January 15, 2018 Consensus

The Weekly Consensus – January 15, 2018 (Volume 10, Number 3)

The Big Story
Kodak’s Recent Developments
Betsy White

 

Over 4,000 exhibiting companies and 1,200 speakers were in attendance at the annual CES (Consumer Electronics Show) in Las Vegas last week.  While the conference is known for its debuts of cutting edge technologies and gadgets, one presenting company with an old-economy name managed to create quite a bit of publicity and a 300% increase in its stock price.  Two announcements made by Kodak indicate it is now fashioning itself as a new-economy company.  Since it emerged from bankruptcy in 2013, Kodak has mostly licensed away its consumer products business to focus on B2B goods and services.  But both of its newest developments (pun intended) involve a further pivot, moving Kodak into cryptocurrency initiatives that expand the bitcoin universe.

The first of Kodak’s new initiatives involves an ICO (initial coin offering) of a new cryptocurrency called KODAKCoin, which is launching in conjunction with an image rights platform called KODAKOne.  Both KODAKCoin and KODAKOne are designed to assist photographers in managing and getting paid for their images.  Launching January 31 and operated via a licensing partnership with WENN Digital, photographers who sign up for KODAKOne are provided with a level of certainty and security that they are being paid for their work.

Kodak’s second announcement involves its new Kodak KashMiner service. Kodak, through its licensee Spotlite, will offer to rent a bitcoin mining machine for two years for an up-front payment of $3,400.  Each month during the rental period, the KashMiner machine is projected to produce $375 worth of bitcoins (at today’s current bitcoin value), and the renter is entitled to keep half of the expected $9,000 in value created by the machine (Kodak/Spotlite keeps the other half).  Extremely volatile bitcoin prices make any profit far from a sure bet, but executives at licensee Spotlite claim the machines can be used in other blockchain applications, presumably at a gain.

Bitcoin and other cryptocurrencies are currently enjoying an extended period of popularity, as evidenced by bitcoin’s generally rising and relatively high ($15,000/coin), but volatile, value.  Thousands of consumer-facing businesses now accept bitcoin as payment, but consumers and sellers alike who choose to transact this way have the additional complexity of dealing with wild swings in value.  While cryptocurrencies seem to be popular with investors, as evidenced by the rising price of both bitcoins themselves as well as the stock prices of companies like Kodak who have announced cryptocurrency initiatives, many, including Warren Buffett, believe that things will end badly for bitcoin owners.  At the very least there appears to be regulatory risk in certain countries. For instance, in the past week, the government of South Korea announced plans to ban cryptocurrency trading, and China announced it may adopt regulations that will close cryptocurrency mining operations in that country.

Depending on whether or not you believe in the future of cryptocurrencies, Kodak’s new endeavors are either shrewd, or a sign of today’s frothy bitcoin-mania.  However, no matter how you see things, credit is due to Kodak for its efforts to reinvent itself.  And most people would have to agree, there’s probably a lot more upside today in bitcoin than there is in selling film.

 

Headlines of the Week

Ferrero Near Deal to Buy Nestle’s U.S. Chocolate Unit

Italian Nutella maker Ferrero SpA is nearing a deal to acquire Nestle SA’s U.S. confectionery business for about $2.8 billion, according to a person familiar with the matter. An agreement could be signed soon.

 

Kroger And Rivals In Talks To Buy Wholesale Startup Boxed For Up To $500 Million

Online bulk-order wholesaler Boxed has received acquisition interest from grocery giant Kroger and several other major retailers, according to people with knowledge of the situation, with offers already in or expected to arrive next week for the New York-based startup. Should multiple companies make formal bids for Boxed, the company could move through a quick auction process, the people said. Kroger, the $25 billion market cap chain based in Cincinnati, is one of the most likely candidates to acquire Boxed and one of the first to make an offer, the people familiar with the situation said. Costco, Target and Germany’s Aldi have also been mentioned as possible bidders among others, the people said, adding that initial offers likely range from $325 million to $500 million.

 

 

Apparel & Footwear

How Outdoor Voices Is Taking Over The Fitness-Apparel World

Since Outdoor Voices’s (OV) founding in 2013, its growth has accelerated with the lithe ferocity of a 100-meter sprinter: 800 percent in 2016. Outdoor Voices has eight retail stores in four states, with another five planned for the coming year, all of them aimed at people who are, sure, active, but who are not defined by it. The fashion world has noticed—Mickey Drexler, formerly of J.Crew, now chairs the board at OV, which joins a recently emerging group of small companies in the fashion world that have been making big strides in an athletic world once dominated by behemoths like Nike and Adidas.

Retailer A’Gaci files for bankruptcy protection

Women’s apparel retailer A’Gaci filed for bankruptcy protection Tuesday, seeking to reorganize its $62 million in debt amid poor financial performance on a failed expansion, hurricanes and other troubles. San Antonio-based A’Gaci is seeking bankruptcy court approval to close 49 of its 78 stores, including one store in the Houston area. The retailer reported earnings before taxes, interest and other items fell from $4.7 million in 2016 to a negative $2.5 million last year, according to a court filing.  The Chapter 11 petition was filed Tuesday in U.S. Bankruptcy Court in San Antonio. A’Gaci describes itself on its website as “a lifestyle brand catering to young fashion lovers who are sexy, feminine and elegant in their style.”

Uniqlo-Owner Fast Retailing Posts Record Q1 Profit

Japan’s Fast Retailing Co Ltd raked in an all-time high profit in the first quarter, beating consensus estimate, buoyed by brisk business at its overseas Uniqlo clothing stores. Fast Retailing has been pushing to expand overseas amid a patchy recovery in domestic consumer spending, in a bid to fulfil founder Tadashi Yanai‘s ambition to overtake H&M and Zara parent Inditex as the world’s top apparel retailer.  It is already Asia’s biggest. Its operating profit came in at 113.9 billion yen ($1.02 billion) in the quarter ended November, versus 88.59 billion yen a year ago. Results were underpinned by the retailer’s Uniqlo business, famous for its HeatTech fabric clothing and ultra-lightweight down jackets, which saw its operating profit grow 54.7 percent abroad.

 

 

Athletic & Sporting Goods

Equinox bets on Rumble’s boxing theme

Equinox, believing boxing-inspired group fitness will become the next big thing, just picked up a “significant minority” stake in Rumble, a 12-month-old fitness company with a boxing mentality.  Backed by Sylvester Stallone and Justin Bieber, Rumble has two Manhattan locations with plans to quickly expand.  With such a pedigree, the company was recently valued at about $80 million, according to a recent letter to investors. Rumble, with gyms in Chelsea and NoHo, is the latest expansion move by Equinox Fitness Clubs, which already owns Blink Fitness, Pure Yoga and SoulCycle.

 

GoPro slashes workforce, to exit drone market due to ‘hostile’ regulatory environment

GoPro Inc. said it was cutting its workforce by more than 20%, said it was exiting the drone market and provided a fourth-quarter revenue outlook that was well below expectations, citing “price protection” measures for several products. The action camera maker said it expects revenue of $340 million, well below the FactSet consensus of $472 million. The company said it would reduce its global workforce to fewer than 1,000 employees, from the current count of 1,254.

Cosmetics & Pharmacy

Shiseido Advances Beauty, Technology Alliance with Olivo Acquisition

Shiseido is looking to blend the worlds of beauty, technology and dermatology with its latest announcement. The Tokyo-based company has revealed that its subsidiary, Shiseido Americas, has acquired all assets of Massachusetts-based startup, Olivo Labs.

Olivo specializes in advancing the dermatological field through biomaterials technology, which includes its XPL Second Skin technology. The brand’s patented approach creates a breathable and flexible invisible artificial skin that offers a number of benefits not available through traditional cosmetics or cosmetic surgery, the company said.

Jean Coutu’s Solid Q3 Retail Performance Hampered by Pro Doc, Metro Acquisition

Jean Coutu Group shared its fiscal 2018 third-quarter results showing an uptick in retail performance even as the company’s generics manufacturer Pro Doc and its ongoing acquisition of Canadian grocer Metro brought down its operating income. Retail sales from the Quebecois company’s network of 419 franchised stores — which include the PJC Jean Coutu, PJC Jean Coutu Santé and PJC Jean Coutu Santé Beauté — were $1.13 billion Canadian for the period ended Dec. 2, 2017 — up from the $1.09 billion Canadian in retail sales the company saw in Q3 2017. Total-store and same-store pharmacy sales both increased 4%.

 

Discounters & Department Stores

Some Walmart employees get raises, others to lose their jobs

For some Walmart employees, the day brought news of a pay raise. Others learned they were out of a job. Walmart said Thursday that it is boosting its starting salary for U.S. workers and handing out bonuses. The announcement came as the company also confirmed it is closing dozens of Sam’s Club warehouse stores — a move that a union-backed group estimated could cost thousands of jobs. The world’s largest private employer said it was closing 63 of its 660 Sam’s Clubs over the next weeks, with some shut already. Up to 12 are being converted into e-commerce distribution centers, the company said.

Sears warns it will consider ‘all options’ if efforts to refinance $1 billion in debt fail

Sears Holdings said it suffered another disappointing holiday season, making it more challenging as the struggling retailer scrambles to refinance its debt. The parent company of Sears and Kmart stores said it’s in talks with lenders about transactions that would strengthen its balance sheet and improve the terms on more than $1 billion of debt. This would help the chain reduce cash interest expenses and extend maturities.

While reiterating his beliefs that Sears has the right strategy to turn itself around, Chief Executive Officer Eddie Lampert wrote in blog post that, should the refinancing “not be fully successful, the Company’s Board will consider all other options to maximize the value of Sears Holdings’ assets.”

 

Kohl’s seeks to lease space to grocers, convenience stores

As Kohl’s Corp. moves to carve out space in some of its department stores to lease to other retailers, the company is looking to grocery or convenience stores as desirable tenants.  The goal: Drive more traffic to the neighborhood, and to Kohl’s. The Menomonee Falls-based retailer has been working on the initiative for at least a year as it carries out its strategy of blending online and brick-and-mortar efforts. Last week, while attending the ICR investment conference in Orlando, Fla., CEO Kevin Mansell told CNBC that Kohl’s has its eye on grocers or convenience stores as potential partners.

Target’s holiday sales jump 3.4 percent, much higher than forecast

Add Target Corp. to the growing list of retailers who had a robust holiday season as shoppers were in a spending mood and items like the Nintendo Switch and L.O.L. Surprise dolls helped boost sales. The Minneapolis-based retailer reported that comparable sales in November and December rose 3.4 percent, much higher than its forecast, which called for sales to be flat to up to 2 percent. If those numbers hold up in the final weeks of the quarter as executives expect, that would be Target’s best performance since 2014, when it saw declines following the 2013 data breach.

 

 

Grocery & Restaurants

MOD Pizza raises $33M in equity funding and closes $40M credit facility

MOD Pizza, the Seattle-based fast-casual chain, has raised $33 million in equity funding and closed a $40 million credit facility, the company said. The latest funding round brings the company’s total equity capital raised to over $185 million. The financing will support growth in 2018, according to a release. MOD Pizza reported systemwide sales of $150 million in 2016, the most recent year the company reported.

Home & Road

Markor to Acquire Rowe and Jonathan Charles

Markor International Home Furnishings Co. has entered into agreements to acquire Rowe Furniture and Jonathan Charles Fine Furniture. Following the acquisition of a 100% stake of Rowe Furniture, Rowe’s current management team, under the leadership of current CEO Bob Choppa, will oversee and direct the upholstery collaboration of the now three Markor U.S. manufacturing and distribution divisions to ensure a smooth process of integration, the company said in a statement announcing the acquisitions.

Vystar Signs Letter of Intent to Acquire Distributor

Vystar Corp. has signed a letter of intent to acquire assets of NHS Holdings, the exclusive U.S. distributor of Vystar’s Vytex natural rubber latex foam, officials said. NHS was founded in January 2015 by Steve Rotman, now CEO of Vystar and CEO of Rotman’s Furniture and Carpet. NHS identifies and brings to market sustainably sourced, eco-friendly materials and components for use in the home furnishings, apparel, and other markets. NHS was instrumental in introducing Vytex foam to manufacturers for use in mattresses and pillows, officials said.

Jewelry & Luxury

Scott Burger, President of Pandora Americas, to Step Down

Scott Burger, president of Pandora Americas, will step down in February to “dedicate himself to new endeavors,” the company announced today. A veteran of the food business, Burger has worked for Pandora for 10 years, becoming president of the Americas division in 2012. The United States market, which Burger oversaw, remains the charm company’s largest. A search for Burger’s replacement is ongoing. Until then, Pandora global CEO Anders Colding Friis will act as interim president.

Sterling Suing Alex and Ani for Breach of Contract

Alex and Ani went to Jared and, apparently, it didn’t go so well. Court papers filed in federal court in Ohio show that Sterling Jewelers Inc., operator of the Jared the Galleria of Jewelry chain, is suing the Providence, Rhode Island-based bangle brand for breach of contract. Sterling, a wholly owned subsidiary of Signet Jewelers Ltd., and Alex and Ani inked an agreement in August 2015 to do a test run of the brand’s bangles in about 100 Jared stores.

Signet’s Blue Christmas: Holiday Comps Fall 5 Percent in 2017

Signet’s comps for the nine-week holiday season fell 5.3 percent, which the company blamed on its ongoing transition to outsourced credit.  Total sales declined 3.1 percent.

The credit transition particularly hurt sales at its Sterling division, home of Kay (where comps fell 10.8 percent) and Jared (comps down 5.9 percent). “For many years, our store team members were seamlessly utilizing credit to support the selling process,” said chief financial officer Michele Santana on a conference call following the release of its financial results. “With the outsourcing transition, some aspects of these credit operations have changed…We significantly underestimated the impact these changes would have on in-store behaviors.”

 

A Tough Agenda Faces Neiman Marcus’ New CEO

Late last week the Neiman Marcus Group named former Ralph Lauren executive Geoffroy van Raemdonck as their new CEO, replacing company veteran Karen Katz. While not terribly surprising given the company’s struggles under a mountain of debt, extremely rocky “NMG One” systems implementation and largely stagnant growth, the move does come at a critical time for North America’s leading luxury retailer. As van Raemdonck takes the helm next month (and Katz moves to a Board position), he will be faced with addressing several important and vexing challenges.

 

Office & Leisure

After 12-year wait, Sony relaunches robot dog Aibo to much fanfare

Sony Corp. relaunched the Aibo last Thursday, with fans expressing excitement at the second unleashing of the robot dog. The gadget’s revival is not just a simple product relaunch but a symbol of Sony’s recent resurgence as it vies to play a leading role in the robot market expected to bloom in the coming years, analysts said. “It’s been about a year and half since we started developing the new Aibo . . . the day where we can provide it to new owners with confidence has finally come,” said Izumi Kawanishi, who oversees Sony’s artificial intelligence and robotics group, at a promotional event held at Sony’s headquarters in Tokyo. The 29-cm-tall, 2.2-kg robot is equipped with deep learning technology to analyze information collected by various sensors and cameras. It recognizes owners’ faces and reacts differently depending on how deeply they have communicated over time. Such communication data is stored in a cloud-based service.

Wilmington-based Petrics’ smart pet bed named a best product at CES

Wilmington-based Petrics Smart Pet Bed was named one of the Best Products at CES by the Wall Street Journal. It was one of a handful of products WSJ chose from among more than 4,000 exhibitors at the Las Vegas mega tech event. The bed incorporates thermoelectric technology to make the bed cooler or warmer by adjusting its temperature with a smartphone app. Tell the app the breed of your dog with geographic and environmental information and the system will automatically adjust the temperature. The bed will retail from $100 to $300 depending upon size. It is expected to be available in the fall.

Technology & Internet

What Facebook’s news feed change means to retailers

Facebook Inc. is making major changes to its flagship social network, shifting users’ news feeds back toward posts from friends and family and away from businesses and media outlets. This likely means that retailers that have relied on organic traffic from the social network may take a hit, says one expert. It may also mean that consumers spend less time on Facebook, wrote CEO Mark Zuckerberg in a post Thursday.

 

US Supreme Court agrees to hear South Dakota’s online sales tax case

The U.S. Supreme Court will consider freeing state and local governments to collect billions of dollars in sales taxes from online retailers, agreeing to revisit a 26-year-old ruling that has made much of the internet a tax-free zone. Heeding calls from traditional retailers and dozens of states, the justices said they’ll hear South Dakota’s contention that the 1992 ruling is obsolete in the e-commerce era and should be overturned. State and local governments could have collected up to $13 billion more in 2017 if they’d been allowed to require sales tax payments from online merchants and other remote sellers.

 

5 Takeaways From CES 2018

We just wrapped up at the CES 2018 trade show in Las Vegas, where we saw a massive array of new and improved technologies and products on display and attended a wide range of talks and presentations. Here, we share just a few of the highlights and interesting takeaways from this year’s show.

 

Finance & Economy

Homeowners are sitting on trillions in cash

A growing number of homeowners are in the money — big money.  The amount of home equity borrowers now have at their disposal reached an all-time high in the third quarter of last year. The 42 million homeowners with mortgages have a collective $5.5 trillion in “tappable” equity, according to Black Knight Data & Analytics, which studies the mortgage industry.  This is $3 trillion more than they had when the housing market last bottomed in 2012, after the financial crisis. Black Knight defines tappable equity as the amount available for homeowners to borrow before reaching 80 percent of debt to value against their home.

 

Sales at U.S. Retailers Seen Bringing Holiday Cheer to End 2017

Americans probably brought the holiday spirit in abundance to retailers last month, marking a strong finish to 2017.  Receipts climbed another solid 0.5 percent in December after a 0.8 percent jump a month earlier that reflected broad-based gains, according to the median projection in a Bloomberg survey of economists. Compared with a year earlier, sales in November were up 5.8 percent, the most since March 2012. Elevated household confidence and hiring are putting a spring in consumers’ steps. Nonetheless, while the economy continues to be underpinned by steady consumer outlays, paychecks aren’t stretching very far. That could explain a recent pickup in credit-card balances as reported by the Federal Reserve.