Thursday, September 26, 2013

Store Intel: J.C. Penney (JCP) Food for Thought

Enough said about their liquidity issues here are some thoughts we would like to share:
  • Q3 we can now surmise is not close to their expectations
  • Cooler weather pattern has provided a temporary lift to their current business--the same can most likely be said for all retailers the past 10-14 days
  • 2012 Q4 was a negative 32%---doubt it could be worse and so does JCP
  • Applaud their efforts to secure financing ahead of the all important Q4---this will allow them to focus on driving sales
  • The internet business is low hanging fruit and ripe for significant improvement--another fine move by previous management to ignore this section of their business
  • Be mindful this company is in a start-up mode except with enormous debt and rebuilding  ahead. Patience is needed as we look at this story
  • Worse case scenario they close 100 or more stores during 2014. No harm at all and a position we would applaud.
  • Ullman is an experienced  retail veteran who will make this work

Today's Retail News Reel

Here's what we're paying attention to in today's news:

    Tuesday, September 24, 2013

    Store Intel: Mall Walk

    We conclude our 4th mall walk in the month of September yesterday evening and would like to share our thoughts. The entire month September sales pattern seems to be very choppy and uneven with the teen stores (Abercrombie, American Eagle, and Aeropostle) showing the greatest volatility. The change in weather has provided a boost in business but as always, we are concerned it might be short lived.

    Gap Store (GPS) - Once again we see the Gap and Old Navy as leaders for the month of September. We had noted earlier last week that the Gap stores seems to be a bit more aggressive in their promotional cadence for the month. Last weekend Gap was promoting at 30% off the entire store. This was a more aggressive promotion compared to the same time last year when they promoted the entire store at 25%. The question is whether this is an offensive or defensive measure. In our opinion we see this as an offensive position. We feel that for the remainder of the year the consumer is going to chase the more promotional opportunities. Now that the back to school period has passed we don't see any significant event driven opportunity until mid November. A more aggressive posture early on will insure less hard markdowns as we move through the season. The continual updates of new product(GQ setup of new merchandise occurred last night) provides fresh product and allows the Gap to always look current. Our channel checks at this time feel comfortable that both the Gap and Old Navy should be beating 2012 numbers for the month of September.

    American Eagle (AEO) - Earlier in the month we were quite excited about the flow of new product that occurred after labor day. Well that excitement was short lived. It seems that the flurry of traffic that immediately followed the receipt of new product, although relatively small, provided a significant improvement in both traffic and conversion. Our most recent visit last night was disappointing. Unlike their competitors, last weekend which was a Friends and Family event, did not provide the expected lift. In addition, we noticed some new product on the flow that did not come close to the prior receipts earlier in the month. We are disappointed in the lack of trend right product being delivered to the girls floor. We feel that AEO is more promotional than LY as are their competitors but have concerns that the product as of yesterday will be problematic.

    Abercrombie (ANF) -The most surprising change amongst the teen retailers. The product looks quite fresh and much more on trend than at any time throughout the ENTIRE spring season. In particular, our channel checks at multiple locations commented on the surprising improvement in business within the last week. We are starting to believe that the business is starting to make a turn around. Previously ANF was our most disappointing retailer in this space but we are seeing a reason to believe that a change is currently taking place, This is a name we will watch very closely as the stock has been severely beaten down since mid June.

    Monday, September 9, 2013

    Store Intel: Mall Musings

    American Eagle Outfitters (AEO) - as we had indicated during our conference call from last week, we have taken note of the significant change in traffic at the various locations we observed in the Northeast. With the additional delivery of non denim bottoms and novelty sweaters and tops, we are paying close attention to AEO. During the last call, Mary Boland commented, " Our third quarter trends remain challenging. We've experienced weak store traffic across North America and a continuation of a highly competitive and promotional retail landscape. With this in mind and an assumption that sales remain under pressure, we expect third quarter EPS to be in the range of $0.14 to $0.16 compared to EPS of $0.41 last year. This is based on a comp decline in the mid- to high single-digits and continued margin pressure due to increased markdowns." Our research indicates that both traffic, conversion and sales have improved significantly. We are anxious to see the new "filler" of product due in around September 20th. While it is early in the Q3, we have raised our awareness of this name and see a potential upside opportunity in American Eagle.

    Gap Stores (GPS) - a major hurdle has been achieved with a modest positive +1 comp for the month of August 2013. In comparison to the negative news and slowing traffic patterns at most mall based retailers, this is a major victory for the GAP. With OLD NAVY posting a +1% comp increase on top a +12% in 2012, we are very encouraged as we head into the early stages of Q3. We are very impressed with product assortments and mall traffic since the beginning of September. The product direction has been quite consistent and we are impressed. In particular, while many of their competitors are seeing a severe downturn in the denim bottoms category, OLD NAVY in particular is still producing positive sales trends in this category at the stores we visited. The "ROCK STAR" label is continuing to drive this category. We are very impressed with the GAP and feel very strong about the brand.

    Aeropostle (ARO) - we are disappointed in the lack of improved foot traffic since the start of Q3. With all of the significant improvements in product offerings (which we applauded) our research indicates that business has not improved relative to both American Eagle and Abercrombie. We are very concerned even with the downward guidance provided by management and feel the current business might be performing below their revised guidance.