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.