Fashion Notebook

Financial Desk: Sales Down, But Earnings Up 40% for Gap, as Retailer Cuts Marketing Budget

We hate to see this, because it means less creative, but cutting its marketing expenses was one tactic that helped Gap bolster its bottom line, even as sales continued their slide into the red.

In addition to other cost cutting measures that included reduced remodeling efforts for Old Navy stores, and a $15 million pre-tax earnings benefit, Sabrina Simmons, Gap Inc.’s EVP/CFO, said in an earnings call late Thursday that “lower marketing expenses” also helped lift earnings 40% to $249 million, for the quarter ended May 3.

So where was the blood spilled in the marketing department?

Well, ad spend dropped almost 18% from the year-earlier period, closing at $93 million for the quarter. The $21 million reduction was due in large part to the absence of TV spots for the Gap brand, Simmons said. However, she added that shareholders and analysts shouldn’t expect such cuts to continue.

“Unlike this first quarter, we expect our marketing expenses in the second quarter to be fairly similar to last year’s level of $88 million,” she said.

Yay! Maybe we'll have some more fun creative to look forward to this summer, when we're all staying indoors and running the air conditioners to escape from global warming. That is, though of us who have TV. (We're luddites, y'all, except when we visit our wife to watch rounds and rounds of Lifetime Movies.)

While earnings might have been a bright spot, and showed the beleaguered firm capable of trimming costs for the benefit of its investors, sales trends showed signs of trouble amid an economic slowdown that has the whole retail industry reeling. Comp store sales at Gap North America dropped 7% for the quarter to $976 million, and Old Navy posted an 18% decrease, dropping to $1.2 billion in sales.

If you don't have your financial party hat on, folks, that means, pretty much, "things sucked  over the past three months." Which is too bad for Old Navy, because we, (and the wife), LOVE those new ads. It's like Gossip Girl meets Fred Flare's Crafternoon Delights. Seriously, some fierce-ass dresses that might have the retailer beating Forever 21 at its own game. Seriously, if you haven't seen these ads (also screen-grabbed, above, right), they just might change the way you view Old Navy. They did for us.

Meanwhile, on the richer side of things, Banana Republic's comp store sales dropped 4% to $538 million and Glenn Murphy, chairman and CEO,  said that the brand had been affected by challenging traffic trends, and an “uncharacteristically promotional” environment at the apparel chain’s direct competitors. Thus far, Banana Republic has avoided playing the promotional card to drive sales.

“We’re watching the competitive landscape very closely,” added Murphy. “And [we] are prepared to make the necessary adjustments to drive traffic if this promotional level that we are seeing currently was to continue.”

Yay SALES that are sure to come. Because, honey, that's a brand for the aspirational rich, not the real rich, and we ain't getting any more money any time soon. That is, until Obama is in the White House, but we don't want to get political. We just want good health care, education, and leadership that will get us out of this war, y'know, in less than 100 years. But we digress.

Net sales for the company dropped about 5% to $3.38 billion for the first quarter. The company has maintained its guidance for fiscal 2008 earnings per share to fall in the range of $1.20 to $1.27.

Financial Desk: Have a Cigar, Mr. Frankfort, Coach Sales Rise 19% in Q3

It's good to be Lew Frankfort. 

The Coach CEO today announced that third quarter sales had risen 19%, to $744.5 million, and profits rose 8% to $162.4 million, despite an economic slowdown in the North American market that has shaken the retail industry, and been the scape goat for much recent poor financial performance.

"We were pleased with our performance, especially in light of the worsening retail climate in the U.S.," Frankfort said, in a conference call with analysts this morning. "Overall, Coach's quarterly performance reflected the strength of the Coach franchise and the continued out-performance of the U.S. handbag and accessory category as compared to overall retail sales."

And while the macroeconomic landscape is still too murky for Mr. Frankfort to crystal ball fiscal 2008 performance, he did reveal that he expects to post $3.18 billion in sales for fiscal 2007 (which closes in June—you know, screwy fashion financial calendar), a more than 20% increase that will lift earnings per share to an estimated $2.06.

But it wasn't all sunshine and rainbows. Frankfort also said that the strong quarter reflects also "the critical balance provided by our multi-channel and international business model," which, of course, means that overseas sales were a significant factor, particularly in the Asian market. More telling on the domestic front was the department store weakness, where sales grew only 5% for Coach, versus a total revenue increase of 15% across all channels.

Frankfort attributed the growth, first and foremost, to the company's product, bound together with the "brand proposition" of Coach (read: something of perceived quality, for a range of price points), as well as the company's "broad and loyal  consumer franchise." OK, whatevs Lew, basically you owe the success to having products people want at prices they can still afford, or think they can, for now.

Of course, we'll have to wait and see how this whole recession thing shakes out, but if we had to call it earlier, we'd say that Coach looks to be one of the brands that will weather the storm, and perhaps even make a little bit of money in the process.

There's also some speculation, per WWD, that Frankfort might be getting ready to launch into the women's ready-to-wear business, big time, after poaching a series of designers from the house o' Marc Jacobs. Stay tuned.

Promo Time!: Feeling Confused And In Need Of a Primer on Liz Claiborne Inc.? We've Got Just the Thing!

So, we're pretty proud of this feature we just churned out about the wild times at Liz Claiborne high.

But don't worry, this ain't a laundry list of what brands got sold, which ones were kept, etc. If you want that, check the chart in the print edition. Rather, the text you'll get the link to down below tells the story of a CPG man who came to clean up a fashion house. It's also the story of how the buying sprees of the Go-Go 1980s and the merger mania of the 1990s have come back to haunt the apparel industry, as seen through the microcosm of Liz Claiborne's storied house that started as an affordable apparel firm geared towards the new working women, but flopped into the new millenium bursting at the seams with some 40 brands she couldn't seem to hold together.

During the past rocket-fueled year that William McCombs has been the CEO of Liz Claiborne Inc, he's made some pretty sweeping, dramatic changes. And what's more, he's been really, really open about it. (And trust us, this isn't typical in fashion, where much of the business, like the clothes themselves, can be a bit smoke and mirrors.)

So kick back and enjoy a trip through Liz's wild year, and of course, let us know what you think.

The journey begins... here.

Financial Desk: Strong Gains in Q1 Portend Bright 2008 For LVMH

In the words of one Flavor-Flav, LVMH Chairman and CEO
Bernard Arnault "knows what time it is."

Remember when the luxury house's head honcho (pictured, right), whom we've always thought was like a lost member of the Rat Pack, said this, a while back?

"I believe that [the recession's] consequences on LVMH will be limited, weak, or even non-existent. In fact, the clientele that we are dealing with is far less affected than the rest of the economy by these short-term economic swings.  They have high purchasing power, located in a number of countries where the economic climate will be bouyant, even if there's a minor recession in the U.S."

Well, he wasn't just puffing his sails. First quarter revenue reports show that, with the sole exception of the wine and spirits group, all divisions of LVMH are up.

Fashion and leather goods grew 7%, led by the strength of Louis Vuitton, which received its own TV commercial this quarter, in addition to recently inking a deal to have Rolling Stones' guitarist (and, we think, animatronic wax doll) Keith Richards star in its current print campaign. On the product front, the company said that the collaboration between Marc Jacobs and Richard Prince (the artist of "Let's not and say we did, XOXO, Jennifer Aniston" fame) was particularly successful. Meanwhile, perfumes and cosmetics grew 8%, attributed to the continued momentum of the Christian Dior brand offerings, as well as the new Midnight Poison fragrance and Addict High Shine lipstick.

But the real winner of the quarter was the watches and jewelry group , which posted 12% revenue gains over the year-earlier period. Strength came from brands including TAG Heuer, Zenith and the Christal collection from Dior. The company added that Chaumet and De Beers also continued their retail expansion plans and increased revenues. New watches previewed at Art Basel in Switzerland have reportedly attracted "large increases in orders" from retailers.

And the bottom kicker of the sales release seems to only confirm what Arnault had promised earlier:

"LVMH will continue its growth in 2008 despite the challenging monetary environment and an uncertain economic climate at the beginning of this year. Increasing market share and the profitability of its leading brands as well as improving the results of its developing companies remain LVMH top priorities."

If they can keep these numbers up, or better yet, best them, then we think it's fair to say that the strategy we outlined a while back, that of weathering the recession by only appealing to the top end clientele, has indeed proved not only stable, but a money maker for LVMH.

Week in Review Pt. 1: Louis Vuitton Rocks Out, Kohl's Gets Punked, and More Rumbles for the Luxury Market

OK, so we've kinda been bad lovers the past two weeks. Yeah, we admit it;
we haven't been updating as often as we, or you, would like. But our offline
job got a bit crazed last week and that prevented us from posting. So, in effect, it's not you, it's us.

Also, we were, like, on pins and needles waiting for the finale of Project Runway. And, hopefully you'll agree, we're so, so, so, fiercely happy that Christian Siriano won we can barely contain ourselves. Kid has some serious talent, and we're sure that we'll be hearing from him sometime soon. Is he adoptable  by the way? We might just forego that Boston Terrier we'd been planning on bringing home and swap it for that adorable pocket-gay (though he'll have to sleep in a closet, as we're still living in a New York state of reality folks!).

But let's leave all this relationship drama to the Spitzers! It's time to take a look at what's happened, what it means, and where we see things going... So without further ado...

Louis Vuitton's New Bag
Unless you've been hiding out under a mountain of paperwork (like us), you've probably already heard that Rolling Stones guitarist Keith Richards is the new, wrinkly face of Louis Vuitton (SEE PHOTO, BELOW, LEFT). (Insert "Vuitton's new, iconic wrinkled bag" joke here, hell, everyone else has. For SHAME Saturday Night Live! You, like fashion, were more inventive in the 1980s.) If you haven't seen the spot already, check the photo at right.

We have to say to say that this is an interesting choice, and it's already done its job many times over in terms of exposure (more than we'd imagine placing, say, Katherine Heigl, or some other, safer choice, in front of the camera). But hasn't Vuitton really missed the rebel-rock-me boat by like, say, 40 years? We would prefer to see the ads featuring this Keith.

Also, how does John Varvatos feel about all of this. Certainly, the Stones trump Cheap Trick, not to mention the fact that the campaign pretty much cribs from Varvatos' own advertising mantra: Bring back old rockers and consumers will come. Of  course, Varvatos seems to have more credibility here and we're still not sure what a great cover boy Richards is for the brand. After all, while he's definitely rich beyond words—and amazingly still alive—we're just not sold on him as a real luxury guy. Then again, maybe that's what rehab and old age will do to you. I'm sure that he has a wonderful assortment of organic teas backstage, but is he really throwing those outfits in a Vuitton steamer?

Love to hear your thoughts on this. Drop us a line, here.

Kohls Pumps Up Its Juniors Jam with Avril Lavigne
Yeah, the girl ain't punk kids. Then again, Richards sold his ass to Louis Vuitton, so what does define the legitimate rocker persona? Anyways, Avril Lavigne maybe didn't steal your boyfriend, but she did ink a deal with Kohl's to produce "Abbey Dawn," a collection of apparel (priced $24 to $48) and accessories (read: jewelry, for now) that will hit the mass merchant's doors nationwide in July.

The move obviously means that Lavigne will get some dollars in her coffers—seriously, is she even that hot anymore?—but it also seems to really define her audience in a way that could be limiting for the popstar. Launching just in time for back-to-school shopping, the line is allegedly for the "broad group of shoppers" that Lavigne attracts, according to SVP Don Brennan, but we're calling bullshit. If it's B-T-S, the tricks are for kids, and that's fine, after all, those are the types that will pay retail for her album "The Best Damn Thing," which came out last year and for which the star began touring to support last week.

According to spokeswoman Vicki Shamian, the line shouldn't cannibalize any of the retailer's other exclusive brands, like Candies given Avril (and by proxy, her collection's) "feminine yet rock n' roll attitude." [Side note: Meanwhile, no notes on how the Simply Vera collection is doing. If you've got deets, or reactions, or if you've tried on the products, send a note here]. Advertising, on which details aren't yet available, will be handled by the Kohl's in-house team, in conjunction with lead agency McCann Erickson, New York. Stayed tuned.

 

Financial Desk: Luxury Retail's Mixed Bag
Ok, so we've probably hammered this to death, but there might be trouble with the luxury market.

Saks Fifth Avenue announced last week that it had approached roughly $1 billion in sales for the quarter ended Feb. 2, up almost 5% from the year-earlier period, but with comp store sales increasing by 9%. Meanwhile, net income rose dramatically, some 83% drama, to $39.5 million, or 26 cents a diluted share. However, gross margin slipped about 50 basis points to 37.4% of sales.

But there's trouble ahead. According to a statement by chairman and CEO Steven Sadove, January and February comp store sales grew by only 4.1% and 3.4%, respectively, and "previously high-growth rate businesses such as handbags, footwear and men's have slowed."

"As expected, the more challenging promotional and overall macroeconomic environment that we began to experience in the third quarter continued throughout the fourth quarter and put pressure on our merchandise margins," Sadove continued. "Our outsized comparable store sales growth indicates that we significantly improved our competitive positioning by market, driven by our merchandise, service marketing and capital investments."

And then  came the wahn-wahn moment.

"Nothwithstanding our improved performance and the longer-term outlook for the luxury channel, we expect to continue to face an increasingly challenging macroeconomic and promotional environment in 2008, and are taking a more conservative approach to planning the business this year," Sadove said, adding that the company expects to see comp store sales growth in the mid-single digits for 2008, with low-to-mid single digit growth in the first half of the year.

Meanwhile, at Neiman Marcus, positive earnings were also overcast by ominous notes. Revenues at the luxury department store grew almost 6% to $1.37 billion in the second quarter ended Jan. 26, while net earnings grew 8% to $44.3 million. However, February comp stores sales posted a 7.3% decrease.

In a conference call, Neiman Marcus chairman and CEO Burt Tansky seemed to feel, well, pretty much like every other luxury retailer these days. He's playing a cautious game as the news of a buckling economy and decreased consumer spending prophecies an even rougher year.

"As we all know, the entire U.S. retail sector has seen sales growth diminish somewhat, and this slowdown has affected some parts of the luxury market," he said in the call. "Our sense is that the aspirational customer has pulled back somewhat in response to concerns about the U.S. economy in stock and housing markets. However, this aspirational customer appreciates quality and can be expected to buy more as the economy improves. Nevertheless, we feel confident that the pure luxury customer, the affluent to the very affluent, will continue to demand only the finest."

Seems plausible, of course, except that we're not getting at raw numbers here. What's the proportion of aspirational consumers to pure luxury consumers? Wethinks it be disproportionate and that Neiman's might have a few, hopefully not too many, pricey dresses that are staying on the racks as Sex and the City fangirls start closing up their upper-middle class purses.

Research Desk: NPD Study Finds Consumers Not Changing Where They Shop, But Increasingly Looking For Sales

So there's good and bad news in a report released today from NPD Group, Port Washington, N.Y.

First, the good news. While 79% of the survey's 772 respon- dents felt that we are either in, or headed for, an economic recession, the majority aren't really changing where they shop given economic woes.

According to the study, "Fast Checks: Consumers Speak Out on the U.S. Economy," 55% of respondents said that today's economic conditions had "No impact" on where they shop for products. Meanwhile, 26% said that the economy has had "little impact" on where they shop, meaning that they'd changed on or two of the retailers from which they previously shopped. Another 15% said that they have changed "many" of the retailers they shop, while only 4% said that the economy has impacted their buying habits so drastically that they've changed all of the retailers they used to shop.

"Even with all the media attention on the economy, consumers still seem to be focused on their needs and desires," said Marshal Cohen, NPD's chief industry analyst, in a statement. "Consumers are tuned into news about our economy, but they aren't so quick to change what they are doing, including where they shop."

So knowing that the majority of shoppers have experienced either no impact, or very little impact, to their where they buy goods should have retailers breathing a sigh of relief, particularly after a rough round of earnings, right? Well, sort of.

The study also found that consumers are increasingly looking for promotional events to help keep costs down in the shopping cart. According to the survey, 50% of respondents said that they were now more likely to take advantage of store sales than they were six months ago. Of those polled, 38% said that they would be more likely to use coupons, and 8% said that they were more likely to participate in discount and/or membership programs.

According to Cohen, the results indicate that consumers are still going to be moving through retail doors, but that "the retailers are going to have to do more to get them."

"Certainly, promotional incentives of all kinds will be key, but how you market and communicate will help seal the deal," he added.

Financial Desk: Target Treads Water With Q4 Sales, Earnings Fall 8%

Another retailer, another disappointing earnings release. Seriously
folks,  we might just have to turn off our stock ticker for the rest of the day.

Target reports flat sales for the quarter ended Feb. 2, at $19.34 billion, though year-end sales grew 6.2% to $61.5 billion. What?! No sales losses!? This is great news!!

Well, it would be if Target hadn't also posted earnings of $1.03 billion, pr $1.23 per share, down 8.2% from last year. For the full year, the brand only moved the needle 2.2%, growing income to $2.85 billion, or $3.33 a share.

Below, the most obvious conclusions from Target's top dog.

"Our  financial performance in 2007 fell short of our expectations as the pace of sales and earnings slowed considerably in the second half of the year," said Bob Ulrich, chairman and CEO, in a statement. "As we enter 2008, we remain keenly focused on the disciplined execution of our core strategy, positioning Target to deliver improved financial results, even in the face of continue challenges in the current economic environment."

Unfortunately, Bob doesn't elaborate (and we're still waiting for the conference call where, you know, he actually might give us more color on this bland statement) so we don't know what kinds of tricks he's got up his corporate sleeves.

The report also makes no mention of the loss of designer Isaac Mizrahi to Liz Claiborne. Of course, Les Mizrahi's goods will still be sold through the retailer until the end of 2008, but nonetheless, his defection to Liz Claiborne was a major hit.

The designer's namesake collection for the brand brought in a reported $300 million in annual sales, in addition to have a sales-halo effect on the other brands in the store. Given his name and popularity, we get the feeling that it's going to be rather hard to replace him, and certainly the one-offs for the Go International collections which have featured up-and-coming designers probably won't make up the sales loss. Moreover, the collection might not pull in as much this year, given that Target isn't likely to promote it since they won't have the goods after the holidays.

For more on the Mizrahi switcheroo, check out our previous post, here.

Financial Desk: On Q4 and FY07 Losses, Macy's To Investors: "Hey, We're Not Doing As Badly As The Others!"

It's not a good day for retailers, with many reporting sales
and earnings slumps.

In its report this morning, Macy's appears to be hoping that they might at least look better than the competition.

"While a weakened economic environment led our industry to softer financial results than initially expected, Macy's, Inc. did outperform most of our primary competitors in the fourth quarter," said Terry Lundgren, chairman, president and CEO, in a statement. "We also generated significant cash flow despite weaker-than-expected sales trends. Going  forward, we are aggressively pursuing our recently announced market localization initiative to drive future sales and earnings."

What's he talking about? Well, earlier this month, the brand announced that they would be consolidating their various Macy's regional divisions into three primary groups: Macy's East, Macy's West, and Macy's South. Within each of those divisions will be 20 "districts," each consisting of about 10 stores, governed by a new workforce of about 250 managers. The thought is that by having more management in more localized markets, the company will be able to make much more specific marketing appeals to its consumers, tailoring everything to their particularly tastes, whims, or geographic proclivities. Of course, that consolidation also includes the downsizing of some 2,550 jobs across the previous geo-divisions. More on that, here.

 

Oh, and also, Macy's announced that it will no longer be reporting same-store monthly sales figures, which, you know, are the clearest indicator of a retailer's performance inbetween earnings reports. Oh, and another thing, they're not going to be giving anymore estimates about sales and earnings for the future. That certainly sounds like an underwhelming vote of confidence in the company's ability to perform.

"In total, 2007 was a year of significant strategic progress," added Lundgren, in a statement. "We successfully launched exclusive new brands such as Martha Stewart Collection, invested for continued growth in the direct-to-consumer business, expanded Bloomingdale's, changed our corporate name, and launched a breakthrough new marketing approach under the umbrella of 'The Magic of Macy's'."

You probably remember that particular campaign from the holiday season, when you were besieged by a commercial with a melee of images of Donald Trump, Sean Combs, Martha Stewart (who almost seemed warm and whom we were also relieved to see unshackled from KMart), and mental eyesore Jessica Simpson hawking their products sold through the mega-retailer.

Lay your chips down, folks, we're betting on Martha as the sales driving leader in the full collection category this year. Hopefully, for Macy's she'll be "a good thing."

Financial Desk: Despite Q4 Weakness, Nordstrom Rolls on With Seven New Stores for 2008

Another sign that the luxury market might be buckling, Nordstrom reported declines across the balance sheet for the fourth quarter.

Net sales dropped 4.4% to $2.51 billion for the quarter ended Feb. 2, and net earnings declined 8.6% to $212 million, or 92 cents a share. For the full year, sales increased 3% to $8.83 billion, and earnings rose 5.5% to $715 million, or $2.88 per share.

The declines were caused, in part, by a "trailing effect" from the previous quarter, according to President Blake Nordstrom's statements in a conference call.

"[That trailing effect] coupled with the softer environment impacted our bottom line," he added, noting that the first half of the year had been, "in terms of sales," successful. "As we look ahead to 2008 and beyond, we are focused on executing our long-term strategy of increasing market share with our core customers by offering great service and the best merchandise the market has to offer. We are in a position of strength financially, which allows us to take advantage of opportunities that may come our way, as well as weather any current challenges that we may face."

Increasing market share with  core customers, boosting service and merchandise, eh? Seems that's exactly what Milton Pedraza, of The Luxury Institute told us was precisely the strategy the luxury market needed to combat the pending/current recession.

While the year-end increases do support Nordstrom's contention of his company's strong financial position, we have to think that moving ahead with the retailer's growth plan is unwise at this time. Nordstrom plans to open seven more stores this year—in Honolulu, Hawaii; Burlington, Mass.; Clinton Township, Mich.; Thousand Oaks, Calif.; Indianapolis, Ind.; Pittsburgh, Pa.; and Naples, Fla.—in addition to the 165,000 square foot store it opened Feb. 15 in Aventura, Fla.

No notes about changes to their marketing plan that we've seen yet, but those cartoonish inserts they've been running for a while now certainly haven't made us want to shop there.

AmEx Continues Its Fashion Push, With Diane von Furstenberg Starring in New Campaign

Off the heels of the New York Fashion Week initiative
where it offered streaming runway shows among other goodies, and a $500,000 donation to the CFDA/Vogue
Fashion Fund, American Express is continuing to deepen its fashion industry connection.

The credit card company announced that designer Diane von Furstenberg (she old the large dots and wrap dresses) will star in the latest "Are You a Cardmember" campaign, per Ogilvy & Mather, New York, which breaks during the Oscars on Feb. 24. See a still from the TV spot, right.

No doubt the campaign seeks to create more brand affinity among female consumers (also the general goal of the company's effort within the fashion industry, according to Jessica Igoe, director of sponsorship and event marketing at American Express, New York), and given von Furstenberg's longevity in the industry and reputation as a fiercely independent designer and businesswoman, it should resonate fairly well.

Indeed, von Furstenberg's own statement seems to play right into that angle.

"Women inspire me and I inspire them to be independent and free, which is how I feel when I use my American Express card," said Von Furstenberg. "American Express represents a sign of independence and freedom and if you have your card, you can do anything."

See what we mean? Though we must admit, that the feeling of freedom that our credit cards (of all stripes) have given us only resulted in vast numbers of consumers in our age group (let's say 20-30 years old) entering into not-insignificant personal debt. After all, we just had to have that Vuitton throw rug and somewhere along the way, trips to Sephora seemed, well, like a necessity no matter how much they squeezed the budget.

Directed by "Capote" chief Bennett Miller, the TV spot follows Von Furstenberg from the inspirational Winter Wonderland of her backyard, through the design process in her studio. The print ads were shot by—who else?—Annie Leibovitz.

Financial Desk: Abercrombie Posts Gains in Q4, But Notes Problems with Ruehl Line

Seems like Abercrombie's still on top, no pun intended. 

The New Albany, Ohio-based company posted an 8% sales increase during the fourth quarter, reaching $1.23 billion, and a 9% boost in net income, which registered at $216.7 million. For the full year, sales grew 13% to $3.75 billion, and profits rising 12.6% to $475.7 million.

While the picture was pretty glossy for the most part, the company did note a slowdown in sales for its Ruehl line, according to statement from CFO Michael Kramer, in a conference call.

"Unfortunately, sales productivity declined in the second half of 2007, as we began to anniversary markdowns  from fiscal 2006," said Kramer. "We anticipate lower sales productivity compared to last year through most of the first half of 2008 as we continue to anniversary the high markdown levels associated with Ruehl...Until we can establish Ruehl as a proven  concept we will moderate the pace of new store openings."

But despite that bad news, it was all sunshine and rainbows from Chairman/CEO Mike Jeffries.

"Our brands represent high productive, consistent businesses that are the result of an unyielding focus on merchandise quality and customer experience," said Jeffries, in a statement. "We continue to make strategic investments in the business to sustain and to enhance brand quality and to support future growth, both domestically and internationally."

Well, at least one of those "strategic investments" includes a $300 million initiative to remodel existing and construct new stores in 2008, as well as the brand's decision  to bring back its porn-a-log, A&F Quarterly, which has raised eyebrows in the past for its debatably pornographic imagery, not to mention its lack of actual clothes on lifestyle models. (Well, some things never change in that department.)

The new Quarterly has puzzled us for a while too, and not just for the obvious reasons everyone else seems to have cited which include, chiefly, that the guys aren't wearing underwear in their dungarees. What's gotten us stumped is why the campaign is still all-white.

While we admit we haven't seen  the most recent installment, the images on the brand's Web site include the same line up of idealized white models that were featured (although they have changed the bodies they're using, natch, since the shelf life of fashion models is relatively short if you're not of the Naomi ilk) when we were covering their legal discrimination troubles at El Diario/La Prensa (our Spanish-language journo days).

Check out a few shots from the current campaign, below.

Listen, we're no Pollyannas about this stuff, and are well aware that it's widespread issue in the industry, but after so many issues of its own discriminatory mess (remember those "Two Wongs Can Make it White" tees?) we just have to wonder why Abercrombie wouldn't just toss a bone out and include one minority in its prominent imaging? C'mon guys, help colorize our wank bank!

Financial Desk: Pre-Announcement of Dismal Q4 and Fiscal 2007 for Liz Claiborne

Ruht-roh...

That's the feeling we get from the latest announcement from the financial office over at Liz Claiborne.

A pre-announcement of Q4 and full-year 2007 earnings forecasts greater-than-expected profit losses prior to the official report due out Feb. 27.

Bear with us as we go through the details. It gets foggier than Pynchon prose at times as you roll down the balance sheet expectations.

For the fourth quarter, the company said it now expects losses of $0.90 to $1.00 per share, with earnings per share of $0.15 to $0.25, compared to earnings  of $0.71 per share in the year-earlier period. Net sales for the fourth quarter are projected at $1.21 billion, down 3% from the prior year.

For the full year, expects losses of $0.25 to $0.35 per share, on the assumption of posting earnings of $1.25 to $1.35 for 2007, a serious dip from earnings of $2.46 a share in 2006. Net sales for 2007 are estimated at about $4.6 billion, down 1.4% from 2006.

It's important to call out that the projects don't include any impact from the sale of the Ellen Tracy brand today, which went to Radius Partners LLC, Westport, Conn., for $27.3 million (plus up to $15 million more, depending on how the brand performs over the next four years). That adds some dollars to the coffers that could help offset some of the expected weakness.

But it's equally important to remember that the  projections don't include the impact of costs associated with the company's efforts to "streamline operations," the shuttering of some of its cosmetics brands, as well as what appear to be the weakened status of those 16 brands the company had under review.

But well, let's let CEO William McComb sort it out. Here's what he had to say.

"While 2007 marked a very difficult period, we see the fundamental in this company heading in the right direction," McComb said in a statement. "This conservative view we are taking in our 2008 guidance-specifically around our Partnered Brands performance—is only prudent given the challenging retail environment."

He also added that "markdown pressure" hit those Partnered Brands—which include Liz Claiborne and Dana Buchman—hard during the quarter, but that they're going on the offensive with recent design deals for Claiborne that include Isaac Mizrahi tackling the women's end and John Bartlett handling men's, as well as licensing Dana Buchman out to Kohl's. For more on that, see here.

On a positive note, it looks like Juicy Couture is doing well, with Q4 comp store sales expected to be up 25%, while the brand jump 23% in sales for the full year. The Lucky brand remains flat against year (hey, it's better than being in the red, people!), though Mexx was down 3% for the quarter and 2% for the year.

Updated: Financial Desk: LVMH Closes Out 2007 with Multi-Category Growth and Teaser For New Vuitton Campaign

Another positive luxury earnings report, now with some
straight talk about how 2008 will shape up, comes across
our desk this morning from Paris-based juggernaut LVMH.

The company, which markets a wide range of luxury products, posted sales gains across every category in its portfolio. In sum, company-wide revenues increased 8% to $24.1 billion, with profits climbing 12% to $5.2 billion for 2007.

While those gains are certainly commendable, Chairman and CEO Bernard Arnault didn't shy away from addressing some of the problems facing the U.S. market, though he was bullish on the company's prospects, given its higher-end clientele.

"It is true that the year is starting in a rather worrisome situation in terms of the economy and the financial markets in particular...[and] our analysis of the situation is that in 2008 we're likely to experience a degree of recession more or less important in the U.S. economy," Arnault said, in a conference call, though he added that January sales were in line with year-end performance for the company and noted that he believes the recession should only last one or two quarters into 2008, with market recovery by 2009.

"I believe that [the recession's] consequences on LVMH will be limited, weak, or even non-existent," Renault said. "In fact, the clientele that we are dealing with is far less affected than the rest of the economy by these short-term economic swings.  They have high purchasing power, located in a number of countries where the economic climate will be bouyant, even if there's a minor recession in the U.S."

Returning back to the quarterly results, of particular interest to us were the following revenue boosts: sales of fashion and leather goods  grew 8% to $8.24 billion, at current exchange rates, in 2007; the perfumes and cosmetics business also grew 8%, with sales of roughly $4 billion; while the watches and jewelry group posted a 13% sales gain, at $1.2 billion.

The company, in a statement, attributed increased revenues in the fashion category to strong performance from its landmark Louis Vuitton brand, as well as "growing success" at Fendi, in addition to solid performances from Marc Jacobs, Givenchy and Loewe. The boost in perfumes and cosmetics came on the back of its popular Christian Dior fragrance line, particularly the J'Adore, Midnight Poison and Fahrenheit 32 scents. Strength in the watches and jewelry category was led by TAG Heuer, which the  company said showed strong progress across all of its markets (for more on TAG's marketing efforts, see previous article, here).

According to statements by Antonio Belloni, deputy managing director, in a conference call, the fragrance departments at Givenchy and Kenzo will be rolling out "aggressive programs," including a renewed advertising campaign for the female market, and a forthcoming men's launch for both brands. No further details were provided.

And Yves Carcelle, president of the fashion and leather goods division, alluded to an evolution of the brand's current campaign with Mikhail Gorbachev . In the call, Carcelle mentioned a "Life After Gorbachev" initiative that would be unveiled "in a few weeks' time."

"For the first time, indeed, in the history of the luxury industry, there will be an audio-visual film which will be used both on TV, in theaters and on the Internet," Carcelle said during the call, describing the spot as "90-seconds of pure emotion." Hmmm... We'll definitely be staying tuned on that one.

Anecdotally, it would appear that Gorbachev campaign (as well as the spots featuring French Actress Catherine Deneuve, both pictured, above) has been successful. I've heard a vast majority of positive reaction to those spots, and, given the pending recession, that campaign isn't a bad strategy for the U.S. market. After all, only the super-moneyed, who are likely the age contemporaries of Gorbachev and Deneuve, will be able to afford those never-marked-down handbags if the economy really gets bad.

Financial Desk: Polo Ralph Lauren Sales Climb 13% in Q3

Looks like Polo Ralph Lauren will follow Coach in refuting
those analyst downgrades last month.

The New York-based fashion house posted a 13% increase in sales, at $1.2 billion for the third quarter ended Dec. 29, though net income rose a scant 2% to $112.7 million, or $1.08 per diluted share, over the same period. Polo also upped its fiscal year-end earnings guidance, now anticipating earnings per share in the lower end of a $3.64-$3.74 range. The prior guidance has been $3.50 to $3.60.

"Even in the context of macroeconomic uncertainty, our strategies remain intact," said Roger Farah, president and CEO, in a statement, an obvious allusion to fears over the pending U.S. recession's impact on the luxury market (for more on that, see my previous article, "Mass Affluents Retreat En Masse," here).

"Our company offers the highest quality, aspirational merchandise across the entire consumer spectrum," added Ralph Lauren, chairman and CEO, in a statement. "The diversity of our brand portfolio, the strength of our lifestyle positioning,  the talent of our creative and managerial teams and our increasingly global reach are enviable assets that position us well for long-term growth."

It's the last part of that statement that has gotten us to thinking: Has Polo really beaten the U.S. recession?

The company does not break out its sales for the U.S. region, in particular. No real surprise there, many global companies shy away from doing so. But there were some other indicators that have us scratching our head a bit.

"In the past few years, we have made significant long-term investments in our international business with the expansion of Europe, product categories such as Lauren and childrenswear, and channel expansion with our own retail stores and e-commerce," said Farah, in a statement. "Our more recent efforts include the repositioning of Japan and the development of accessories. While the recent decline in consumer spending presents near-term challenges, we continue to invest in our strategic initiatives as we believe they are long-term drivers of shareholder value."

So it would seem that Polo is hitching its horse, at least in part, to the international and e-commerce markets. Interesting, particularly in light of the conversation I had with luxury analyst Milton Pedraza (of The Luxury Institute, New York) a while back. Pedraza told me that, in the wake of the recession,  luxury brands had three main points of attack to weather the storm: focusing only on the super-rich who would be effectively immune from an economic recession, focusing on international markets to provide global relief for near-term losses in the U.S., and beefing up their online presence to accomplish that global reach.

Seems like Polo is hitting two out of three now. Of course, it would seem that the broad array of price points the brand offers might also provide some recession-ready padding.

Still no information on what role, if any, advertising and marketing played in the quarterly results. Will have to wait on that for later. Can't imagine they'd have much impact, since they've been fairly boring and cookie-cutter across the various collections. Enjoy a recent spot, above.

Polo spent $57 million on measured media advertising in the U.S. market for 2006, and spent $58 million through November 2007, per Nielsen Monitor-Plus.

Financial Desk: Under Armour Heralds Its Milestone Year in Q4 Earnings

It would seem as though that New Prototype shoe is 
the lynch pin upon which Under Armour's future
growth rests.

Even as the latest earnings reveal strong upswings for the brand—fourth quarter sales climbed 29% to $174.8 million, while income grew 42% to $16.9 million, or 34 cents a share, beating Wall Street estimates—the footwear category slumped by almost 27%, ticking in at $6.8 million in sales. Apparel, meanwhile, grew almost 30% to $152.7 million in sales, grabbing by far the lion's share of Under Armour's balance sheet.

The company reiterated that it will dedicate 12%-13% of 2008 revenues to marketing, shifting a substantial portion of that spend to the first half of the year, when it will roll out its New Prototype performance cross trainer shoe, kicking off with a 60-second ad during Fox's Super Bowl broadcast Feb. 3.

"2008 marks an important milestone in Under Armour's long-term strategy with the launch of our performance training footwear," said Kevin Plank, chairman and CEO, in a statement. "We are confident in delivering the proper mix of the right product positioning, a great campaign, great retail partners who are excited about the launch, and most importantly, great product that will deliver against the demands of today's new prototype athletes."

Given all the ad spend and marketing oomph they're putting behind this launch, not to mention the growth plans that rest on its success, it will be very interesting to watch what happens when Nike kicks their version out two months earlier. For more info on this, check out my recent story about the March-release of that Nike line (the name of which is still a mystery) here.

Check out previews of the upcoming Under Armour Super Bowl spot here.

Financial Desk: H&M Powers Through Another Impressive Quarter

H&M continues its charge through the fashion world
with another strong earnings season.

Per the company's quarterly, and annual, earnings report released this morning, fourth quarter sales grew 17% to $3.57 billion in domestic currency (at current exchange rates), and profits jumped 14% to roughly $975 million.

Though the company did seem to feel a similar slump in the month of December, where sales decreased by 10% over the previous year, sales through Jan. 29 (one has to marvel at the efficiency that can include sales figures from as recently as two days ago in such a report!), sales have increased 16%. Results for the U.S. market, specifically, were not provided.

Full-year results for fiscal 2006/2007 were similarly positive, with sales climbing 15% to $12.3 billion, and profits resting solidly at the $3.0 billion mark, an increase of 21%.

The company plans to control roughly 190 stores for the next fiscal year, focusing its efforts in 2008 on building up markets in Egypt, Saudi Arabia, Bahrain, and Oman. Stores are expected to open in the Russian market in 2009.

The retailer is currently gearing up for the release of its "Fashion Against AIDS" collection, which bows tomorrow. The group of t-shirts, tank tops and hooded sweaters were designed in conjunction with Designers Against AIDS (DAA) and music industry celebrities including Rihanna, Timbaland, Rufus Wainwright (pictured in the spot above), Scissor Sisters, and Ziggy Marley, and Good Charlotte, among others. Twenty-five percent of sales from the line, priced at roughly $16-$40 (at current exchange) will go to various HIV/AIDS prevention projects at non-profits worldwide.

In 2006, H&M spent $17 million on measured media advertising in the U.S. market, and through November 2007, has spent $18 million, per Nielsen Monitor-Plus.

Financial Desk: Coach Fights Back with Q2 Growth and Upped Guidance

Despite ominous downgrades from a Goldman Sachs analyst
last week, Coach seems to be  coming out swinging
following an impressive second quarter in which the leather goods company posted increases across top and bottom line ledgers.

Earnings climbed 11% to $252.3 million, or 70 cents a share, for quarter ended Dec. 29, while sales jumped a strong 21% to $805.6 million. Gross profits, however, slid almost 174 basis points to roughly 75% of sales, and inventories jumped 20% to $300.7 million.

Those latter slides might be attributable to the current luxury market weakness as consumers tighten their purse strings—for more on that, check out my "Mass Affluents Retreat En Masse" story from earlier this week—which seems to be supported also by Chairman and CEO Lew Frankfort's (pictured, above, right) statements about weakness in comp store sales.

"Specifically, North American comparable store sales were impacted by weak mall traffic and an unexpected decline in average transaction size," he said, in a statement. "The macro environment appeared to cause a shift by many consumers to lower price point items. Conversion remained very strong, offsetting the bulk of weakness."

Looking ahead, the company actually upped its earnings and sales guidances, with revenues pegged at $3.15 billion (a 20% boost), and share value of $2.06 (a 22% gain). Still, given the challenges in the U.S. environment, Frankfort said that the company would remain cautious in providing forecasted estimates of comp store sales—which he added represent roughly 20% of overall retail sales for the back half of the fiscal year.

Another way to offset any slowdown in the U.S. market might be the brand's boosted efforts in China, where it will open a new global flagship store in Hong Kong this summer.

"This flagship will significantly enhance the Coach brand and is consistent with our strategy of raising awareness and aggressively growing market share with the Chinese luxury  consumer," Frankfort said, in a statement. "Clearly, Greater China has the potential, during hte next few years, to become the third major market for Coach, following North America and Japan."

International markets currently represent about 25% of Coach brand sales.

No word yet on any ad changes at the company, though Frankfort emphasized that the challenging retail climate has the company "embarking on a comprehensive review of all ways in which the brand touches the consumer," and said the new positioning will become more clear as the company shifts into the 2009 fiscal year.

The brand boosted its ad spend by roughly 31% during Jan.-Nov. 2007, growing to $13.2 million, versus $10.1 million from Jan.-Nov. 2006, per Nielsen Monitor-Plus.