Each week, we highlight five articles of interest focusing on the retail/consumer space. Enjoy.

Moody’s See Upside for Back-to-School Click to Open PDF

Many analysts are assuming that apparel retailers will see a material windfall in 2H 2012 via lower input costs. Big mistake to make that assumption. The competitive environment will make input cost recapture difficult and there’s a severe risk that the category becomes deflationary as those ‘savings’ are forced to be passed along to the consumer.
Date Published: Friday, July 27, 2012
Source: WWD

Deckers Bounces Back Click to Open PDF

Another example of traditional Wall Street analyst cheerleading in return for “access” to management. Susquehanna Financial analyst Christopher Svezia says DECK is “back from the brink.” Another skill, Scott Krasik of BB&T Capital Markets, says that the “reports of the Ugg brand’s demise may have been premature.”

Yet, what earnings model are they looking at? The company’s top-line declined in Q2 2012 -5.1% when excluding Sanuk wholesale and profitability is imploding thanks to out of control SG&A spending.

Traditional Wall Street analysts live in a world where a company is doing well if the company beats their own (in this case) miserable earnings guidance that was provided 3 months ago. Analysts that simply regurgitate managerial talking points add no value other than sponsoring a management team road show.
Date Published: Thursday, July 26, 2012
Source: WWD (more…)

Each week, we highlight five articles of interest focusing on the retail/consumer space. Enjoy.

Chipotle Shares Tank on Slowdown Fears Click to Open PDF

We hate to be an apologist for the management team at an over-priced high flyer such as CMG. But, it’s worth a reminder that the company delivers industry leading EBIT margins. But, “priced for perfection” allows for no flaws.
Date Published: Friday, July 20, 2012
Source: WSJ

Back-to-School Looks Up Click to Open PDF

Does anyone believe that back-to-school (BTS) will increase +14% this year? Every year, the National Retail Federation (NRF) puts out its forecast for BTS spending. But, the forecast is about as believable as a campaign manager for Obama or Romney.
Date Published: Thursday, July 19, 2012
Source: WSJ (more…)

Most institutional investors understand the game. Traditional sell-side analysts are largely viewed as management “regurgitaters” that report the news. Most sophisticated investors view traditional sell-side analysts as providers of “management access”(e.g. road shows and/or management meetings).

But, at least try to publish an honest assessment of a company’s performance and future prospects.

Last week, perennial under-performer Bebe (BEBE – $6.00) reported dramatically lower top-line results for fiscal Q4 than its prior guidance (comp sales of -2.5% vs. guidance of +LSD). Yet, Elizabeth Pierce at Roth Capital penned a research note that included the following (source: Fly on the Wall):
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BBY, KSS, OMX, & PLCE Have Clearly De-Emphasized Facebook Fan Growth in 2012

Social media is fast becoming the most effective approach to boost brand awareness, understand the customer, get feedback, as well as direct traffic to a company’s web site and/or stores.

We like to track the Facebook activities and monthly fan base growth for the retailers and brands that we follow (and many others). See attached.

It is worth noting that out of the 188 retail chains/brands covered in this survey, the following were the largest percentage gainers of ‘fans’ in terms of year-to-date growth through June 2012:

Men’s Wearhouse (MW) Big 5 Sporting Goods (BGFV) Sunkist Soda (DPS) Dress Barn (ASNA) Dollar Tree (DLTR)

330.1% 321.3% 276.4% 262.0% 219.8%

 
Naturally, some of the above retailers/brands have a small base. Therefore, let’s look at the largest percentage gainers of ‘fans’ in terms of year-to-date growth through June 2012 for brands with greater than 1.0 million ‘fans’ (excludes those in the Top 5 list above):

Amazon (AMZN) Benetton (BNGPY.PK) Sonic (SONC) Burger King (ex-BKC) 7Up (DPS)

173.1% 140.7% 124.1% 119.9% 118.1%

 
Conversely, it is worth noting that out of the 188 retail chains/brands covered in this survey, the following were the lowest percentage gainers of ‘fans’ in terms of year-to-date growth through June 2012:

Playtex (HBI) Casual Male (CMRG) Hanes (HBI) Office Max (OMX) Children’s Place (PLCE) Best Buy (BBY) Kohl’s (KSS) Lucy Activewear (VFC)

2.0% 2.9% 4.2% 6.4% 8.2% 8.6% 9.8% 9.9%

 
Out of the 188 retail chain/brands covered in this survey, the following were the largest percentage gainers of ‘fans’ in terms of growth in June versus the prior month:

Big 5 Sporting Goods (BGFV) Men’s Wearhouse (MW) Amazon (AMZN) Family Dollar (FDO) Dollar Tree (DLTR) Jos. A. Bank Clothiers (JOSB) Dick’s Sporting Goods (DKS) Cheesecake Factory (CAKE) Sonic Drive-In (SONC) Chico’s (CHS) Benetton (BNGPY.PK) Ross Stores (ROST) Huggies (KMB) Longhorn Steakhouse (DRI) Target (TGT) BJ’s Restaurant & Brewery (BJRI)

43.7% 31.6% 29.4% 21.6% 19.8% 19.7% 19.6% 15.9% 15.0% 12.2% 11.9% 11.4% 11.1% 10.6% 10.5% 10.3%

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Reminder: We like to look at the U.S. Census Bureau/Commerce Department data on a comp basis (year-over-year change). Hey, it’s government data, so caveat emptor. See attached.

Big picture, our favorite measure of “what’s happening at the mall” (excludes Motor Vehicles, Gasoline, and Building Materials) suggests a +3.3% year-over-year sales improvement in June 2012 versus LY. This represents a deceleration versus the +4.2% growth rate in May 2012 and the lowest year-over-year growth since July 2010.

This particular metric’s 2-year growth rate also decelerated in June 2012 versus the May 2012 period.

The most compelling category specific storylines in June 2012 were:

• June 2012 represented the 32nd consecutive month of positive year-over-year growth for our favorite “mall” measuring stick.

• June 2012 represented the 3rd consecutive month of a sequential sales decline versus the prior month. July 2008 through December 2008 (6 consecutive months) was the last time sales sequentially declined for more than 2 consecutive months.

• Most categories reported a year-over-year sales deceleration in calendar Q2 2012 versus Q1 2012.

  Conversely, the following categories reported a year-over-year sales acceleration in calendar Q2 2012 versus Q1 2012: Sporting Goods, Hobby, Book & Music Stores, Motor Vehicles & Parts Dealers, and Non-Store Retailers

• This year’s dramatic sales growth deceleration in the Health & Personal Care Stores category continued in June 2012. In both May 2012 and June 2012, the category’s year-over-year growth rate was the lowest since AT LEAST 1998.

• Building & Garden Equipment Supplies Dealers again reported a sharply decelerating growth rate in June 2012. Following impressive year-over-year growth in the calendar Q1 2012 period, sales growth in this category dramatically slowed in calendar Q2 2012.

• Unlike Building & Garden Equipment Supplies Dealers, Furniture & Home Furnishing Stores continued to report relatively strong sales growth versus LY.

Recent monthly “Big Picture — what’s happening at the mall” year-over-year results:

January 2012 February 2012 March 2012 April 2012 May 2012 June 2012

+5.4% (+10.7% 2-year) +5.3% (+10.5% 2-year) +5.0% (+10.3% 2-year) +3.9% (+10.4% 2-year) +4.2% (+10.5% 2-year) +3.2% (+10.1% 2-year)