Taking Stock: M&A Slowdown…

M&A SLOWDOWN: Merger-and-acquisition activity in the retail, apparel, footwear and restaurants sector fell sharply during the first half of the year, putting 2009 on track to be the slowest M&A year of the century. According to a quarterly report by Robert W. Baird & Co.’s investment banking department, the number of disclosed M&A deals in the U.S. for less than $1 billion, considered “middle-market,” dropped 37.7 percent during the first six months of 2009, compared with the same period in 2008. Including larger deals, and those with undisclosed transaction amounts, the six-month total fell 52.3 percent. The total value of the middle-market deals within the sector fell 17.7 percent to $3.03 billion from $3.68 billion a year ago, although the average deal this year was about $70.4 million, up from $53.3 million a year ago. If current trends hold, 2009 would set new lows for both deal volume and value. However, Joseph Pelligrini, managing director of Baird’s consumer retail team, sees evidence that things are about to change. “Deal flow has been anemic, but our level of dialogue with strategic [investors] on a global scale has increased greatly and has never been as robust as it has been in the last few months,” he said. He expects more deals over the next six to 10 months, with Amazon.com’s planned acquisition of Zappos.com serving as a model. “That’s a great example of what you may be seeing — instead of an all-cash proposal, it’s stock for stock,” Pelligrini said. — ARNOLD J. KARR

Backing away from the growing sense of optimism they demonstrated in the spring, Americans pulled The Conference Board’s Consumer Confidence Index to its second consecutive decline in July. The index retreated to 46.6 from a revised 49.3 in June. Both components of the index fell, with the Present Situation Index declining to 23.4 from 25 in June, and the Expectations Index decreasing to 62 from 65.5 the previous month. This year, the high-water mark for the index was May’s 54.8, its highest level since the 61.4 registered in September, when the economic crisis mushroomed. “Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months,” said Lynn Franco, director of The Conference Board Consumer Research Center, adding that “more consumers are pessimistic about their income expectations.” Franco explained that the decline in the Present Situation component was due to a worsening job market, while the downtrend in the Expectations Index was due to a higher proportion of consumers who expected no change in business and labor market conditions. In July, respondents to the Conference Board’s survey who said jobs are “hard to get” rose to 48.1 percent from 44.8 percent, while those claiming jobs are “plentiful” decreased to 3.6 percent from 4.5 percent. In addition, the percentage of respondents who expect more jobs in the months ahead decreased to 15 percent from 17.5 percent. — VICKI M. YOUNG & EVAN CLARK

The athletic footwear cycle may be on its last leg. According to a new report by Avondale Partners analyst David Turner, sales trends and margins are declining in the segment. Last week’s news of an 18 percent decrease in footwear sales at Under Armour Inc., and the recent report that futures at Nike Inc. were down 12 percent on a real dollar basis from June to November 2009 “hardly provides framework for a healthy sector,” said Turner. His recent channel checks also yielded weakness in athletic footwear, as data demonstrated a 20 percent decrease in sales, he said. And while average pricing has trended higher in the last 18 months, contributing to the “generally positive sentiment encompassing athletic footwear,” the analyst believes the “the run is over. … Given the pace and magnitude of sales declines, promotional activity will assuredly increase.” As a result, Turner has lowered his full-year earnings-per-share estimates on Foot Locker Inc., The Finish Line Inc. and Hibbett Sports Inc. to 66 cents, 52 cents and 95 cents, respectively. “Evidence continues to mount that sales trends and margins within the athletic footwear space are both rapidly decelerating to a point that will evolve into more than a one-quarter earnings stumble,” he said. — JESSICA PALLAY

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