Taking Stock: Q4 Warnings… NRF Recap

WARNING SIGNS: The fourth-quarter warnings are coming fast and furious now — setting the stage for lower earnings or losses across the industry. Last week, VF Corp. and Under Armour Inc. reduced projections, as Brown Shoe Co. guided toward the weaker end of its anticipated losses and Kenneth Cole Productions Inc. prepared analysts for more red ink than they’d expected. “The consumer has very much shut off the spigot here and is now driving deflation,” said Leon Nicholas, director of retail insights at the MVI Retail Insights consultancy. “We might be entering into a new normal here. A lot of people are almost writing off 2009.” Excluding a charge for a cost-savings program, VF’s fourth-quarter earnings are expected to range from $1.30 to $1.35 a share, down from the $1.46 reported a year earlier. Cancellations and fewer-than-expected last-minute orders prompted Under Armour to pull down projections for earnings from operations. Profits are now expected to fall to 16 to 18 cents a diluted share from 34 cents a year earlier. At Brown Shoe, losses are now expected to come in at the low end of the previous guidance for 29 to 39 cents a diluted share. Kenneth Cole said the quarter’s loss would tally 20 to 30 cents a diluted share, higher than analysts’ estimates of a 13-cent loss. The projection excludes non-operating charges of 40 to 45 cents a share covering, among other cost-cutting initiatives, a 10 percent reduction in headcount and the consolidation of its Tribeca footwear line into other brands. Kenneth Cole wasn’t the only brand to shed staff last week. Reebok said it was cutting 300 jobs in its North America and Latin America offices, 100 of which will be at its Canton, Mass.-based headquarters. On the retail side, Saks Inc. said Thursday it was slashing 1,100 jobs as part of a larger restructuring initiative. Earlier in the week, Neiman Marcus Inc. revealed plans to trim 350 jobs.


NRF RECAP: Retail titans took to the stage last week at the 98th annual National Retail Federation Convention to discuss strategies for surviving the dismal economy. “The hard questions never get asked during the good times,” said Wal-Mart’s outgoing CEO H. Lee Scott in his opening remarks. “It often takes a crisis to change.” Scott stressed that America must seize the moment to “tackle the hard issues” such as health-care reform, education, immigration and energy policy in order to come out stronger. While Wal-Mart’s “everyday low price” business model has helped the company hold its own through the turmoil, Scott suggested that consumer appetites will fundamentally shift as a result of budget cuts. “I’m not convinced [shoppers] will want to go right back to consumption and debt,” he said. In an economic panel on Tuesday, NRF chairman and J.C. Penney CEO Myron Ullman called on the retail community to “articulate our economic impact to our elected officials.” Ullman expressed his support for NRF’s recent proposal for sales-tax holidays to stimulate spending. A stimulus plan “big enough, fast enough and sustainable enough to get us out of the recession” will be needed to restore consumer confidence, said the exec. Ullman predicted that 2009 “will be a tough year, all year” and that the economy will not see growth until 2010. He advised retailers to hold on to as much cash as possible and keep a close eye on inventories.


INSOLVENT INFLUX: Last week Gottschalks Inc. joined the ranks of companies filing for Chapter 11. The department store chain said it would pursue a sale of its business or another transaction. Observers had been particularly nervous about the retailer since mid-December, when a proposed deal with Everbright Development Overseas Ltd. stalled. Sources said Everbright, based in the British Virgin Islands with operations in China, has been in discussions with El Corte Inglés, Spain’s largest department store retailer, about an investment in Gottschalks. “When the deal fell through with Everbright, all thought that a bankruptcy could be avoided, but El Corte and Everbright thought it would be more beneficial to purchase the company out of bankruptcy,” said Bob Carbonell, chief credit officer for credit ratings service Bernard Sands. Financial and restructuring sources said the two would benefit from a bankruptcy filing, as they can buy the retailer at a better price than if they did so outside of a Chapter 11.


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