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  • TLB Was a Disaster Waiting to Happen – Cheerleader/Analyst at Lazard Missed it Completely

    Talbots (TLB – $4.39) reports Q4 2010 earnings this week.  The stock price today is a far cry from the $13.00+ per share level that was seen just prior to the acquisition of BPW (a SPAC) a year ago.  How this management team remains employed is beyond us.  In our view, the unveiling of aThree-Year Strategic Plan (October 2010) was nothing  more than an attempt to “buy time” to stay employed for the next 12-24 months before investors recognized that the emperor had no clothes (literally). 

    We’ve written extensively about the poor management team at TLB and their uncanny ability to consistently disappoint investors: 

    Blog Entry 10.05.2010:

    Blog Entry 09.08.2010:

    Blog Entry 06.09.2010:

    Blog Entry 03.30.2010:

    Today, investors now probably understand that the “full price sell-through” metric that TLB management loved to mention on quarterly conference calls meant nothing other than inventory levels had been better controlled.

    TLB management unveiled a Three-Year Strategic Plan (October 2010).  Clearly, TLB management was feeling the heat and needed to throw investors a ‘bone’ to suggest better times were just over the horizon.  It was a classic “let’s buy some time” tactic by TLB management to stay employed for the next 1-2 years before investors fully recognize that the 12.0% EBIT margin goal was pie in the sky math that will never, in our view, come close to being realized.

    In FY 2011, TLB will struggle to produce an EBIT margin north of 2.0%.

    But we would be remiss if we did not at this time point out an email response from a traditional sell-side analyst that we chastised for his cheerleading on the Q2 2010 conference call in June 2010.  His response to that blog post is a textbook example of how management teams utilize meaningless metrics that are supposed to imply an improved trend in the business.  We’ll use his terms (see below).  He bought the gibberish from TLB management HOOK, LINE, and SINKER.

    Today, we’re curious what this particular analyst thinks he missed?  How could he miss anything given his “merchant background” and the fact that his analysis of product indicated a high level of “traction it was getting from old as well as from some NEW customers?” 

    Below is an excerpt of his email to Retail Geeks on 06.10.2010:

    In fact, you are the one who has been wrong. You scoffed at mgmt for suggesting they thought that a double digit EBIT rate was possible in the future, and wrote that  “”The company is likely to generate, at best, a -3% to -4% EBIT margin this year (2009). “”

    Good grief Charlie Brown, they generated a +0.9% EBIT in 2009, 4%-5% above your projection.  But that’s OK. It wasn’t easy to see unless you had a merchant background and you were able to analyze the product and see the traction it was getting from old as well as from some NEW customers.

    And in the first quarter, its EBIT rate was +9.9%. They produced a 2.4% comp on inventory down between 31% (at the beginning of the qtr) and down 17% (by the end). You try generating a positive comp with almost a third less inventory, it aint easy. I was a buyer for Macy’s in the 1990s, I let me tell you, it aint easy to sell what you don’t have in stock. And these comps would have been closer to +7.5% if you combine the sales with the direct channel, as ANN does. Incidentally, the company said that current 2Q comps are running +5%, double the 1Q rate (again, this does not include the direct channel as some other report it).

    TLB is clearly a work in progress with a NEW mgmt team. The product looks great (overall) and people are buying it….hook, line, and sinker. And they are paying full price (full price sales +21% — to me, that is more indicative of an underlying comp trend). Sales of markdown inventory is down 31% (that is the comp they are giving up, and this is a good thing, a healthy, high quality way to manage a recovery).

    Perhaps some of the upswing is helped by an improving missy customer (although tell that to Coldwater Creek), but you might want to give this team a little more credit. Are their stores too big? Maybe some of them are. But remember, they generated a 13% EBIT rate when the stores were as big or even bigger on average, and remember, that was when they had money-losing men’s, kids, and UK stores that did not make money and have since been closed. So, if you exclude the drag from those 3 businesses, the EBIT rate in the core TLB brand was probably higher than 13% historically.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 22 4:52 PM | Link | Comment!
  • HIRE Act Generating Material Labor Cost Benefit in Q4 2010

    In Q4 2010 conference calls, retail/restaurant companies are talking about the benefits of the HIRE Act (at least the more transparent/honest management teams). 

    We’ll give kudos to Cheesecake Factory (CAKE – $29.32) CFO Doug Benn for his honesty.  He points out the benefit of the HIRE Act in the company’s Q4 2010 earnings conference call (see below). 

    We’ll try to stay away from the politics of his response (see below).  But, we think that it’s safe to assume that Mr. Benn believes that it’s foolish to assume companies would see the HIRE Act as anything other than a corporate giveaway.  He certainly seems to see it that way.

    Analysts should ask companies about the benefits of the HIRE Act in Q4 2010.  We’re betting that many companies will try to take credit for mysteriously lower than expected labor costs in Q4 2010.  For example, PNRA made no mention of the HIRE Act in regards to Q4 2010 earnings.  But the CFO made the following comment re: labor… “We don’t know that this is a sustainable thing which is going to change the trajectory of labor growth… when we annualize this in the fourth quarter, we think the benefit kind of goes away.”

    Sounds like PNRA may have tried to ‘bury’ the HIRE Act benefit in Q4 2010. 

    Doug Benn – The Cheesecake Factory – CFO, EVP
    HIRE impact was about half of that. Let’s just say 40 basis point to 50 basis points. The HIRE Act required a lot of work. I would  assume that it would apply to everyone. I don’t know why it wouldn’t, but it does take work to go back and determine every employee that was hired during the year, and whether or not they qualified for this or not. So, we did a good bit of research and scrambling to be able to get that HIRE Act credit, but I don’t see why other companies would not be getting it as well.

    Jake Bartlett – Susquehanna Financial Group / SIG – Analyst
    Okay. So, a concept that had a little more turnover. Maybe more unit openings could get more of a benefit from that?

    Doug Benn – The Cheesecake Factory – CFO, EVP
    They could. You had to hire workers that were not employed. Interestingly enough, the intent was to try to incentivize people to hire workers who were unemployed. It actually didn’t do that at all. We just hired who we were going to hire any way. If they happened to have been unemployed before, we got the HIRE Act credit.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Feb 11 5:57 PM | Link | Comment!
  • Retail Sector Facebook ‘Fan’ Winners and Losers – January 2011

    Social media is fast becoming the most effective approach to boost brand awareness, understand their customers, get feedback, as well as direct traffic to a company’s web site.

    We like to track the Facebook activities and monthly fan base growth for the retailers and brands that we follow (and a few others).  Click here to see our compilation of monthly Facebook ‘fan’ numbers.

    It is worth noting that out of the 190 retail chains/brands covered in this survey, the following were the largest percentage gainers of ‘fans’ in January 2011 versus the prior month: 

    Bed Bath & Beyond (BBBY – $48.00) +241.3%
    AnnTaylor LOFT (ANN – $22.12) +128.6%
    Denny’s (DENN – $3.80) +89.5%
    New York & Company (NWY – $5.59) +88.3%
    Schweppes (DPS – $35.43) +77.2% 

    Interestingly, we highlighted ANN Taylor LOFT in last month’s survey (click here) for producing a dismal December 2010 monthly ‘fan’ growth rate of less than +1.0%.

    Conversely, It is worth noting that out of the 190 retail chains/brands covered in this survey, the following were the lowest percentage gainers of ‘fans’ in January 2011 versus the prior month: 

    7UP (DPS – $35.43)+0.6%
    Coldwater Creek (CWTR – $2.91)+0.9%
    TJ Maxx (TJX – $47.39)+1.1%
    Radio Shack (RSH – $15.15)+1.5%
    J. Crew ($43.42) & Lowe’s ($24.80)+1.8%

    Coca Cola (KO – $62.85) had the largest number of ‘fans’ at the end of January 2011 with 22.1 million followed closely by Starbucks (SBUX – $31.53) at 19.4 million. 

    Again, click here to see our compilation of monthly Facebook ‘fan’ numbers.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Feb 01 12:37 PM | Link | Comment!
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