Industry public companies hit the investor conference circuit last week in an environment that was in part as upbeat as last year but also a bit more cautious as real solid growth trends at retail prove to be a bit elusive for many.


At the ICR XChange, VF Corporation, parent company to The North Face, Eagle Creek, Vans and Jansport, among others, said acquisitions have long been a strategy for growth but it hasn’t had much luck lately. Still, acquisitions remain at the “very top” of priorities for VF’s use cash and management believes more opportunities are opening.


“While we have not had a lot to show for our efforts in this area over this past year, mostly because of pricing challenges, we do have increased confidence that we will see more acquisition activity in 2011,” said Bob Shearer, VF Corp's SVP and CFO, last week at the ICR XChange investor conference. “Our acquisition strategy has not changed. Our primary focus has been and will continue to be on acquiring new brands to build out our outdoor and action sports portfolio.”


He said cash flow from operations will now exceed $900 million for 2010, up from approximately $850 million it had expected when it reported third quarter results.


Eric Wiseman, VF chairman and CEO, said VF's outdoor and action sports portfolio has grown from 22% of the total FV business five years ago to 42% in 2010 due to acquisitions (Reef in 2005, Eagle Creek and Lucy in 2007) and organic growth. Said Wiseman, “It is very clear to us that in a very short period of time our outdoor and action sports businesses will represent over half of our company.”

 

Driving the growth organically going forward will be The North Face and Vans, which represent 75% of its outdoor and action sports portfolio.
At an investor meeting in mid-December, TNF's management revealed plans to double revenues from $1.4 billion to $3 billion over the next five years.


Internationally, TNF is expected to grow at an annual rate of 20%. TNF stores and e-commerce are forecast to expand from 19% of total revenues to 25% by 2015.


At 67 stores worldwide currently, VF expects to reach 190 stores globally over the next five years. Overall, that five-year compounded growth rate is expected to be 21%. Since North Face was acquired in 2000, compound annual growth for the brand was 19%.


Since being acquired in 2004, Vans revenues have grown at a 19% compounded annual rate and the growth rate in 2010 was 20%. The Vans brand retail footprint really has just begun to expand outside of its core California market. Launched there in 2008, Vans growth was 55% in China in 2010. Shearer said Vans “will almost certainly be our single largest brand in China within the next five years and likely before.
Overall, Wiseman said China is expected to reach $1 billion “very quickly” after growing from just $23 million in 2005 to $213 million in 2010.  Key growth priorities in China are jeanswear, outdoor, with a focus on TNF, action sports with a focus on Vans, and accessories with a focus on Kipling. Operating margins in China are consistently in excess of 20%.


Shearer reiterated comments on VF's Q3 conference call that VF believes it can “not entirely, but largely” offset cost inflation emanating from China through price increases and continued growth in its higher-margin lifestyle, international and direct-to-consumer businesses.

Deckers Outdoors Corp. CEO Angle Martinez focused a portion of his comments at ICR on Ugg’s transition from a product-driven footwear maker to a more market driven lifestyle brand and the company’s enormous international growth opportunities. DECK will drive sales by spending an additional 1.5% of sales on strategic marketing initiatives, with much of the spending directed at giving moms and men permission to buy the brand. A campaign kicking off this fall will feature New England Patriots quarterback Tom Brady and encourage men to embrace Ugg as an element of their  “stylish, confident lifestyle.” 

Ugg sales likely grew 15% in 2010 and the company has had to scramble to meet demand for its cold weather product this winter. “It continues to expand,” said Martinez. “It's true in men's, it's true in kids. Our spring business continues to be important now to the retailer as more than just a classic product that may be carried over from the fall season. It stands on its own as a spring collection. And we further developed our apparel and accessories categories.”


DECK is aiming for $2 billion in revenue by 2015, including $1.65 billion from Ugg, $200 million from Teva and $150 million from its incubator brands, which include Tsubo and Ahnu. By 2015, Martinez forecast that international will contribute 40% of sales and 150 owned-retail stores will generate 20% of revenue.


Martinez said Deckers had established Teva as a year ‘round brand with strong sell-through of shoes this fall. Sales have  grown strongly in the last year and are on pace to reach $200 million by 2015.
The marketing emphasis at Simple – the  vulcanized sneaker line – will shift from an environmental message to a style message. “I think we drank a little too much environmental green Kool-Aid in the last few years,” said Martinez. “We realized that's not the reason to buy. It's a nice adjacency to the purchase, but the shoes have to look good and feel good.”


Lacrosse Footwear management said the company would continue to build around recent initiatives, including streamlining operations at new stores and bolstering its relationship with the military via a new manufacturing facility that started operations on Sept. 1. Management also spoke on the importance of bringing the sales force in-house a year and a half ago, a move the company said allowed the sales force to be “totally focused and dedicated to selling our two brands versus representing others.” Likewise, the company has been busy building a presence in Asia and now has an office outside of Hong Kong and an office in Vietnam.


Along with building its international and domestic presences, Lacrosse management said the company would focus on “hitting singles” and establishing a consistent growth pattern while expanding its relationship within existing customers and opening new doors with wholesale partners. Management added that a key goal was to build its government business, which is is still in its infancy.

 

Likewise, management said they hoped to expand the company’s presence from Canada, Northern Europe and Japan to other regions. Finally, the company said its has invested heavily in developing new products over the last year and a half and would continue to strive for innovational product.


Wolverine World Wide has received orders for 400,000 pairs of its Merrell Barefoot line of minimalist footwear, which were launched at the Outdoor Retailer Summer Market last August. Chairman and CEO Blake Krueger said that likely exceeds the initial sell-in for the Merrell Jungle Moc, one of Merrell’s all-time best-sellers. “We had approaches by a lot of the higher-end, better grade running shops around the country to carry this particular offering and this is going to give Merrell real penetration into a new channel,” Krueger said.


Merrell sales likely reached $450 million in 2010. Several of the company’s brands are benefiting from what Krueger described as strong consumer demand for authentic heritage brands “that stand for something.” This has led to strong sales of Wolverine’s 1,000-Mile Boot (up to $350/pair) and 1883 collections as well as the Caterpillar Raw, Merrell Origin Collection and Sebago 1946 collections.  Krueger said international sales will drive growth at Chaco, which is currently in only 24 of the 190 countries where WWW distributes. The Wolverine brand, now going on 130, is only in 151 countries.


WWW expects cost inflation coming out of Asia to increase costs in the mid-single-digits in the first half of 2011 and in the mid- to high-single-digits in the back half of the year, said CFO Donald T. Grimes. He added that the company remains confident it can continue to grow profits, cash flow and shareholder returns in the “tumultuous cost environment.”


Rocky Brands, Inc. management emphasized that the company had cut debt levels to about half of their Q3 2008 levels by paying down $14 million pf a $40 million senior term loan in May and transferring $15 million of senior term loan to GMAC credit facility. Likewise, the company signed a new $70 million, 5 year credit facility with PNC Bank in September of 2010 and retired $11 million remaining on a senior term loan. Projected interest expense for 2011 is expected to be about $1.5 million versus about $6.5 million in 2010. Management said the company had managed expenditures and streamlined operations by reducing headcount, consolidating warehouse facilities, removing the company’s Lehigh mobile stores from operations and consolidating customer service operations throughout the past year.


Rocky is particularly optimistic about its newly-launched, value-oriented Built by Georgia Boot brand, which will take the place of the recently abandoned Dickies license. Giant by Georgia Boot, a lifestyle footwear line, also has received positive feedback in the marketplace. The company has also introduced several new lines under the Durango brand, including Dream, a western-influenced clog for women, and the Rebel and Firt boots, which management described as “fun footwear that is lightweight and comfortable.”


Management also said RCKY wanted to strengthen their relationship with mid-level customers by introducing new products. RCKY is now targeting 500 doors with the retail strategy, which emphasizes a premier “in-stock” position (Rocky has one million pair of every shoe it carries) and boosting in-store displays and promoting product knowledge to its sales managers.


Management also pointed to international growth, which the company hopes to build beyond its current territories of the U.K., Italy, Russia, the Balkans the Baltics, France and Switzerland.
Finally, Rocky said it expects growth from its military business through an order of $10.0 million that has yet to ship on a $29 million contract from GSA. RCKY has also established a partnership with military exchange retailers AAFES and NEXCOM.

Skechers U.S.A. COO/EVP/CFO David Weinberg admitted at last week's ICR XChange conference that the toning category has become bloated with inventories but still appears to be a viable category long-term.
“Toning is not dead,” said Weinberg. “It did not go away. It just has an inventory issue. There's an overhang. But everything we hear from the consumer is very positive and from most of our customers that there is a home for it. It will grow and we have a significant range of new product that will be in stores by back-to-school that could start the process over again.”


He said the company stopped production on toning product around the September or October last year and some product sold last year is still due to hit stores during the first quarter. Said Weinberg, “It's always a process so it does take time to liquidate.” But he expects inventories will be in line during the second quarter.


“It's very important for us to be clean to have new product in the market for back-to-school,” said Weinberg.


He also said Skechers continues to test items to find “the next big thing” and said continually finding such items has been the key to its growth.


“The biz is not going backwards,” said Weinberg. “We all feel very positive for our international and retail stores and even the amount of shelf space we gained domestically. It remains with us and it’s a great stepping stone.”


Regarding China, Weinberg said Skechers has been indicating that price increases should be somewhere in the low-singles to low-double-digits over the next year. He doesn't expect the price hikes to have a significant impact on Skechers' gross margin since the company develops new product around a target gross margin.
Nonetheless, he said the need to clear toning inventories will impact margins in the short term.


Domestic strength in kids, which tends to carry a lower margin than other categories, will also weigh on margins in 2011. Growth in retail, growth at its subsidiaries or distributors internationally, and the strength of the dollar are other key factors driving margin rates.


GIII Apparel management said inclement weather during the back-end of December and front-end of January had spurred coat sales, driving the category to double-digit increases for the period. Management also added that the company has seen “lots of progress” within the its NFL sportswear line and was optimistic about the company’s new exclusive rights for 2012 pertaining to mid-tier NFL coats, saying “we expect good growth over the next couple of years.”

 

Management also pointed to very solid results from Calvin Klein sportswear products, which are now present in more than 500 department stores, more than double last year’s accounts.


Management said the CK sportswear line has the potential to be a $200 million business in the coming years. For the licensed category, the company has added eight categories over the last 18 months, with seven of those categories to have product available in 2011. “We want (licensing) to be higher margin than any other segment,” management said in a conference call. Finally, management said G-III was planning on being very active on the acquisition front and would continue to look for companies in the $100 million – $300 million range to add to its portfolio.


Cabela’s, Inc. CEO Tommy Millner outlined several growth initiatives as the self-proclaimed “World’s Foremost Outfitter” approaches its fourth quarter and fiscal 2011 reporting date. As a recap to the trailing 2009 and 2010 year-to-date period, Millner pointed to Cabela’s merchandise selection, which he noted was “widest and most distinctive” among outdoor retailers.

 

Millner also noted that more than a third of CAB’s merchandise selection carries the Cabela’s higher-margin brand name.


Regarding the retailer’s four channels, Millner emphasized that even though the catalog business has begun to yield ground to e-Commerce, it’s still the company’s primary marketing tool as the company mails 131 million catalogs annually. Millner said CAB would continue to focus on high response rates while embracing a disciplined approach to maximize profits.


For the bourgeoning e-Commerce business, which Millner said is the most visited outdoor website in the market and has seen it’s compound annual growth  increase an average of 27.5% since 2004, the company will focus its efforts on processing orders at lower costs. Millner said the goal for Cabela’s was to profitably grow its Direct business over the next three years with its reformatted site, which incorporates improved navigation tools, enhanced product presentation, international currency translation and improved functionality.


For the Retail business, Millner said Cabela’s will continue to focus on expansion via it’s smaller, more efficient “next generation” format, which averages between 80,000 sq. ft and 125,000 sq. ft as opposed to traditional Cabela’s stores, which can exceed 200,000 sq. ft. Millner said Cabela’s will focus expansion on a mix of both repurposed and Greenfield real estates, but stressed the importance of having a presence in locations where people already shop. Cabela’s will also continue bolstering its presence in the western provinces of Canada and has begun construction of a store in Edmonton to be opened later in the year. In-store, Millner said the goal is to improve merchandise margins from 2009 levels by 200-300 bps by 2012. He said the company will incorporate a mix of SKU reduction, vendor collaboration, better pre-season planning, more efficient in-season management and price optimization to achieve long-term goals. Millner also said management will replace the “Voice of the Customer” campaign with a more comprehensive solution while redefining floor plan layout and assortments.


For the “World’s Foremost Bank,” and the Cabela’s CLUB Visa card, Miller said CAB will continue to focus on the super prime credit quality customer, adding that the average customer FICO score for a Loyalty program customer is 787. Millner said Cabela’s will continue to add new members while controlling its relationship with its best customers.

Big 5 Sporting Goods Corp. reported that same-store sales decreased 0.7% in its fourth quarter ended Jan. 2. Comps grew in the low- to mid-single-digit range through the first two months of the quarter, which included the “Black Friday” weekend, but turned negative during the shopping period before Christmas.


By category, apparel comps increased in the low-single-digit range, footwear was relatively flat and hardgoods decreased in the low-single-digit range. Total sales in the quarter slid 4.6'% to $226.7 million from $237.6 million a year ago.


Merchandise margins decreased 20 basis points year-over –year. Big 5 noted that its merchandise margins improved 88 basis points during Q4 2009.


As a result, Big 5 now expects earnings of 23 cents to 25 cents a share in the fourth quarter compared to its previous guidance range of 25 to 33 cents. Big 5's estimate excludes a net charge of 7 cents a share related to legal matters. EPS in Q4 2009 was 32 cents a share, excluding a net charge of 3 cents per diluted share related to legal matters.


“We were disappointed with this result, particularly given that we comped positively in October, and we were up mid-single-digits in November, which included a very strong Black Friday weekend,” said Steven Miller, Big 5 chairman, president and CEO, at ICR XChange.
“Unfortunately our business trends — turned negative for the three-week period preceding Christmas, he continued. “The gift giving buying just was not there for that three-week period. Once we got past Christmas, positive trends returned. We were very solid the last week of the year, and we have continued quite positively into the beginning of 2011.”


Miller also noted that the retailer reduce borrowings under its credit facility by 12% to $48.3 million at year-end compared to the end of fiscal 2009.


Looking ahead, Miller said he expects Big 5’s “2011 growth rate to be consistent with or slightly higher than 2010.” Net sales last year inched up 0.1% to $896.8 million with comps ahead 0.8%. BGFV opened 15 stores in 2010 versus three in 2009.


The pre-tax charge of $2.3 million, or 7 cents a share, taken in the fourth quarter covered lawsuits previously disclosed in company filings with the SEC. One lawsuit dealt with wage violations while another concerned deceptive pricing and marketing of certain tennis products.

Genesco, Inc., which owns Journeys, Lids and Johnston & Murphy, reported same-store sales for the fourth quarter-to-date period ended Jan. 8 increased 9% from the equivalent period last year, when same-store sales increased 1%. Sales for the company's e-commerce and catalog direct sales businesses increased 25% in the quarter-to-date period ended Jan. 8. By concept, same-store sales jumped 13% at Journeys, 6% at Lids Sports Group, and 13% at Johnston & Murphy Group. Comps slid 4% at Underground Station.


Based on the stronger-than-expected sales, the company increased its adjusted EPS expectations to a range of $1.25 to $1.30 for the fourth quarter. That compares its  most recent previously announced earnings expectations were in the range of $1.23 to $1.28 and prior-year results of $1.16 a share.


At ICR, Bob Dennis, Genesco's chairman, president and CEO, said Journeys continues to benefit from a trend away from athletic styles and more into traditional casual styles, “which has been Journeys' historic strength.”


Lids Sports Group's growth came despite “the headwinds of the Yankees championship last year, and we're through all that, so they are actually trending much better than that at the moment.”


Johnston & Murphy continues to rebound out of the recession. The one disappointment was GCO’s urban-targeted Underground Station. Dennis said they are “continuing to shrink the size of that business.”


Dennis noted that the comps so far are outperforming a five-year growth plan of 3% to 4% provided nine months ago. The plan contemplates a slower rate of expansion at 300 stores, mostly Journeys and Lids. Top-line growth is projected at 8% annual growth. Annual operating income growth is seen at 21% with the aid of expense leverage, particularly in rent.


“We're not getting rent reductions in the A malls, naturally, but in all the malls where occupancy is more challenged, we are continuing to have success,” said Dennis.


The adjusted earnings per share expectations in the latest quarter do not reflect charges related to the previously-announced intrusion into the company's computer network, expected to be in the range of 7 cents to 11 cents per diluted share for the latest fourth quarter.

 

Genesco also noted that its online investigation has revealed that, in addition to the payment card information previously identified as potentially at risk of compromise in the intrusion, some information related to check transactions (including bank routing, account, check, and drivers license numbers) in the affected stores may also have been accessible to the malicious software involved in the intrusion.  The company has no reason to believe that any customer name or address information was at risk of compromise in the intrusion. The investigation is ongoing.


Brown Shoe Co., parent of Famous Footwear and Naturalizer, last week promoted Diane Sullivan to president and CEO from her prior role as president and COO.  Ron Fromm will remain as chairman.
In her first presentation to Wall Street analysts and investors in her new role, Sullivan said Famous Footwear sold over $100 million worth of toning shoes in 2009, but doesn't “expect a repeat” as the category matures. On the upside, she expects any shortfalls in toning to be more than made up by strong momentum in running.


“Not only is it the biggest category and our biggest category in the company, it's a key trend for 2011,” said Sullivan last week at the ICR XChange conference. “And the strong consumer demand that we have for lightweight and technical running product we think is again one of the key pieces that will fill that hole in 2011, along with a number of other initiatives.”


Sullivan also said Brown Shoe is well positioned to benefit from a trend toward healthy living. “We know consumers today are looking for more out of the products they purchase,” said Sullivan.


“They want greater balance. This is a belief system that cuts across lots of different categories in the marketplace.”


She said this strength is evident from the success of organic comfort eco-friendly products, as well as the growth at Whole Foods and Lululemon. At Brown, the wholesale segment is tapping this trend through fitness, comfort or eco-consciousness with brands such as Naturalizer, Scholl's and Naya. She also cited “the enormous opportunity we have with Famous Footwear, because of its strong fitness and as a destination for athletic assortments.”


Sullivan noted that on a trailing four-quarter basis, Famous has generated a same-store sales increase of 11.6% and an operating margin of 6.1% versus 1.4% in the prior-year period, thanks to significantly fewer BOGO promotions. The top-line improvement was traced to inventory, payroll and marketing. In particular, a higher marketing spend has reached old and new customers to drive traffic and conversion.


Sales per square foot for the last four quarters increased to $184 from about $164 in the prior four quarters. The goal is to reach $225/sf. New stores are opening at over $200 a square foot.


Lululemon Athletica Inc. now expects fourth quarter earnings between 55 cents and 57 cents a share for the period ended Jan. 30, well above the yoga-inspired retailer's own projection for earnings of 46 cents to 48 cents. The company said its improved guidance reflects stronger than anticipated net revenues for the quarter, which are now expected to be in the range of $237 million to $239 million for the period. This compares to the company's previous guidance of net revenue in the range of $210 million to $215 million for the quarter, and compares to net revenue of $161 million for the fourth quarter of fiscal 2009.


Comparable-store sales for the fourth quarter of fiscal 2010 are expected to reflect a mid- to upper-20s percentage increase on a constant-dollar basis. This compares to the company's previous guidance of high-teens comparable-store sales for the fourth quarter of fiscal 2010.


At the ICR  XChange conference, executives indicated LULU will give its store managers and educators a raise this year to retain the talent that has helped the Canadian company sustain some of the most impressive retail sales per square foot and comps growth in the industry.


LULU will spend most of the current quarter chasing inventory, which will likely raise air freight expenses and further pressure gross margins, said CFO John Currie, who affirmed his earlier estimates that  inflation out of Asia would compress LULU’s 2010 gross margins by about 150 basis points.


LULU will combat that this year by investing in its IT platform in ways that enable it to better manage its supply chain,  bring its e-commerce and catalogue businesses in house by the end of the quarter and build for international growth, Currie said. Launched in mid-2009, the company’s e-commerce store is now generating about 10% of total sales.


CEO Christine Day said the company expects to open 40 new stores this year and that she is closely monitoring progress at Iviwa, a concept store launched in late 2009. The store sells dance and gymnastics apparel to 6- to 12-year-old girls. That and the company’s new men’s line is meant to expand LULU’s reach beyond its core demographic of successful, athletic woman.


DSW Inc. plans to focus more on technical athletics, believing the category is going to offset some of the expected decline in toning footwear.


“Customers know DSW for fashion athletic, for street wear,” said Mike MacDonald, DSW's president and CEO. “They don't know us so well for technical athletic. And we are changing that, we think, pretty rapidly. We put in Nike technical product for men's for the first time in July of last year and that jump started us in terms of giving us credibility in technical athletic.


Accessories, such as handbags, scarves, casual hosiery, wraps and umbrellas, are expected to grow from 6.5% of the mix to upwards of 10%. Private brands are seen growing from 7.5% now to 13% to 15% going forward.


DSW is also testing three stores in small markets [under 400,000 trade area] this year that will be expanded to 50 new markets is successful. Kids' footwear will be sold on its website this fall for the first time.
MacDonald also noted that for the first time since opening its first store in 1991 DSW is “beginning to look at acquisitions that make sense for us.” It expects to end the current year with between $350 million and $400 million in cash and no debt.


Hibbett Sports continues to find new spots for its smaller stores (averaging 5,000 square feet). At the ICR XChange conference, Gary Smith, VP principal accounting officer and CFO, noted that at the time he joined the company nearly ten years ago, Alabama had 45 to 50 Hibbett stores and management kept telling Wall Street it saw room for another 15 to 20 stores in the state. Alabama now has 82 stores and Smith said he “wouldn't be surprised in the next 10 years or so if we have 115 or 120 stores in the state of Alabama.”


Georgia has the most stores with 87 while Texas is tied with Alabama at 82. At the same time, newer markets such as Nebraska, Ohio and Wisconsin have recently been generating higher comps than the chain's average. “We're starting to understand those markets. Our systems are starting to work. And our younger stores are comping at a higher rate than the chain,” said Smith.


Executive Chairman Mickey Newsome also made an appearance at ICR, explaining Hibbett targets locations with populations of 25,000 to 75,000 in a county. Smaller markets are also attractive to vendors to provide distribution, to landlords looking for a unique concept to differentiate a shopping complex, and to customers looking to avoid driving 40 miles to the nearest big box or enclosed mall.
New store growth in the last three or four years has been 95% in strip centers.


But Newsome said a core part of Hibbett's real estate strategy is to open next to a Walmart to benefit from its traffic. A focus on full-service and premium brands differentiates Hibbett from the discount giant. “We prefer isolated markets,” said Newsome. “We follow Walmart around.”


In Alabama and Mississippi, 80% of the Walmart's in the state have a Hibbett in the strip center. Over the whole chain, the shared penetration rate is 30%. Smith said that points to an opportunity for another 400 to 500 stores in its current markets.


“In the 27-state area we're in today, we can go from 800 to 1,200 stores, if Wal-Mart does not build any more supercenters in isolated markets,” said Newsome. “But they're going to keep building. If we ever want to go to 1,500 stores, we'll have to go to the West Coast, but we can go to 1,200 in the states we are in today.”


Zumiez, Inc. CEO Rich Brooks stressed the importance of focusing on four key strategies to stimulate growth. Brooks said the company would strive to continue to build the culture of Zumiez by providing an avenue for “great young retailers” to move up in their careers. He added the company would continue to provide product that creates opportunities for kids to be independent and unique by maintaining a diverse portfolio of brands. Brooks said the company hoped to expand from its current store base of 400 doors to “somewhere between 600 and 700” over the next few years along with an expanded presence in Canada.


Likewise, management said the company would continue to build its online presence and its burgeoning eCommerce business, which represents just 3% of total sales but was up 130% for the first nine months of fiscal 2010.  The company will continue to improve its multi-channel functionality to “do a better job integrating and marketing to (its) customers across all of the c