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Look No Further than Retail for a Halloween Fright

In honor of Halloween lets talk about what scares me for H2


1.This year I am going to dress up as Sir Philip Green (Topshop founder) and scare US retailers to death.  If I don’t scare them on Halloween the opening of Tophsop Fifth Avenue will do the “trick”. For the teen and missy space I guarantee you this opening will not be a “treat”.

2.Analysts are all bulled up about declining gas prices. Reality is so far the extra money in your wallet hasn’t made a difference.  KSS WMT JCP GPS URBN have already “spooked us” with guide downs.

3.Someone needs to yell “Boo!” at retail estimates for holiday.  The writing is on the wall. Despite a slew of preannouncements street estimates have not come down nearly enough for the group. Even the most loved retailers might not be able to escape.

4.The mighty tourism dollar might dress up as the invisible man (or in my case I would settle for a Wonder Woman costume and fly in my invisible plane). Here is a scary reality: The mighty Asian spend has been holding up luxury comps in Europe and the US for a while.  With the dollar strengthening, major US Flagships might see that spend dry up.  I would also note that Asians are spending less in Europe and don’t forget the Russians are hiding behind a giant pumpkin.

5.And the most frightening Halloween thought of all? Don’t worry about the falling temperatures this weekend—watch out for the sound of falling gross margins (unfortunately TGT and WMT don’t sell that costume)

Stacey Widlitz, President SW Retail Advisors


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URBN: Fast Fashion is the Icing on the Cake

Urban Outfitters (URBN) just became the poster child for how a company should not to manage expectations after it has reduced guidance only a few weeks after an investor day.

On Thursday night Urban reported that comparable-store sales have remained negative into October. That shouldn’t come as a surprise if you’ve actually visited any Urban store during the quarter, as we’ve done, and have observed the chain’s heavier discounts of late.

In addition to a lack of sales recovery at the all-important Urban division — which the Street was expecting for some reason I cannot discern — margins will now miss expectations as well. It’s time to wake up and smell the coffee: The back-half-recovery story is over. Analysts are lining up to downgrade the stock this morning, but I would point out that earnings expectations are still too glass-half-full for a company in transition.

When Urban reports earnings, we will hear the usual excuses: weather; perhaps, even, Ebola.

But I will put on my fast-fashion cheerleading hat once again and tell you that teen retailers are simply getting their collective booty kicked by better and cheaper product coming out of Europe and in our own backyard — for instance, from H&MTopshop andForever 21.

Now throw in a company that is in the process of changing merchandising mix, changing its core customer and expanding store sizes (no, that is not a typo).

While Urban Outfitters is the best of the teen lot, it was only a matter of time until the brand would succumb to the same pressures that have already pummeled the rest of the group. That, again, is in addition to some serious transition risk.

I am sitting this one out.

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WMT: Watch Out Falling Prices and Margins

Published Oct 15

Wal-Mart (WMT) kicks off its analyst day this morning and may reveal quarter-to-date comps. My guess is similar to last year: Management will not let the cat out of the bag. After all, it is a safe assumption that store traffic continues to be negative, and offering up another comp data point distracts from the work that goes into management presentations focused on long-term strategy.

The good news is that expectations are low, particularly after J.C. Penney (JCP), Gap(GPS) and Family Dollar’s (FDO) recent results were less than inspiring. Wolverine(WWW) chimed in Tuesday as well, calling out the “tepid environment for soft goods.” The bottom line is if Wal-Mart has a negative sign in front of the comp when it reports earnings in mid-November, I don’t think anyone will be surprised.

So what will Wal-Mart serve up on analyst day? The low-end consumer remains under significant pressure with a reduction in SNAP benefits, underemployment and dismal wage growth. Throw protein food inflation into the mix and we expect WMT to focus on continued cost-cutting in order to plow savings back into pricing.

In addition, we expect to hear more about ecommerce progress, as WMT is trying to make up for a late start (progress could also mean more spending).

Finally, we expect the company to share progress on smaller-format stores — the key will be how well those new-format comps hold up.

Oh, and don’t forget the most important piece of the puzzle. Where will WMT go after pricing this holiday season? Note to the competition: Watch out for falling prices and falling margins.

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JCP New Leader Trades in Orange Apron for Full Plate

Published Oct 13, 2014

J.C. Penney (JCP) finally found its leader.

Marvin Ellison will leave his orange apron at Home Depot (HD) to join JCP Nov. 1st as CEO in training. He will officially take over August 2015. Ellison has an outstanding track record running stores at Home Depot and JCP is banking on the hope he can lead JCP back to sales growth. Ellison will be in training to take over and execute JCP’s plan recently announced during analyst day. Unless, after a year in training, Ellison sees things differently. Stranger things have happened.

Last week JCP announced that September comps had decelerated — yes, despite lower gas prices and home and apparel private label getting back on track.  The problem seems to be customers are coming into stores and expecting huge markdowns similar to last year when JCP got rid of Ron Johnson’s dirty laundry inventory that did not resonate with the consumer. Those clearance items are a thing of the past as JCP inventory is now back to where it should be. Does that mean positive comps were a short-term blip?

Short of give-away markdowns how does JCP get it done? As outlined during analyst day the company sees three major buckets of sales opportunity ($3 billion plus in total). Home certainly has more runway as the category used to represent as much as 20% of sales vs. 12-15% at present. Second, the company plans to focus on high-growth categories it has missed out on over the past five years including footwear, handbags, accessories, leisure wear and intimates. Transitioning your product line to more high-growth areas sounds like a plan, but that may take some time. Finally, JCP is setting its sights on omnichannel as the third bucket of growth. The online opportunity may be a bit optimistic. After all, the JCP customer is probably least friendly to shopping online next to the Sears customer.

JCP has found its leader and he has inherited a full plate. Potentially the biggest risk is the new CEO may find the search for sales growth is more expensive than the Street believes.

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COST: Costco Breaks the Cycle

Published Oct 8, 2014

Even though it is trading at a 24x multiple on a day where retail dinosaurs J.C. Penney(JCP) and Sears (SHLD) seem to be losing the good fight, Costco (COST) is looking pretty outstanding.

This morning, after months of incredibly consistent same-store sales but lagging profit growth, Costco reported a long-awaited earnings-per-share (EPS) beat. The naysayers on Membership Fee Income were proven wrong today as that metric beat handily, increasing more than 7%. Remember, Costco derives most if its profit from membership fees.

The other beat was due to gross margin, which increased 20 basis points, year over year. That metric is also important as food inflation has been a pressure that the company has not shifted to consumers — yet the company still showed improvement on product margins. The bottom line is that you can pick on the valuation of this company,  but where else in retail are you seeing a consistent 4% traffic increase combined with 2% average unit retail increases?

September comps (excluding gas and foreign exchange (FX)) also did not disappoint increasing 6% for the US. While some may point to the drag of cheaper gasoline prices on the headline comp number I would point out cheaper gas prices help consumers spend on discretionary items.

Costco is not just riding a retail wave. Consider Sam’s Club recent results. Traffic was negative for the most recent quarter and overall comps were flat. Clearly, cheaper membership fees at Sam’s are not a market share driver. As Sam’s is working on a cash back program to drive traffic and market share, I am not worried for Costco.

Simply put, the warehouse of treasure hunts has a higher income consumer (at $100,000) and those consumers are willing to pay a few more bucks for premium product, great prices and superior customer service. The fact that Costco actually pays its employees well doesn’t hurt. What is the saying? Happy wife, happy life. In retail translation, we say: happy employees, happy consumers.

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