we know the business

News & EDI Tips

New & EDI Tips

The Value of Michael Kors: $666 Million Man

March 13, 2012

Let's be clear: Michael Kors is on a pretty good run, but it's not that he hasn't had a few disappointments. He, for instance, is not a teacher in Ontario.


So far, they are the real winners in Kors' December IPO. The Ontario Teachers Pension Plan Board was the only named Kors investor that didn't sell stock in the public offering.


And so instead of getting $20 a share -- as Kors himself did when he sold off 5.8 million shares, raising $117 million -- the pension plan's 13.2 million shares are now worth $42.08 each.


Kors, sadly, sold at what now seems to be a low price.


He might have another chance to get a better valuation since he, along with chief executive officer John Idol and backers Silas Chou and Lawrence Stroll, also has a stake in the Michael Kors operations in China, Hong Kong, Macau and Taiwan, which were not part of the IPO.


And he has steady employment.


The designer's contract gives him a job for life, an annual salary of $2.5 million and creative control over products bearing his name, assuming he can stay on the right side of "commercially reasonable." (The Wall Street types apparently don't approve of art for art's sake.) Kors is also eligible for a bonus and certain "perquisites" including life insurance, health club membership, car and driver for business purposes and tax services.


It's not the deal scored by Tommy Hilfiger -- who received 1.5 percent of U.S. revenues over $48 million when his company was public -- but it seems to be enough for Kors to keep the heat on.


If he does have to dip into the piggybank, he still owns 15.8 million shares of the company that bears his name, or 8.3 percent of those outstanding. On paper, that's worth $666.8 million, so he could always buy half a million of his $1,295 shearling racing jackets to keep warm.


That's something, at least.


For more information, visit: http://www.wwd.com/fashion-blogs/michael_kors_the_666_million_m-12-02

Shoplifting at American Apparel? Think twice.

February 20, 2012

Thieving hipsters, take note.


American Apparel will be tagging every neon legging, velvet bodysuit, V-neck t-shirt and iconic hoodie with an RFID sensor, the RFID Journal reports. The sensors will track items from the time they are shipped from American Apparel’s factory in downtown L.A. to when a customer purchases the item from one of its 280 stores, helping the chain to keep better track of inventory and disappearances.


Since entering the retail market in 2003, American Apparel has succeeded wildly by imparting its cotton basics with alternative appeal. The company supports progressive issues like gay rights, pays factory workers $12 to $14 per hour -- far above minimum wage -- and regularly incites the uptight with skin-filled ads.


Yet American Apparel has long been targeted by shoplifters, many of them indistinguishable from the chain's loyal customers. The company's stores initially lacked anti-theft sensors, inciting a series of plunders whose history is documented on various Facebook groups and blogs. Former employees allege that in its early years, American Apparel had a pro-shoplifting policy, explicitly asking managers to turn a blind eye so that the right type of person would have easier access to the clothes and become an unwitting spokesperson for the brand.


Whether or not these claims prove true, the fact that the company has made its money by catering to rebellious,anti-corporate youth has infuriated more than a few members of its target market. Arguably, shoplifting from the store was a way for some to subvert the commercialization of counter-culture. Free clothes were, naturally, a perk.


"This is a true story about stealing from a corporation," Tao Lin wrote in the Vice Magazine story that inspired his 2009 novella, Shoplifting from American Apparel. "American Apparel is a corporation. ... Don’t hate me for stealing from an independent clothing company, because then you'd be basing your hatred on something that isn’t real."


Of course, irony-tinged theft is a bad thing for any company, "independent" or otherwise. As American Apparel expanded, opening 133 stores between 2007 and today, it equipped its locations with EAS (Electronic Article Surveillence) devices, or those hard plastic sensors that get removed at cash registers. In 2007, it launched a pilot program that tested the more sophisticated RFID (Radio Frequency Identification) tags, which track the movement of each item and help prevent merchandise from getting stolen internally, by employees.


In stores with both kinds of sensors, "shrinkage," or the number of items that mysteriously disappear between a factory and a store, has dropped as much as 75 percent, Stacey Shulman, American Apparel's VP of technology told the RFID Journal in April 2011.


Once it finishes installing the devices in every store, American Apparel -- now the largest clothing manufacturer in America -- will also have the second largest network of RFID sensors of any retailer, after Walmart. Other retailers are running trials of RFID, though the technology has yet to become an industry standard.


Still, theft is but one item on a long list of business problems for American Apparel. The company teetered on the edge of bankruptcy for much of last year, due to declining sales and falling stock. It is in the process of resolving a lawsuit from a former employee that accuses CEO Dov Charney of sexual harassment.


With demand for American Apparel's clothing so low, it's hard not to wonder whether the company longs for the days when attractive thieves flocked to its locations. Whether American Apparel manages to pull itself up will be an interesting test of how long a corporation can continue to sell "cool," when one of the only constants in its shoppers' idea of "cool" is anti-corporate sentiment.


For more information, visit: http://www.huffingtonpost.com/2012/02/19/american-apparel-shoplifting_n_1285313.html

Crocs Creating Stepping Stones For Their Comeback

February 15, 2012

Crocs Inc announced its expansion into licensing, providing opportunities for the Crocs brand to extend beyond footwear. The company has signed licensing agreements with key global and regional manufacturers for products ranging from apparel to sunglasses and other accessories.


“Licensing presents an opportunity to leverage one of our most valuable assets – the global power of the Crocs brand - by associating it with best-in-class products that go beyond footwear,” said Mike DeBell, Vice President of Global Sales. “More than 200 million pairs of Crocs shoes have been sold, in more than 90 countries around the world. That’s powerful testimony to the connection forged with consumers by the Crocs brand. Through strong international and regional licensing partners, we plan to extend the power of our brand and make new consumer connections.”


The first non-footwear Crocs-branded products included a line of adult and children’s socks from Sock and Accessories Brands, which launched in the holiday 2011 season. These are available in North America through wholesale and retail channels. Crocs-branded socks, produced by Intersocks, will also be available throughout European markets.


Crocs also entered an agreement with Accessory Exchange, which is producing a variety of Crocs-branded accessories for men, women and children, in several global regions. Accessory Exchange Crocs-branded products include hats, bags, backpacks, socks and gloves that are available now at Crocs retail stores and Crocs.com.


In April 2012, the Crocs brand will extend to children’s apparel through an agreement with the A Group. The children’s apparel will be available in 46 countries around the globe and distributed through retail and wholesale channels. Crocs-branded sunglasses and sunglass accessories also will launch in May 2012. Eye King, LLC is producing sunglasses for adults and youth for retail and wholesale distribution in the U.S. and Canada.


Through a partnership with ICER Brands, Crocs Professional Footwear Division will build on the loyal following of medical professionals with the introduction of Crocs-branded scrubs. This new medical gear is available now through specialty stores and online.


Finally, Paramount, a sports licensee, recently kicked off Collegiate and MLB licensed footwear for the brand, which is available now.


“As we continue to explore these and other new collaborations, I am confident our license partners will help us grow and spread our brand promise of delivering products with profound comfort, fun and innovation,” continued DeBell.


A world leader in innovative casual footwear for men, women and children, Crocs Inc, offers several distinct shoe collections with more than 250 styles to suit every lifestyle.


For more information, visit: http://www.fibre2fashion.com/news/company-news/crocs-inc/newsdetails.aspx?news_id=108076

Staying Warm This Winter!

December 27, 2011

A new direction in staying warm: Inspired by a chair lift ride in the bitter cold, Toast Heated Clothes makes heated long underwear for people who work and play in the outdoors.

The patented new system of heated base layer integrates heat packs to keep your core warm. The tops have heat packs in the neck and lower back, and the pants have a heat pack just below the waistband.

Like large handwarmers, the heat packs are air activated and last 10 hours each. One or two is typically enough on mildly cold days; choose 3 or more for really cold weather. Once you try it, you’ll wear them all winter!

Designed by a former professional snowboarder, the Toast collection currently includes heated tops and bottoms for men and women. “They were inspired by snowboarding, but you can wear them walking the dog or shoveling snow” says designer Julia Aiken. "

“We have customers who wear them running, working outside and watching football. They’re also great for lounging on the couch in cold weather.”

All Toast styles are are made in North America using Polartec fabrics. Famous for inventing polar fleece, Polartec fabrics are the gold standard in warmth and wicking performance. "We deliberately source fabrics that are made in the USA" says Aiken.



Toast Heated Clothes



Sears Reduce Expenses By Closing Stores

December 27, 2011

Sears Holdings Corporation is providing an update on its quarter-to-date performance and planned actions to improve and accelerate the transformation of its business.

Kmart's quarter-to-date comparable store sales decline reflects decreases in the consumer electronics and apparel categories and lower layaway sales. Sears Domestic's quarter-to-date sales decline was primarily driven by the consumer electronics and home appliance categories, with more than half of the decline in Sears Domestic occurring in consumer electronics. Sears apparel sales were flat and Lands' End in Sears stores was up mid-single digits.

The combination of lower sales and continued margin pressure coupled with expense increases has led to a decline in our Adjusted EBITDA. Accordingly, we expect that our fourth quarter consolidated Adjusted EBITDA will be less than half of last year's amount. For reference, last year we generated $933 million of Adjusted EBITDA in the fourth quarter ($795 million domestically and $138 million in Canada).

Due to our performance in 2011 we expect that we will record in the fourth quarter a non-cash charge related to a valuation allowance on certain deferred tax assets of $1.6 to $1.8 billion. Although a valuation adjustment is recognized on these deferred tax assets, no economic loss has occurred as the underlying net operating loss carryforwards and other tax benefits remain available to reduce future taxes to the extent income is generated.

Further, we may recognize in the fourth quarter an impairment charge on some goodwill balances for as much as $0.6 billion. These charges would be non-cash and combined are estimated to be between $1.6 and $2.4 billion.

"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. "

"These actions will better enable us to focus our investments on serving our customers and members through integrated retail – at the store, online and in the home," said Chief Executive Officer Lou D'Ambrosio. Specific actions which we plan to take include:

• Close 100 to 120 Kmart and Sears Full-line stores. We expect these store closures to generate $140 to $170 million of cash as the net inventory in these stores is sold and we expect to generate additional cash proceeds from the sale or sublease of the related real estate. Further, we intend to optimize the space allocation based on category performance in certain stores. Final determination of the stores to be closed has not yet been made.


• Excluding the effect of store closures, we currently expect to reduce 2012 peak domestic inventory by $300 million from the 2011 level of $10.2 billion at the end of the third quarter as a result of cost decreases in apparel, tighter buys and a lower inventory position at the beginning of the fiscal year.

• Focus on improving gross profit dollars through better inventory management and more targeted pricing and promotion.

• Reduce our fixed costs by $100 to $200 million.

In addition to the specific store closures listed above, we will carefully evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow.

While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment.

We intend to accentuate our focus and resources to our better performing stores with the goal of converting their customer experience into a world-class integrated retail experience.

We currently expect the store closure and inventory reduction actions to reduce peak inventory in 2012 by $500 to $580 million and reduce our peak borrowing need by $300 to $350 million in 2012 from levels that may have resulted in 2012 without such actions.


At December 23rd, we had $483 million of borrowings outstanding on our domestic revolving credit facility leaving us with over $2.9 billion of availability on our revolving credit facilities ($2.1 billion on our domestic facility and $0.8 billion on our Canadian facility). There were no borrowings outstanding last year at this time.


During the fourth quarter through December 23, 2011, we have not repurchased any of our common shares under our share repurchase program. As of December 23, 2011, we had remaining authorization to repurchase $524 million of common shares under the previously approved programs.


Fourth Quarter Earnings Release
The company currently plans to release financial results for its fiscal 2011 fourth quarter and full year on or about February 23, 2012, before the market opens.

Sears Holdings Corporation



Giving Apparel Manufacturers A Chance From This Phenomenal Change, Also Known As The Recession

June 24, 2009

Apparel manufacturers have had a rough year because a deteriorating consumer spending environment exacerbated issues stemming from already-tough industry dynamics. Although we expect the macroeconomic pressures to eventually subside, we believe that the firms with the most potential to rebound after the downturn have adapted well to secular changes in the industry by keeping their brands relevant and consumers engaged.

Top- and Bottom-Line Pressure

Several changes have occurred in apparel retail in recent years, which has negatively affected wholesalers. Apparel makers’ brands, once the dominant merchandise at department stores, began to feel the pinch in the mid-2000s as a wave of department store consolidation resulted in a number of store closures and increased buying power from wholesalers’ main retail customers. In an effort to differentiate products from competitors, department stores also pushed branded apparel aside in favor of private- or exclusive-label merchandise. We believe the increased popularity of specialty retailers among shoppers also negatively affected department stores and apparel manufacturers in turn.

While apparel manufacturers were adapting to these changes in the retail sector, the macroeconomic environment began to deteriorate. Manufacturers’ retail customers cut orders sharply as demand for discretionary products waned amid the downturn, creating additional pressure on sales. Retail bankruptcies, such as Goody’s and Mervyn’s, have also hurt apparel manufacturers’ revenues. In addition, profitability has suffered because of retailers’ push for additional concessions on price after running steep promotions to drive traffic. As a result, apparel makers have reported fairly substantial gross margin compression in recent quarters, especially during the extremely promotional 2008 holiday season.

To help preserve margins, there have been several rounds of cost-cutting as well as decreased inventory levels at apparel manufacturers. Some firms, such as Liz Claiborne and Jones Apparel, have divested or discontinued unprofitable lines to help lower expenses and boost cash flow, undoing a lot of the growth via acquisitions during the last several years.

Our Near- and Long-Term Outlook

We expect these macroeconomic pressures to persist in the near term, leading to muted performance at apparel manufacturers. We also believe more retail bankruptcies are likely to surface given that we see no immediate rebound in consumer spending. Even at healthier firms, such as VF , management teams continue to search for cost-cutting opportunities to mitigate some of the margin compression associated with a shrinking revenue base. We also expect further inventory reductions that should boost cash flow as retailers and manufacturers alike try to adjust to sell-through patterns. Although the retail environment should remain quite promotional to drive traffic, we believe the magnitude of markdowns should improve as 2009 progresses and inventory levels become more in line with demand. This should also help to slowly wean consumers off of the sale signs that they have become used to seeing.

Although we expect discounts to subside somewhat, pricing should still be an issue longer term. To avoid heavy markdowns at the end of each season, we have seen some manufacturers working with retailers in an arrangement to open at a lower price point right out of the gate. Even though promotional activity will still be part of the sales cycle, this should help create more stable merchandise margins for both parties and improve the planning process. Additionally, we believe the days of brand ubiquity are over. In our opinion, brands will have to fight harder in order to keep their floor space, considering that department stores are quick to move to stock the labels that consumers prefer in order to compete with other department stores and specialty retailers. We also believe that stores will continue to emphasize private and exclusive labels, and expect apparel manufacturers to attempt to profit from this phenomenon. We have seen firms keen to partner with retailers recently, including Polo Ralph Lauren creating and launching the American Living brand solely for J.C. Penney. Jones Apparel has repositioned its l.e.i. brand to be an exclusive label at Wal-Mart.

That said, we believe that there will always be a place for branded apparel at department stores. We think the most successful companies will be ones with solid portfolios that have successfully kept them relevant amid a changing industry landscape and fickle consumer tastes.

Polo Ralph Lauren and VF (both discussed below) are a couple of our favorites. Meanwhile, we believe that firms such as Liz Claiborne and Jones Apparel have an uphill battle because we think that they have lost touch with their core customer and must reconnect with women during an environment where shoppers are reluctant to open their wallets.

Polo Ralph Lauren Fair Value Uncertainty Rating: High | Price/Fair Value Estimate Ratio: 0.98* | 3 Stars

We like Polo Ralph Lauren because of its long track record in keeping consumers’ interest and its success in maintaining a presence in virtually all price points without materially diluting the brand. We believe this expertise in brand management earns the company a narrow moat. Although Polo has not been immune to the pullback in consumer spending, it has been delivering more resilient figures than other firms in the industry. We think its lower-priced offerings, such as Chaps and American Living, should perform well in this environment.

VF Fair Value Uncertainty Rating: High | Price/Fair Value Estimate Ratio: 0.60* | 4 Stars
We think VF has done a great job of realigning its brand portfolio by divesting unprofitable businesses such as its intimate apparel segment, while making major turnarounds in other brands such as The North Face. In our opinion, the company has earned a narrow moat with its well-diversified portfolio and proven track record in brand building. We believe the company is well-positioned to weather the downturn because of its strong balance sheet, expansive geographic and sales channel reach, and prudent expense and inventory management.

*Price/fair value estimate ratios calculated using fair value estimates and closing prices as of June 22, 2009.

For further information, visit: http://ca.biz.yahoo.com/ms/090624/296222.html?.v=1

Uncertainty Still In the Air

May 27, 2009

Apparel retailers Chico’s FAS Inc, Charming Shoppes Inc, American Eagle Outfitters Inc and Polo Ralph Lauren Corp posted better-than-expected quarterly results Wednesday, helped by tight management of expenses and inventories.

American Eagle also said it is seeing early indications of its business stabilizing, though it forecast second-quarter earnings that could be below Wall Street estimates.

Apparel retailers and manufacturers have been among the hardest hit sectors in the recession as consumers cut back on spending for anything other than essentials like food.

Retailers have responded by cutting inventories and sharply reducing expenses in order to preserve profits or mitigate losses as sales fall.

While consumer confidence has improved, unemployment continues to rise, credit remains tight and home values continue to fall, keeping pressure on consumer spending, which makes up more than two-thirds of the U.S. economy.

“We are now two months into fiscal 2010 and there is still tremendous uncertainty regarding how long the current retrenchment in consumer spending will last or how much additional deterioration in personal consumption may occur,” Polo Chief Financial officer Tracey Travis said on a conference call with analysts.


American Eagle, which caters to teenagers and young adults, said net income tumbled to $22.0 million, or 11 cents per share, in its first quarter, ended on May 2, from $43.9 million, or 21 cents per share, a year earlier.

Excluding items, profit was 8 cents per share. Analysts on average were expecting 7 cents per share, according to Reuters Estimates.

Sales fell 4 percent to $612 million.

On the women’s apparel side, Chico’s said net income in its first quarter was $14.5 million, or 8 cents per share, up from $12.7 million, or 7 cents per share, a year earlier.

Excluding charges, the company earned 11 cents per share, topping analysts’ average estimate of 8 cents per share, according to Reuters Estimates.

Chico’s cited a higher gross margin and lower expenses for its improved profit.

As previously reported, sales edged up to $410.6 million from $409.6 million. Same-store sales fell 3.2 percent versus the 17.5 percent drop in the year-ago quarter.

Charming Shoppes, which specializes in plus-size clothing with chains like Lane Bryant, had a surprise profit of 1 cent per share, excluding items, according to Reuters Estimates. Analysts were expecting a loss of 5 cents per share.

Charming Shoppes’ sales fell 16 percent, but total expenses also fell 16 percent.

Polo Ralph Lauren, the fashion company that makes upscale brands like Polo and Club Monaco, said net income was $45 million, or 44 cents a share in its fiscal fourth quarter ended March 28, down from $103.5 million, or $1 per share, a year earlier.

Excluding impairment and restructuring charges, the company said it earned 86 cents per share.

Analysts on average forecast 40 cents a share, according to Reuters Estimates.

Polo shares rose $3.20 to $57.58 on the New York Stock Exchange on Wednesday morning, while Chico’s rose 67 cents $9.52, and American Eagle rose 71 cents to $15.19. Charming Shoppes rose 15 cents to $3.73 on Nasdaq. For more information, visit: http://www.nytimes.com/reuters/2009/05/27/business/international-usa-retail-apparel.html