The Big Story
A Public Lesson
Womenswear apparel retailer J.Jill reported some unexpected bad news last Wednesday about its performance in the current quarter ending October 28, 2017. The update was so awful the Company’s stock price dropped by over 50 percent, causing the company to lose about $230 million in market value. The negative reaction extended less dramatically to apparel retailers across the board, with many wondering whether the news is a harbinger of more widespread weakness in women’s apparel.
J.Jill’s news is not just a story about brick and mortar retail. While the majority of the company’s sales are generated through its stores (the good news is that its store locations are primarily in “A” malls), it has a relatively high direct/ecommerce sales penetration of between 40 percent and 45 percent. On a comparable sales basis, J.Jill analyzes its sales performance holistically, only publishing combined store and direct comparable sales, which has been the primary driver of its overall sales increases.
The latest guidance from the company reduced expected third quarter comparable sales to (3) percent to (5) percent, from its August 29th guidance of an “increase in the high single digits.” That’s a reduction of almost 15 percentage points in the 43 days between the two company announcements, and makes one wonder if August sales were worse than the company led investors to believe on August 29th, or if sales just fell off a cliff in the period from August 29th to October 11th. Adjusted diluted earnings per share in the third quarter are now expected at $0.07 to $0.09 per share versus the $0.18 to $0.20 per share announced on August 29th. Since J.Jill has only been a public company for seven months, perhaps the ill-timed change in guidance is just a rookie mistake, but nonetheless, it was cause for concern for J.Jill investors and retail followers alike.
Credit should be given to J.Jill for its admission that the decline in third quarter performance was self-inflicted due to “product and marketing calendar issues that are affecting traffic and conversion.” The company has also assured investors it has already begun to fix the problems, leading several analysts to predict that holiday sales will turn around.
The market’s reaction to last week’s news was a hard lesson for J.Jill, and likely exacerbated by the fact that the newly-public company has not yet had time to gain the trust of the investor community. With no track record, last week’s downward revision to guidance was likely more damaging to the company’s credibility than it would have been if J.Jill had already established a history of achieving its guidance. The market always prefers those companies that consistently meet or beat expectations – even if most observers assume that guidance is conservative. It will be interesting to see if the next newly-public retail company learns from this mistake and establishes guidance that is more conservative than it would have otherwise provided. In the meantime, let’s hope J.Jill has identified and corrected its issues, and that the market has reason to react favorably to the company’s earnings release in December.
Headlines of the Week
Sears Canada said Tuesday it plans to seek court approval to begin liquidation of all of its remaining stores and assets, a move that would see about 130 outlets close and put about 12,000 employees out of work. “Sears Canada, with the recommendation of its advisers and approval of the monitor, FTI Consulting Inc., is seeking an order to commence a liquidation that would result in a wind-down of its business following court approval,” Sears Canada said in a release. “The company deeply regrets this pending outcome and the resulting loss of jobs and store closures,” the retailer said.
Google and the country’s biggest brick-and-mortar retailers have one main problem in common: Amazon. Now both sides are acting like they are serious about working together to do something about it. On Thursday, Target and Google announced that they are expanding what was a years-old delivery partnership from a small experiment in a handful of cities to the entire continental U.S. The expansion will allow Target to become a retail partner in Google’s voice-shopping initiative, which lets owners of the Google Home “smart” speaker order items through voice commands like owners of the Echo can do from Amazon.
Apparel & Footwear
Coach announced last Wednesday that it is changing its corporate name. Three years ago, Coach announced its intention to grow beyond the Coach brand, acquiring Stuart Weitzman, an upscale shoe brand, in 2015 and Kate Spade & Co., a maker of handbags, apparel, shoes and accessories, over the summer. Coach has been Coach since 1941, when it began as a family-run workshop in Manhattan with handmade wallets and billfolds. The company said in a statement that the name change will take effect Oct. 31.
J.Jill lowered its expectations for fiscal third-quarter earnings and same-store sales. The Quincy, Massachusetts-based now expects same store sales to decline between 3 and 5 percent. Initially, J.Jill had forecast comparable sales to be up in the high single digits. Some analysts are saying there’s still hope for J.Jill to turn sales around ahead of the all-important holiday shopping season. On the heels of its March initial public offering, J.Jill offers an example of just how difficult it is to be an apparel retailer today, as forecasting where shoppers will spend their dollars is becoming increasingly uncertain.
This year marks the 30th anniversary of the Joseph Abboud label, and the New Bedford factory has never been busier. Abboud, a 67-year-old Boston native, got his start on the floor of Louis Boston in his teens, then launched his design career under the tutelage of Ralph Lauren. While many of his contemporaries are closing stores, Abboud says he is a man in full, cutting a new path to meet the demands of a shifting industry. After three decades designing menswear — which includes seven years when a legal battle with his former partners left him unable to design clothing under his own name — Abboud is now the chief creative director of Tailored Brands, the parent company of Men’s Wearhouse and Jos. A. Bank.
Athletic & Sporting Goods
Clearview Capital has acquired Nielsen-Kellerman, a maker of measurement instruments and equipment in the outdoor, tactical, paddlesports and professional markets. The sellers were JZ Partners and The Edgewater Funds. No financial terms were disclosed. Nielsen-Kellerman was founded in 1978 and is located in Boothwyn, PA. All of the company’s products are designed and assembled in the United States and are marketed under the Kestrel and NK brands.
While athleisure has been popular across demographic groups, a new survey suggests a shift in both fashion favor and brands among teens. Overall, only a third of teens say their favorite apparel brands are in the athletic category, down from more than 40 percent in the spring. Nike is still the No. 1 preferred apparel brand for teens, but it has lost share, falling from 29 percent of teens ranking it as their favorite to 23 percent. Adidas and American Eagle Outfitters have picked up most of the share Nike has lost. Adidas has doubled its mindshare and is now the No. 3 preferred brand, particularly popular with the guys. American Eagle holds on to the No. 2 spot but with a higher share this year than last.
Cosmetics & Pharmacy
Procter & Gamble claimed victory in its battle with Nelson Peltz, saying the activist investor had been denied a seat on the consumer group’s board after the largest proxy battle corporate America has seen to date. Trian bought a $3.5bn stake in P&G in February, giving it a roughly 1.5 per cent holding and representing almost a quarter of Trian’s fund. Mr Peltz had argued that P&G, maker of household brands such as Tide detergent and Gillette razors, has been stuck in the past and failed to adapt to significant shifts in consumer tastes and shopping habits. Trian’s defeat comes after its chief investment officer was elected to the board of General Electric, raising expectations of success at P&G.
Amazon is in the final stages of figuring out its strategy to get into the multibillion-dollar prescription drug market. The company will decide before Thanksgiving whether to move into selling prescription drugs online, according to an email from Amazon viewed by CNBC and a source familiar with the situation. If it decides to make that move, it will start expanding its senior team with drug supply chain experts. Amazon typically spends years researching opportunities before it telegraphs its intentions. The opportunity to sell drugs online is alluring given its market size — analysts have estimated the U.S. prescription drug market at $560 billion per year.
Teen apparel retailer Forever 21 is trying something different. The company created Riley Rose, a beauty boutique that’s being rolled out at 13 of General Growth Properties’ shopping centers across the U.S., to start. The first Riley Rose store opened at Los Angeles’ Glendale Galleria mall. The Riley Rose moniker was coined by Linda and Esther Chang, the daughters of Forever 21’s founders. While the two have been involved in marketing and visual merchandising at Forever 21, they’ve long wanted to tap into beauty.
Discounters & Department Stores
Walmart brass feels its brand may not be the best when it comes to selling to urban customers. The discount giant will have its youngish Jet.com e-commerce unit focus on shoppers in New York, Chicago, Boston and other large cities, while the 55-year-old discounter’s online store will focus on the rest of the country, The Post has learned.
The two-Americas strategy — Jet.com for urban millennial customers and Walmart for the remainder of the country — was disclosed recently to a town hall meeting of Jet.com employees at the 3-year old company’s Hoboken, NJ, headquarters.
Retailers that close a big chunk of their store fleet are likely only hastening their demise, predicted Hudson’s Bay Company CEO Gerald Storch. Storch, speaking on Monday at the Shoptalk conference in Copenhagen, Denmark, said his company would instead “play to win” in the radically changing world of retail, and not retrench and close stores. Hudson’s Bay, which owns Saks Fifth Avenue and Lord & Taylor in the United States (as well as a namesake chain in Canada and the Netherlands and a pair of retailers in Belgium and Germany) continues to expand, opening dozens of Saks Off Fifth discount stores in the last year and renovating and rebranding 15 stores in the Netherlands.
Grocery & Restaurants
Kroger Co. is eying a potential sale of its convenience-store operations, which include 784 c-stores operating under several banners across 18 states. The c-store business generated revenue of $4 billion, including sales from 1.2 billion gallons of fuel in 2016, the company said. It has posted 62 consecutive quarters of identical-store sales growth. Kroger said it has hired Goldman Sachs & Co. to evaluate options for the c-store division, which operates under the Turkey Hill Minit Markets, Loaf ‘N Jug, KwikShop, Tom Thumb and QuickStop.
Kroger unveiled a series of strategic moves that include reducing its investments in new stores and leveraging technology to accelerate changes in assortments and improve customer service at existing locations. The “Restock Kroger” initiative will involve an accelerated and more data-driven effort around pricing, personalized communications with customers and a massive revamp of product assortments, executives form the Cincinnati-based company explained in Kroger’s annual Analyst Day. Kroger is the largest collector of food purchase data in the U.S., the company said, and it intends to use that data as a competitive advantage as it expands its efforts to provide meal- and food-shopping solutions.
Private-equity firm L Catterton has acquired the 29-unit Uncle Julio’s Mexican casual-dining chain, the companies said last Wednesday. Greenwich, Conn.-based L Catterton said it planned to accelerate expansion of Dallas-based Uncle Julio’s, which was founded in 1986 and has restaurants in seven states. Terms of the deal were not disclosed.
Home & Road
Ikea Group, the parent of the Ikea U.S., reported retail sales of $40.2 billion for the fiscal year ended Aug. 31, up 3.8% from the previous year after adjusting for currency impact. The company, with 355 stores in 29 countries, said it stores saw some 817 million visits while its Ikea.com websites saw more than 2.1 billion visits. It did not report same-store results as it did the year before. “We will use our stable financial situation to invest in meeting the needs of our customers even better,” Jesper Brodin, president and CEO of IKEA Group, said in a statement. The company said it continued to improve this past year with new store formats, shorter lead times and improved distribution.
Jewelry & Luxury
LVMH’s watch and jewelry sales saw healthy growth in the first nine months of the year, with organic revenue rising 13 percent. The company singled out Bulgari for its remarkable performance, with sales rising for its Serpenti, Diva, and B.Zero1 lines. “The launch of [Bulgari’s] new Festa high-end jewelry line is one of the highlights of the last quarter,” it added
Helzberg Diamonds confirmed Wednesday that it is dropping its just-launched line of Marchesa-branded bridal jewelry for now, a decision that comes in the wake of the sexual harassment and assault charges leveled against designer Georgina Chapman’s husband, movie producer Harvey Weinstein. First reported by The Hollywood Reporter on Wednesday, Helzberg confirmed the news in an email to National Jeweler via its PR firm, stating that it is “not launching the Marchesa brand at this time.” The company declined any further comment.
Diamond and jewelry wholesaler White Pine Trading has announced the launch of a new e-commerce website specifically aimed at helping jewelers get their product online and in front of more customers. The website, BrightSociety.com, offers a full e-commerce experience for consumers, who can shop a wide variety of jewelry and watches stocked by various brick-and-mortar stores. Joe Mellet, Bright Society’s general manager, said in a press release: “Bright Society is committed to providing an industry-altering solution for jewelers, and changing the online shopping experience for customers.
Office & Leisure
Staples Inc. is the latest retailer to stop selling anti-virus software made by Moscow-based Kaspersky Lab Inc., which is allegedly linked to Russian spy agencies. The software was removed from the retailer’s website and is being pulled from all stores on Thursday, a company spokesman confirmed after an inquiry from Bloomberg News. Best Buy Co. and Office Depot Inc. vowed to stop selling the software last month after the U.S. banned government agencies from using it.
Character Group Plc, the British maker of Teletubbies and Peppa Pig toys, fell the most in more than eight years after saying the collapse of retailer Toys “R” Us Inc. is impacting every market in which it operates. “Sales have been adversely affected by a combination of several factors, not least of which is one of the world’s largest toy retailers entering into Chapter 11 bankruptcy protection in the U.S. and Canada,” the London-based company said in a statement. Character Group now expects its performance for the year ending August 31 2018 to be significantly below current market estimates, as international customers in particular take a “very conservative approach to purchases.”
Technology & Internet
Amazon has almost perfected speedy delivery to your home. Now the company is working to make sure your packages get inside the front door, or even into your car. The company is in advanced talks to forge a partnership with Phrame, a maker of smart license plates that allow items to be delivered to a car’s trunk, according to a person with knowledge of the potential deal. Phrame’s product fits around a license plate and contains a secure box that holds the keys to the car. Users unlock the box with their smartphone, and can grant access to others — such as delivery drivers — remotely. At the same time, Amazon is developing a smart doorbell device that would give delivery drivers one-time access to a person’s home to drop off items, said two people familiar with the matter. The new initiatives are part of Amazon’s effort to go beyond convenience and fix problems associated with unattended delivery.
Finance & Economy
U.S. producer prices rose in September as the price of gasoline recorded its biggest increase in more than two years amid production disruptions at oil refineries in Texas caused by Hurricane Harvey. The Labor Department said its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in August. In the 12 months through September, the PPI jumped 2.6 percent. That was the biggest gain since February 2012 and followed a 2.4 percent jump in August. Wholesale gasoline prices soared 10.9 percent in September after increasing 9.5 percent in August. The Labor Department said higher energy prices were likely the result of “reduced refining capacity in the Gulf Coast area due to Hurricane Harvey.”
U.S. retail sales jumped last month by the most in more than two years as motor vehicles lost to hurricanes were quickly replaced and higher prices lifted receipts at gasoline stations, Commerce Department figures showed. Vehicle sales helped to drive the overall gain at retailers in September. Demand recovered after auto dealerships around Houston, among the top markets for new-vehicle sales, took a hit from Hurricane Harvey a month earlier. Industry figures released last week showed cars and light trucks sold in September at the fastest annualized rate since 2005.