Anybody else looking at bombed out retail sector?

[rb]

Anyone have any idea why DG got dragged down with the rest of retail today?

[DooDiligence]

Carter’s - Oshkosh

 

US & Canada store comps down 10% last qtr but up 2% ytd

Opening 240 new stores by 2021 in Canada & US.

Consistently closing 5 or 6 non performing stores per year.

Co-branded stores doing well.

All stores cash flow pos.

 

Wholesale flat.

 

E-commerce biz up +20%.

New biz with Amazon (Simple Joys includes value packs developed exclusively for Amazon.)

Canada & China were big drivers online.

Launched on Alibaba T-mall in 2015 & doing well.

 

86% of regular customers shop in store (so says management.)

Old people with flip phones & wallets + the fast growing e-commerce enabled.

 

Pou Sheng International China relationship expanding (they manage more than 8000 stores in China for Nike & Sketchers among others.)

12 stores open in China now with plans to open 40 in 2017.

Wants to have 200+ stores by 2021.

 

http://www.chinadaily.com.cn/business/2017-03/31/content_28749781.htm

 

Expects 4% to 6% overall sales growth thru 2017.

 

I think this looks like a hit in China if Pou Sheng really wants to run with it.

 

People love merchandise with foreign stuff written on it (or maybe that’s just me.)

 

These guys get e-commerce (and, um, Garanimal’s. someone else likes children’s apparel.)

[clutch]

Retailers that create/design their own products and have built up a brand will be fine. Amazon has hardly made a dent in supermarkets as well, and won't.

 

I really think this is the key. It's hard to imagine retailers without much of their own brand value NOT going bankrupt. I read the annual reports of companies like DSW, glimpse over their discussion on competitive advantage, and think to myself "that's it??".  :o

 

I guess some of them will survive, but seems impossible to pick which one.

[CONeal]

I find it humeruous that people are preaching death of brick and mortar bc Amazon will eat their lunch.  Then low and behold Amazon opens a bookstore.

[JayGatsby]

Has anyone shopped at Kirkland's? Seems pretty cheap.

[JayGatsby]

Has anyone shopped at Kirkland's? Seems pretty cheap.

Likewise for Natural Grocers?

[johnny]

L Brands has spent $2.9B on in-store capex in the five years from 2012-2016, and every Victoria's Secret I walk by looks exactly the same as it did 10 years ago. In their defense, the company-owned storecount has gone from 2,941 to 3,074 over the same period.

 

[rb]

I've been looking at Foot Locker. Can't make a recommendation because I'm not sure I really understand the company yet. It looks interesting though.

[LC]

It's a sneaker retailer. I'd rather go with the branded manufacturer, imho they have more weight in the indsutey

[rb]

It's a sneaker retailer. I'd rather go with the branded manufacturer, imho they have more weight in the indsutey

I know who they are and what they do. What I don't understand is why they've been so successful and they still are. And they're selling a lot of product online as well as well. Confusing...  :-\

[JayGatsby]

It's a sneaker retailer. I'd rather go with the branded manufacturer, imho they have more weight in the indsutey

I know who they are and what they do. What I don't understand is why they've been so successful and they still are. And they're selling a lot of product online as well as well. Confusing...  :-\

Definitely interesting. Will have to dig into that one further. I recently bought shoes at shoes.com (now owned by walmart) and it's a fairly painful process. I bought size 11, which is what my old New Balances are, but it turns out I'm a 10.5 (which is what I usually am). Now they're out of the color I wanted so the exchange will be a different color. I assume after the exchange costs they're not making any money and when all's said and done it will have taken ~3 weeks for me to get the right shoes, assuming the pair on its way now is in fact the right size.

 

Foot Locker should be benefiting from Sports Authority shutting down. That's where I bought my last pair of sneakers in stores. I'll have to look at their conference calls and see if they mention that. MC Sports also liquidated and there may be others.

 

Also not sure why the shares sold off.

[JayGatsby]

Opened a small position in foot locker. Things I liked:

1. Same store sales continue to be positive

2. They're likely benefiting from closure of Sports Authority. Other stores may struggle as well. Hibbett is trading as though they will go out of business (see below)

3. Capital allocation is good. New store capex is moderate and all remaining cash flow is used to repurchase shares. They have a $1.2B share authorization is outstanding.

4. $1B net cash position.

5. Store portfolio provides some diversification; Europe stores tend to be less mall based and more street based. Kids shoes are probably more resilient versus the internet because their sizes are changing.

6. Buying shoes online is a pain

7. EBITDA margins are ~15%... higher than many retailers. This allows some margin of error

 

Current stores:

Foot Locker US 938

Foot Locker Europe 621

Foot Locker Canada 117

Foot Locker Asia Pacific 96

Kids Foot Locker 422

Lady Foot Locker 117

Champs Sports 545

Footaction 261

Runners Point 121

Sidestep 84

SIX:02 32

 

Foot Locker trades at 4.6x EBITDA. Relative to some comps this is actually a bit of a premium. As LC pointed out, Foot Locker is a true retailer; lease a box, fill it with other company's stuff. Not a real clear competitive advantage here other than name recognition and just being the incumbent in these locations.  Hibbett Sports I find interesting as well just because it has become so cheap. After a 16% selloff today it now trades for 1.6x trailing EBITDA. Hibbett preannounced that Q2 comps are down 10% "along with significant pressure on gross margin" (!!). Their strategy has been to focus on small towns with less competition. Sounds good but apparently isn't working very well. It now trades really close to net-net, although was cash negative last quarter and may be cash negative going forward.

 

Within Hibbett, footwear seems to be the strong area:

Footwear continued to perform well with comparable store sales in the positive low single-digit range, but apparel and equipment posted negative comparable store sales.

And at Dick's:

"In this very competitive and dynamic marketplace, we were able to deliver a significant increase in our bottom line from last year. We continued to capture market share and generated strong results in eCommerce, footwear and golf, although sales were pressured by weakness in hunting, licensed and athletic apparel," said Edward W. Stack, Chairman and Chief Executive Officer.

[JayGatsby]

Opened a small position in foot locker.

Oops!

[rb]

Opened a small position in foot locker.

Oops!

Yep, big oops. I'm sorry if my yapping contributed to your troubles.

 

I'm actually starting to think that these issues are coming from malls. Lower traffic in malls -> lower retail sales. Maybe it's like this: Before you went to the mall cause u needed a piece of crap so while you were there u picked out some more crap that you didn't want. A shirt, whatever. Now that there's more avenues to get the initial crap there's less chance that the extra crap will attach itself to your sticky fingers.

 

The result is horrible earnings not just for "pure retailers" like foot locker but also for brand retailers like Nike, LB, RL, etc.

[GregS]

Mall anchors are falling apart. It's hard to own anything traditional mall-based.

[rb]

Do you have a view of why they're falling apart?

[JayGatsby]

Opened a small position in foot locker.

Oops!

Yep, big oops. I'm sorry if my yapping contributed to your troubles.

 

I'm actually starting to think that these issues are coming from malls. Lower traffic in malls -> lower retail sales. Maybe it's like this: Before you went to the mall cause u needed a piece of crap so while you were there u picked out some more crap that you didn't want. A shirt, whatever. Now that there's more avenues to get the initial crap there's less chance that the extra crap will attach itself to your sticky fingers.

 

The result is horrible earnings not just for "pure retailers" like foot locker but also for brand retailers like Nike, LB, RL, etc.

It wasn't a big position. More buybacks at this price...

 

I think that's definitely true re malls. There has to be a reason to take you there. Hibbett (the sports store I mentioned above) was crushed today as well (I didn't take a position in that). They're mainly strip malls. I think you also saw an oversupply of malls, so the weak will now close.

 

There seems to be an odd disconnect between what the Commerce Department is reporting (see quote below) and what retailers are reporting. Have any retailers, grocers, or auto companies reported strength or year-over-year increases? I know TJ Maxx and Ross are faring reasonably well, although they're deep discount stores. Every company I read is describing a very challenging retail environment with less traffic and more discounting. Seems like part of it may be that the consumer is pulling back, although the Commerce Dept says the opposite. Am I seeing things in the ink stains again?

 

U.S. retail sales recorded their biggest increase in seven months in July as consumers boosted purchases of motor vehicles and raised discretionary spending, suggesting the economy continued to gain momentum early in the third quarter.

 

Retail sales for June and May also were revised higher, which should help to assuage concerns about consumer spending after a slowdown at the start of the year. Tuesday's upbeat report from the Commerce Department likely keeps the Federal Reserve on course to raise interest rates again in December.

 

"American shoppers flocked to the malls in July, suggesting consumers are well-positioned to propel the economy forward in the second half of the year," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

 

 

[rb]

Jay, I'd disregard the whole "flocked to the malls thing". That's a rent-a-quote whenever they see retail sales up.

 

The commerce release specifically quotes auto sales. Those can really push the retail sales numbers when they're doing good, cause well... a car costs more than a shirt. I can't really contradict them on whether there was true strength in autos in July since I think that Commerce has better numbers than me. I also think that there's a lot of big ticket items in that retail sales print driven by the housing recovery. Home Depot and Lowes are also doing very well.

 

In addition, a lot of retail has very high fixed costs. That marginal shirt of pair of sneakers costs very little to produce. So a relatively small decrease in volume can do a real number on earnings.

 

I think that the reason why TJX and Ross aren't that affected is that their shoppers weren't and aren't impulse buyers. You needed some socks or a shirt you went to Marshalls. People still need socks and shirts.

[rkbabang]

Jay, I'd disregard the whole "flocked to the malls thing". That's a rent-a-quote whenever they see retail sales up.

 

The commerce release specifically quotes auto sales. Those can really push the retail sales numbers when they're doing good, cause well... a car costs more than a shirt. I can't really contradict them on whether there was true strength in autos in July since I think that Commerce has better numbers than me. I also think that there's a lot of big ticket items in that retail sales print driven by the housing recovery. Home Depot and Lowes are also doing very well.

 

In addition, a lot of retail has very high fixed costs. That marginal shirt of pair of sneakers costs very little to produce. So a relatively small decrease in volume can do a real number on earnings.

 

I think that the reason why TJX and Ross aren't that affected is that their shoppers weren't and aren't impulse buyers. You needed some socks or a shirt you went to Marshalls. People still need socks and shirts.

 

Also JTX stores (Marshals, Home Goods, TJMaxx) are not usually located in malls.  People who shop there have always gone there as their destination, so they never relied on mall walking traffic for impulse buys.

 

I ended up picking up some L Brands (LB) around when this thread first started. My wife assures me that most women will never buy bras online.  I'm down about 30% from my cost basis at the moment.

 

[Guest Cameron]

Jay, I'd disregard the whole "flocked to the malls thing". That's a rent-a-quote whenever they see retail sales up.

 

The commerce release specifically quotes auto sales. Those can really push the retail sales numbers when they're doing good, cause well... a car costs more than a shirt. I can't really contradict them on whether there was true strength in autos in July since I think that Commerce has better numbers than me. I also think that there's a lot of big ticket items in that retail sales print driven by the housing recovery. Home Depot and Lowes are also doing very well.

 

In addition, a lot of retail has very high fixed costs. That marginal shirt of pair of sneakers costs very little to produce. So a relatively small decrease in volume can do a real number on earnings.

 

I think that the reason why TJX and Ross aren't that affected is that their shoppers weren't and aren't impulse buyers. You needed some socks or a shirt you went to Marshalls. People still need socks and shirts.

 

Also JTX stores (Marshals, Home Goods, TJMaxx) are not usually located in malls.  People who shop there have always gone there as their destination, so they never relied on mall walking traffic for impulse buys.

 

I ended up picking up some L Brands (LB) around when this thread first started. My wife assures me that most women will never buy bras online.  I'm down about 30% from my cost basis at the moment.

 

The story of Victoria Secrets founding is interesting one, the idea of why it was founded and what it turned into.

 

Anyway stores that are effected by online competitors like Amazon etc more so has to do with their customer base rather than what they sell. Quoting The New Yorker "Bezos said that Amazon intended to sell books as a way of gathering data on affluent, educated shoppers" anyone without a core customer base like the one described with be fine as long as they invest in ecommerce themselves.

[GregS]

Do you have a view of why they're falling apart?

 

No particular original thoughts, just the struggles of anchor dept stores like M, JCP, SHLD, and the model of those stores driving traffic breaking down. Not a big secret.  I've just stayed away from mid-mall retailers like FL and LB.  I don't see how they can keep open all their locations in the long run.

 

 

[rb]

Jay, I'd disregard the whole "flocked to the malls thing". That's a rent-a-quote whenever they see retail sales up.

 

The commerce release specifically quotes auto sales. Those can really push the retail sales numbers when they're doing good, cause well... a car costs more than a shirt. I can't really contradict them on whether there was true strength in autos in July since I think that Commerce has better numbers than me. I also think that there's a lot of big ticket items in that retail sales print driven by the housing recovery. Home Depot and Lowes are also doing very well.

 

In addition, a lot of retail has very high fixed costs. That marginal shirt of pair of sneakers costs very little to produce. So a relatively small decrease in volume can do a real number on earnings.

 

I think that the reason why TJX and Ross aren't that affected is that their shoppers weren't and aren't impulse buyers. You needed some socks or a shirt you went to Marshalls. People still need socks and shirts.

 

Also JTX stores (Marshals, Home Goods, TJMaxx) are not usually located in malls.  People who shop there have always gone there as their destination, so they never relied on mall walking traffic for impulse buys.

 

I ended up picking up some L Brands (LB) around when this thread first started. My wife assures me that most women will never buy bras online.  I'm down about 30% from my cost basis at the moment.

I agree on L-Brands. I like the company and the market likes its product. But LB also had some impulse buy/traffic driven sales. As I've said those sales are extremely profitable. So LB's core earnings are lower than what we're seeing now once we strip that out. What really worries me about LB is their huge debt. The question in my mind is can they readjust to a lower base of earnings while carrying this debt or is it possibly fatal?

[Jurgis]

I think that the reason why TJX and Ross aren't that affected is that their shoppers weren't and aren't impulse buyers. You needed some socks or a shirt you went to Marshalls. People still need socks and shirts.

 

Sorry, man, you're totally wrong.  8)

We go to TJMaxx or Marshalls and pretty always buy tons of impulse crap.

The stores are like a fricking treasure hunt for a reason.  8)

But that's also probably a reason they don't feel Amazonification much. You can't go to Marshalls and be sure that you gonna get a particular shirt. But you'll likely go there and get 5 shirts on the cheap and pretty good ones too... but not the ones you wanted to get...  ::) and also a pet sofa ... bunch of chocolate ... soap holder ... frog statue ... and iPhone case...

[rb]

lol ok. Maybe it's just me then.

[JayGatsby]

Jay, I'd disregard the whole "flocked to the malls thing". That's a rent-a-quote whenever they see retail sales up.

 

The commerce release specifically quotes auto sales. Those can really push the retail sales numbers when they're doing good, cause well... a car costs more than a shirt. I can't really contradict them on whether there was true strength in autos in July since I think that Commerce has better numbers than me. I also think that there's a lot of big ticket items in that retail sales print driven by the housing recovery. Home Depot and Lowes are also doing very well.

 

In addition, a lot of retail has very high fixed costs. That marginal shirt of pair of sneakers costs very little to produce. So a relatively small decrease in volume can do a real number on earnings.

 

I think that the reason why TJX and Ross aren't that affected is that their shoppers weren't and aren't impulse buyers. You needed some socks or a shirt you went to Marshalls. People still need socks and shirts.

Fair point. Here's the data straight from Census: https://www.cnbc.com/2017/07/03/june-auto-sales.html

They show a 4.5% increase in motor vehicle / parts, while auto companies are reporting a decline: https://www.cnbc.com/2017/07/03/june-auto-sales.html

Clothing they show flat

Sporting goods they show -4.9%