Aeropostale Posts 2nd Quarter Profit Decline

MRketplace

Teen apparel retailer Aeropostale saw its first quarter profit slump, with comparable store sales down 7%.

Ecommerce sales, however, were up 18% to $28.2 million, and the US company said it expected second quarter earnings per share of $0.11-0.16.

“Our outlook for the second quarter reflects our plans to aggressively clear through spring inventories to position ourselves appropriately for the important back-to-school selling season,” said CEO Thomas Johnson.

“While we are disappointed with our current performance, we are confident that our entire organization is focused on the right initiatives to regain market share.”

Hot Topic To Close ShockHound Site; Sees $15 Million In Charges

Hot Topic Inc. said it would record a pretax charge of about $15 million related to the teen-retailing company's decision to discontinue its music-downloading site ShockHound.com and write down assets that aren't critical to the company's future.

The company said it estimates the charges, along with severance costs related to recent changes in management, will result in a total charge of 21 cents a share, to be recorded primarily in the fiscal first quarter.

The charges come as Hot Topic has reported weaker sales in recent quarters, a trend that prompted the company to announce a cost-reduction plan in November. The mall- and Web-based retailer, which offers pop culture-related clothing and accessories, has struggled to win shoppers after its merchandise geared to the "Twilight" vampire movie sequels failed to buoy results as much as products tied to the original film did.

Just last week, Hot Topic announced the resignation of its longtime Chief Executive Betsy McLaughlin and, on Monday, the company said Amy Kocourek, chief merchandising officer of the namesake division, has left. New CEO Lisa Harper, a board member, will assume direct oversight of Hot Topic merchandising, the company said.

Hot Topic also projected it would report a loss of 1 cent to 4 cents a share, excluding the charges, for the fiscal first quarter ended April 30, a view that was based on a low-single-digit percentage decline in same-store sales. Analysts polled by Thomson Reuters expected a loss of 3 cents a share.

For the year, Hot Topic sees earnings of 5 cents to 15 cents a share, based on flat to a low-single-digit percentage drop in same-store sales. Wall Street most recently forecast a profit of 14 cents a share.

Hot Topic also joined a number of its teen-retailing peers by saying it would discontinue the issuance of monthly sales reports, effective in the fiscal third quarter. The company will instead report quarterly sales results on the first Wednesday following the close of each fiscal quarter.

Abercrombie & Fitch Co., Aeropostale Inc. and American Eagle Outfitters Inc. all stopped reporting monthly sales earlier this year.

Shares of Hot Topic were halted ahead of the news. The stock closed up 9 cents to $5.95 on Monday.

EBay in $2.4B Deal for GSI Commerce

by Alexandra Steigrad
From WWD Issue 03/29/2011

EBay Inc. on Monday ratched up its battle with e-tailing behemoth Amazon.com with a $2.4 billion deal to buy e-commerce and marketing service provider GSI Commerce, owner of designer and luxury goods flash sale site Rue La La.

The deal will take eBay one step further away from its decelerating auction model while strengthening the company’s fulfillment and customer service operations, two of Amazon’s strengths. But while flash sales are one of the fastest growing areas in fashion retailing, eBay has no plans to maintain ownership of Rue La La. Instead, it will divest 70 percent of the business, along with GSI’s sports merchandise operation and 70 percent of its e-commerce retail aggregator ShopRunner.

It will retain GSI’s ongoing Web management relationships with fashion brands such as Polo Ralph Lauren Corp., Donna Karan, Levi Strauss & Co., Kenneth Cole Productions Inc., Aéropostale Inc., New York & Company Inc. and Dick’s Sporting Goods Inc.

Rue La La and ShopRunner were deemed by eBay to be “not core to its long-term growth strategy” and majority stakes of the two will be sold to a new holding company to be led by GSI founder and chief executive officer Michael Rubin. Rubin will leave GSI once the deal closes, as it’s expected to do in the third quarter, with Chris Saridakis, currently ceo of marketing services, succeeding Rubin as president.

Included in the $2.4 billion purchase price is $467 million to be loaned by eBay to the new entity controlling Rue La La. In addition, eBay will retain a 30 percent stake in the two businesses and wait to see “what Michael could do with them,” according to eBay president and ceo John Donahoe.

Drawing a comparison to its company’s “valuable” 30 percent interest in Skype, Donahoe said he foresees opportunities for the company to work with both Web sites, adding: “If we can expose Rue to eBay, I mean, there are going to be some natural synergies that I think will develop with the commercial relationship.”

EBay’s decision not to buy Rue La La is somewhat surprising, as it purchased a German competitor, brands4friends, last December for about $200 million. Moreover, the private sales site’s rival Hautelook was recently scooped up by upscale retailer Nordstrom Inc. for $270 million in February.

Still, nurturing and extending its reach to larger brands and retailers has been eBay’s modus operandi. According to eBay, the GSI deal will introduce more than 180 GSI Commerce customers to its marketplace channel, and will benefit its PayPal and BillMeLater payment and billing businesses as well.

“The number of retailers, large and small, that have come to us saying, ‘We’re grappling with how you deal with mobile commerce…,’” said Donahoe. “‘We’re grappling with how to deal in a social commerce world.’ ‘We’re grappling with how to go global.’ It’s been striking, and that, we believe, represents an opportunity for our company. And so our strategy that we’ve outlined for the last several years where we connect buyers and sellers, we see GSI Commerce fitting squarely in that strategy because what GSI Commerce in essence does is enables large sellers, large retailers and brands to meet buyers successfully and effectively.”

If consummated in its current form, the acquisition would be eBay’s largest since the $2.6 billion deal for Skype in 2005.

Experts say the deal, which will be financed with cash and debt, will put the San Jose, Calif.-based firm in prime position to chip away at rival Amazon.com Inc.’s lofty online retailing business. Analysts estimate that Amazon’s 2010 revenues will hit $44.93 billion while eBay pulled in sales of $10.47 billion, according to Yahoo.

“Net net, seems like a logical step for eBay, basically a ‘buy-over-build’ decision,” said RBC Capital Markets analysts Ross Sandler. “The company is buying relationships with several top retail brands, and PayPal and Marketplaces should see acceleration once these megaretailers are integrated, assuming that happens over the next few years, which doesn’t appear to be baked into the updated guidance.”

According to RBC, the 2009 Web sales of GSI clients include $200 million for Polo, $129 million for Aéropostale, $105 million for Dick’s, $40 million for New York & Co. and $25 million for Levi’s. Clients also include the National Football League ($121 million), Major League Baseball ($70 million) and the NBA Properties ($21 million).

GSI shares Monday closed up $9.82, or 50.7 percent, at $29.20. The $29.25-a-share price represents a 51 percent premium to the company’s closing price on Friday. Shares of eBay closed down $1.36, or 4.3 percent, at $30.34.

EBay has been advised by Goldman Sachs & Co. and Peter J. Solomon Co., and GSI by Morgan Stanley.

GSI has a 40-day go-shop period to pursue better bids.

Teen Retail CEOs On the Move

by Alexandra Steigrad
From WWD Issue 03/23/2011

Fickle teens are leading to insecurity in the executive ranks of youth retailers, who’ve seen a series of management shake-ups as the sector attempts to get back into growth mode after a weak, highly promotional 2010.

Since the start of the year Hot Topic Inc. and The Wet Seal Inc. have appointed new chief executive officers and American Eagle Outfitters Inc. has revealed plans to do so, while Mindy Meads stepped down as co-ceo of Aéropostale Inc. in December, leaving the role of sole ceo to Thomas Johnson.

All are in the process of turning around their respective brands and trying to get a handle on shifting teen fashion preferences and tightening spending tendencies. And all have struggled with top-line challenges. PacSun, Hot Topic and American Eagle had respective comparable-store sales declines of 8 percent, 5.3 percent and 1 percent in fiscal 2010. Aéropostale, an industry overachiever with a 10 percent comp gain in 2009, saw its increase dwindle to 1 percent last year. Wet Seal reports results for the fourth quarter and year on Thursday.

“As business shows some indication of getting better, companies seem to be more ready to make the executive changes that they expect will generate their share of the increase in business in this environment,” said John Jonas, president and ceo of executive search firm The Jonas Group. “The need for someone to ‘get’ how to approach online and international business is also key now. As always, having great leadership is necessary for success in the super competitive retail sector.”

But there’s something specific about the teen sector that has sparked the ceo mass exodus, according to analysts.

“Ceo movement is a direct correlation to performance,” said Susquehanna specialty retail analyst Thomas Filandro. “Clearly, there’s a lack of differentiation within the sector…. There’s not a dominant enough trend in the teen sector, and as a result, it’s more of a dog-eat-dog world.”

Gone are the days of relying on basics and “heavily logoed” T-shirts and hoodies. “Kids are somewhat de-logoizing,” he said. “It’s more difficult to differentiate without logos.”

With their low-priced, trendy apparel, competitors like H&M, Zara and Forever 21 have left many staple teen retailers flat-footed, he said, pointing to American Eagle, which this month announced the retirement of ceo James O’Donnell. The ceo, who’d been with the firm for 11 years, was set to resign in 2013 and will remain until his successor is in place.

“The Eagle lost sight of who its target market and customer are,” he said. “They have been extraordinarily disappointing…the merchandise on the floor, the messaging and their marketing are inconsistent with their brand DNA.”

In order to turn around the brand, American Eagle should look for a ceo with a “merchandising or design background, as product seems to be what they are struggling with,” noted Wedbush Securities analyst Betty Chen.

Chen suggested former Aéropostale co-ceo Meads or current Charlotte Russe head honcho Jenny Ming.

What many of these companies have in common is the need for a “fresh perspective” to expedite a turnaround, she said, pointing to Hot Topic, which Monday appointed director and former Gymboree ceo Lisa Harper to succeed Betsy McLaughlin as ceo. McLaughlin resigned after 11 years in HT’s top spot.

It’s now been 20 months since Gary Schoenfeld joined PacSun as president and ceo, snagging a spot that had been occupied for three years by Sally Frame Kasaks, the former Ann Taylor and Abercrombie & Fitch executive. Kasaks, a PacSun director, was initially appointed interim ceo, but the interim was removed after she’d been on the job a year.

Under Schoenfeld, PacSun’s struggles have continued. Last week, it reported a smaller fourth-quarter loss but fell short of analysts’ sales and earnings estimates.

Sitting out the ceo dramas of recent months — although not exempt from occasional rumors of a possible takeover — is Abercrombie & Fitch, led by chairman and ceo Michael Jeffries and coming off a year in which it posted a 7 percent comp gain after a 23 percent decline in 2009. Abercrombie generally is viewed as having held the line on fashion leadership while becoming far more competitive in its pricing.

Prior to hiring its new ceo Susan McGalla in January, Wet Seal has battled to balance price and compelling fashions.

This balancing act, however, is symptomatic of the times, as retailers who have fared best have opted to buy shallow and test different merchandise.

“If you are offering commoditized product, you will get beat,” Susquehanna’s Filandro said, pointing to chains like Victoria’s Secret, Express, Buckle Inc. and Zumiez Inc. “These companies are creating innovation and newness. They are reading and reacting to what consumers are looking for and they are winning.”