Opportunities in a recession?

The US economy has certainly seen better days: projected economic indicators are pointing towards lower consumer spending and resulting weaker sales in consumer-cyclical spaces. This downward pressure on retail has already crushed market values of many specialty retail firms (See Saks: SKS, Nordstrom:JWN, Ralph-Lauren:RL). None of these declines have found any significant support, however from a value perspective, many of these firms still have incredible growth potential. At lower valuations, firms like Macy's (M) are looking much cheaper at PE's near 10. As stores like Nordstrom continue to open new stores throughout the US, they are posed to capture a significant amount of sales growth in the next 3-5 year period. American Apparel's (APP) earnings report give us some hope that brands capturing a younger market may still be able to maintain positive sales growth in the coming months. Additionally, strong foreign currencies in both Asia and Europe may allow designer brands to continue to overstep the US retail slump. Do you have any fashion value plays brewing in your head?

Related Articles:

Retail sales data heightens recession fears (FT)

"With the housing market in turmoil amid rising foreclosures, rising energy prices, and a deteriorating job market, discretionary spending by consumers appears to be slowing sharply. The resilience of the US consumer in the face of such challenges was one of the trademarks of the economy last year."

Soft NZ Jan retail sales slow NZ economy

"Soft retail sales are the latest piece of data revealing slowing in the domestic economy. January's retail sales rose by a seasonally adjusted 0.3%, as expected and following a 0.1% rise in December, largely due to a 2.1% increase in supermarket and grocery store sales. Excluding vehicle-related industries, the core retail figure was also an increase of 0.3%, against expectations of a 0.1% decline."

Singapore shares close higher on strong retail sales data(CNN/MONEY)

"Retail sales rose 7.8 percent in January from a year earlier, helped by higher fuel prices. The increase beat the 3.2-7.6 percent growth forecast by economists polled by Thomson Financial."

American Apparel Reports Fourth Quarter and Full Year 2007 Financial Results (BusinessWire)

"American Apparel reported unaudited consolidated net sales for the quarter ended December 31, 2007 of $111.2 million, a 48% increase over sales of $75.1 million for the quarter ended December 31, 2006. Retail sales increased 85% to $68.3 million for the fourth quarter of 2007 as compared to $37.0 million for the same period in 2006, with same-store sales for stores open at least 12 months rising 40%. Wholesale sales were $42.9 million for the 2007 fourth quarter as compared to $38.1 million for the 2006 fourth quarter, an increase of 13%. American Apparel ended the quarter with 182 stores, having added 19 net new stores in the period."

American Apparel Trading At 52-Week Low

American Apparel (AMEX: APP) has been getting hammered in the market over the last 4 weeks. After debuting around $15/share in December, American Apparel promptly fell to $11 not more than forty days later (24th of January). It rebounded north of $13.20 by February 5th, and has sold off since, closing at $10.95/share today.

Some of the selloff is due to general macroeonomic concerns including a retail spending slowdown, but there's something else driving the negativity on APP: CEO Dov Charney is in the middle of a potentially damaging lawsuit. Charney has recently won an appeal, and the case is back in arbitration, which could delay settlement for up to a year.

American Apparel has fallen more than double that of the S&P Retail ETF since its listing in December.

What do you guys think of American Apparel right now?

Retail Customer Service All-Stars

BusinessWeek has published a list of the American firms with the best customer service, gathered by J.D. Power. A few retailers made the grade, including L.L. Bean, Land's End, Nordstrom, Amazon.com, and Neiman Marcus.

Some interesting tidbits in the survey:

Land's End doubled its presence in Sears stores in 2007 and added in-store monogramming. They let customers bring back merchandise that's 20 years old.

Amazon.com made shipping free for all orders above $25, which seemed like a dangerous margin-killing move, but ended up increasing sales by 42% and doubling profit in the 4th quarter of 2007.

At Neiman Marcus, new hires receive 160 hours of training so they know how to develop customer relationships and understand the designer goods the chain sells (retail success story Lululemon requires similarly-lengthy training). Also, Neiman has been recruiting at top universities to increase the caliber of its associates.

Another study published in the Journal of Marketing shows that firms in the top quintile of customer service rank beat the return of the broader stock market in good times and bad. Indeed, there's something to be said for providing good customer service.

Businessweek - The Customer Service Elite
Consumerist - How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

J Crew's Women's S/S 08 Lineup

As we head back into the first months of spring, a few retail outlets come to mind for the usual spring shopping. This week we look at J.Crew's (NYSE:JCG) Women's lineup.

It seems as though this spring, the clothing is a bit more conservative than normal with a few odd quirks. In comparison with Anthropologie (NASDAQ:URBN), it seems as though much of their collection really is hit or miss. Half-jokingly, I compare some of J.Crew's collection with the older-woman style of Talbots (NYSE:TLB), moving away from a more youthful look. One very stand-out part of the S/S line is their obsession with the above pictured Paisley print (pictured above). This is certainly a different style direction than much of their pieces and might be a clash rather than a complement.

I think the brand may be getting a little too conservative for some of its core buyers in their early 20's. Perhaps perfect targets for Rugby (NYSE:RL)?

Sentiment: Neutral-Bearish.

Hedge Funds Corral American Apparel

American Apparel (AMEX: APP) shares are being widely fielded by hedge funds. SEC 13G filings (which indicate that an investor or fund has amassed >5% ownership stake in a publicly traded entity) have been filed by Morgan Stanley Investment Management, Fir Tree, and most notably, SAC Capital Advisors.

SAC Capital Advisors is run by the über-successful fund manager Steven Cohen, who routinely pays himself upwards of half a billion dollars a year (and more than a billion in 2005) for managing the fund, and is the 47th richest American, according to the latest figures. More importantly, Mr. Cohen has had a stellar track record investing in retail. Google Finance Board user mlrtist wrote:

"...it might interest you guys to take a quick look back at Cohen's involvement in [youth retailer] Wet Seal's dramatic turnaround exactly 2 years ago."

TheStreet.com - Retail - Wet Seat Turns It Around

Quoting the article from TheStreet.com:

"For S.A.C., Wet Seal has proved to be a huge success. The shares have nearly tripled since the firm bought its stake over a year ago..."

"The results imply that S.A.C., which held a 9.9% stake in Wet Seal as of Dec. 31, found a cheap way to break in on the teen fashion specialty-retail business, where Wall Street darlings like Abercrombie & Fitch, American Eagle Outfitters and Pacific Sunwear have been delivering some of the highest returns in the stock market in recent years. Wet Seal operates about 300 stores across the U.S."

If Steven Cohen tripled his investment in Wet Seal, then we might take a good long look at American Apparel just by association.

(Full disclosure: author owns shares of American Apparel both directly and indirectly at the time of this writing; does not own shares of any other firm mentioned in the article.)

13G Filing - Morgan Stanley
13G Filing - Fir Tree
13G Filing - SAC Capital Advisors

Wardrobe Remix

Photography social network/photo storage site Flickr's got a new attraction, a group called Wardrobe Remix, that we love.

Browse through the photo pool and you'll find a lot of hipsters masquerading as pseudo-'Sartorialist' muses, and once in a while you'll come upon a fantastic, unique outfit.

Here are some of my favorites:









Wardrobe Remixers of the Week

Puma's Hideous Creation

Puma has had a fantastic run these last five years, creating molded, provocatively-designed footwear often inspired by racecar driver's shoes, like the Speed Cat and the Mostro.

I went to Nordstrom's yesterday and checked out Puma's womens shoes in B.P. and was frightened by what I saw:



They call it the 'Spadrille'.

What do you think?