Taking Stock: The 2009 Outlook… Early Bankruptcies

TRADE TALK: Footwear executives and investors alike might have tossed away their 2008 calendars — thankful to put the ruinous year behind them — but the financial hangover that drove retail stocks down 31.9 percent last year is lingering. Still, there is money to be made on Wall Street, even if the industry has yet to work through the excesses of the years-long credit binge that left the U.S. overstored. “It’s going to be a real stock picker’s market in the retail, apparel and footwear industries,” said Laurence Leeds Jr., chairman of investment firm Buckingham Capital Management. “There will be winners and losers. Several of these stocks are down so far that they’re starting to get to the point where they represent compelling value.” The Standard & Poor’s Retail Index slid 130.68 points last year to 279.26. A few were able to buck the trend, including Finish Line Inc., up 133.3 percent to $5.60; Weyco Group Inc., up 22.5 percent to $33.05; Wal-Mart Stores Inc., up 20 percent to $56.06, and Steven Madden, up 6.6 percent to $21.32. But most ended up on the losing end in 2008, including Collective Brands Inc., down 32.6 percent to $11.72; Foot Locker Inc., down 43.5 percent to $7.34, and Kenneth Cole Productions Inc., down 58.3 percent to $7.08. The luxe retail players showed some of the biggest declines, with shares of Saks Inc. falling 78.9 percent to $4.38 last year, as Nordstrom Inc. declined 62.6 percent to $13.31. And it could be some time before retailers’ fortunes really begin to turn. “I don’t think the worst is over,” said consultant Walter Loeb, who ranked 2008 as the worst year for retailing in his nearly six-decade career. “The first half of [2009] will be terrible. The second half will be, in comparison with the year before, less threatening.”

LEADING THE WAY OUT: The expected post-holiday bankruptcy wave has already claimed a pair of standard bearers: Goody’s Family Clothing Inc. and Against All Odds USA Inc. Goody’s, which emerged from bankruptcy in October, decided to throw in the towel entirely and liquidate operations, according to sources. The Knoxville, Tenn.-based chain had 287 doors across the Southeast that produced more than $800 million in revenues and employed about 9,800. And still in business, but now insolvent, Against All Odds filed for Chapter 11 protection in a New Jersey bankruptcy court, listing both assets and liabilities between $10 million and $50 million. The 64-unit Moonachie, N.J.-based urbanwear retailer had sales of $121.1 million and turned a profit in 2007, but lost money last year. The chain was launched in 1995 by Kenny Khym, who co-founded the hip-hop line Southpole. The brand’s producer, Wicked Fashions Inc. of Fort Lee, N.J., is the retailer’s top unsecured creditor, owed $3.9 million. “Over the next 18 months, the amount of retail that will be gone will be overwhelming,” said Stevan Buxbaum, EVP of Buxbaum Group, a consumer product appraisal and liquidation firm.

OBAMA’S ECONOMIC RELIEF: President-elect Barack Obama was busy drumming up support last week for his economic stimulus package — which could cost an estimated $775 billion over two years and amount to a shot in the arm for retailing. “It is very important to have a balanced recovery and reinvestment package,” Obama said. “Part of it is going to be addressing consumers and making sure they have money in their pockets. Part of it is to provide incentives to businesses so they start investing in equipment that ultimately leads to jobs.” Consumers clamped down on their spending last year as job losses piled up and the financial crisis worsened. Obama’s proposed stimulus plan includes a massive effort to rebuild the nation’s infrastructure and create 3 million jobs. The president-elect is also considering $300 billion in tax cuts for workers and businesses over two years, representing about 40 percent of the overall package, a transition aide said. The plan would include a $500 tax credit for individuals and $1,000 for families. Instead of giving people more money through rebate checks to jump-start the economy, which the Bush administration opted for in a smaller package enacted last summer, Obama would withhold less from workers’ paychecks. Businesses might get an estimated $100 billion in tax incentives over the next two years.

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