incremental sales from new stores and a 3.8% increase in same-store sales. In our view, Dollar General has done a great job driving repeat traffic by having the right seasonal products and consumable assortments in its stores. Quarterly operating margins expanded a healthy 300 basis points to 11.7%, thanks to lower inventory shrink, a reduction in product cost because of greater purchasing volume, higher merchandise markups due to improved merchandise category management, and operating leverage gained. Expecting sales momentum to continue into fiscal 2011, management projects that earnings per share will be roughly $2.20-$2.30 for the year (21%-26% increase). This includes 11%-13% top-line growth and modest operating margin expansion (10-30 basis points), as well as lower interest expense as Dollar General continues to pay down debt. While we think demand will remain strong during the next few quarters, it will probably be difficult for the retai ler to maintain current levels of productivity, as some consumers will probably return to other retail channels once economic conditions improve. Similarly, we project that the magnitude of margin expansion will moderate as a result of input cost pressures and slowing demand. |
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HenryTo
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| Posted: Fri Mar 11, 2011 3:45 pm Post subject: |
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Morningstar on ARO's 4Q earnings:
| Quote: | | Aeropostale's ARO fourth-quarter sales were affected by aggressive discounting at premium rival Abercrombie & Fitch ANF, which resulted in a 3% drop in its same-store sales. This led to significant markdowns as the firm cleared excess merchandise, which weighed on profits. The quarterly operating margin contracted 270 basis points to 16.0% because of a 260-basis-point decline in merchandise margins and 70 basis points of occupancy cost deleverage, partially offset by lower incentive based compensation expense. In our view, this is in contrast with American Eagle AEO, which reported quarterly margin expansions (up 310 basis points) despite a 7% comparable sales decline during the same period, due to more disciplined inventory and expense management. Heading into fiscal 2011 with a higher-than-expected amount of merchandise (up 8% per square foot), Aeropostale guided for further markdowns during the first quarter. Coupled with input cost pressures in the horizon, we were not surprised that management provided a cautious outlook for the year. The firm expects earnings per share to be in the $2.20-$2.40 range (4%-12% decrease from 2010), which implies low-single-digit top-line growth and approximately 400 basis points in operating margin contraction. Nonetheless, this is in line with our expectations that value-priced retailers such as Aeropostale will have a harder time passing these cost increases to consumers, given their need to maintain lower selling prices in order to attract consumers into their stores. While we will be updating our fiscal 2011 projections to incorporate a worse-than-expected margin contraction, we do not anticipate a change to our $27 per share fair value estimate, as our valuation has accounted for cyclical shifts (both in the top and bottom line) in the business over the long term. In our view, Aeropostale shares are modestly undervalued, but we would advise investors to wait for more opportunistic entry points as sourcing cost pressures on the horizon likely will weigh on near-term valuations. |
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HenryTo
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| Posted: Fri Feb 18, 2011 3:53 pm Post subject: |
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Morningstar on JWN's 4Q earnings:
| Quote: | | There is no change in fair value estimate despite a solid fourth quarter from Nordstrom JWN. Revenues were up 11% to $2.8 billion, merchandise margins were near their historical peak, operating margins improved 220 basis to 13.9%, and earnings per share rose 35% to $1.04--all modestly ahead of our expectations. Normally, strong operating results and an optimistic (yet achievable) forward outlook including 2%-4% same-store sales growth, modest operating margin expansion, and between 7%-13% earnings per share growth would cause a modest increase in our fair value estimate, but the acquisition of "flash sale" Internet site HauteLook makes us pause and become more conservative with our longer-term assumptions. Despite our favorable view of Nordstrom as a fashion leader and its ability to sustain industry-leading inventory turnover, we believe shares are modestly overvalued. In our view, the market appears to be pricing in unrealistic long-term growth assumptions for several luxury retailers. We are skeptical that the HauteLook acquisition will create value for shareholders. First, we are critical of the all-stock deal, which is worth $180 million in new stock and up to $90 million in incentive stock. Stock deals make sense when the stock is not undervalued, and academic research suggests stock deals empirically have a poor track record. Nordstrom has plenty of cash, so while we've heard management's comments about executive retention and tax efficiency, we're still not fans of all-stock deals. Second, we are concerned that Nordstrom is jumping into an idea--flash sale sites--that already may have peaked by buying a competitor that is not necessarily the clear leader when valuations are at their highs. Discounted exclusive fashion is still an oxymoron whether it's on the Internet or at a department store. It made sense in the recession, but if there is too much discounting either the product or brand can be damaged or the site will reach a point at which it can no longer grow. LVMH MC and Hermes RMS still will be destroying bags rather than discount them, and there's a reason for that. Finally, in our view, Internet acquisitions historically only have created value when there is synergy, and when the acquirer is a market leader (think of Amazon AMZN and its purchases of Zappos.com and Diapers.com: It's a scale and volume play). Despite our dim view of the HauteLook acquisition, we believe Nordstrom remains a fashion leader adept at turning inventory at full price, resulting in high returns on capital. Nordstrom noted for the quarter that full-price selling is now at precrisis levels, driving inventory turns over 5 times and sales per square foot to almost $400. Both statistics are tops in our department stor e coverage, and we do not expect that to change in the foreseeable future. |
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