RETAIL SECTOR WEEKLY.pdf by wangnuanzg


									                                                                                                            Volume 3, Issue 7

                                                                                                            February 6 - 12, 2006

                             RETAIL SECTOR WEEKLY
                                  Key Retail News and Commentary

                                    The Gain And Pain Of SOX
                                    Here is what we know about Sarbanes-Oxley: It is one of the most significant changes to federal se-
                                    curities laws in history; it has been difficult and expensive to implement for publicly traded U.S. com-
Inside this issue:                  panies; and it is here to stay. Despite its drawbacks and costs, Sarbanes-Oxley has helped boost
                                    shareholder confidence, and it may even boost shareholder value by helping companies operate
Bankruptcy Blotter           2      more efficiently going forward.

                                    Enacted after the Enron and WorldCom financial scandals, the Sarbanes-Oxley Act of 2002 was de-
Rating Changes & Outlooks    2
                                    signed to protect shareholders and the public from accounting errors and fraudulent practices. Ad-
                                    ministered by the U.S. SEC, SOX sets deadlines for compliance and publishes rules on requirements,
Management on the Move       3
                                    covering a wide range of rules. The consequences for failing to comply with certain provisions range
Heard in the Grocery Aisle   3
                                    from fines to imprisonment.

                                    As consequential as SOX is, it is one section of the law that really got the attention of the executive
Off the Rack                 5
                                    suite. Section 404 of the act requires both the management of publicly held companies and their
                                    outside auditor firms to report on the effectiveness of the company’s internal controls. Another re-
Options and Resources        5
                                    quirement, Section 302, mandates that executives be personally responsible for financial reports,
                                    requiring their signature on the documents.
Health & Beauty Aids         6

                                                                                                                          (Continued on page 9)
Mass Merchant Musings        6

Specialty Items              7

Hi Tech Entertainment        7      Urban Outfitters, Inc.: Retailer of the Week
The Global World of Sports   8                                   PROFIT GROWTH CONTINUES HOT PACE

Earnings Release Dates       10     Urban Outfitters continues to make gains in top line growth as well as profitability, adding impressive
                                    increases to the bottom line. The robust profit flow has kept the financial condition quite liquid with-
FYI for the DIY              10     out the addition of debt. We rate this account an "A" with a positive outlook.


         Holiday Notice                  Nine Months Ending                      Oct-05                          Oct-04
                                         Sales                                  $773.5M                         $576.1M
   Due to Monday being                   Gross Profit                        $322.7M (41.7%)                 $238.4 (41.4%)
 President’s Day, the Retail             SG&A Expenses                       $167.8M (21.7%)                $132.7M (23.3%)
    Sector Weekly will be                Operating Profit                   $154.9M (20.03%)               $105.7M (18.35%)
   published on Tuesday,
                                         Net Profit                              $95.2M                         $63.4M
       February 21st.
                                    Sales for the nine months ended October 31, 2005 increased 34.3% to $576.1 million. This was due
                                    to a comparable store sales increase of 11.9 percent, sales of $97.1 million due to 50 new stores
                                    opened in the past two years, and a 45.4% gain in direct sales. Gross margins were up 30 basis
                                    points to 41.7% due to higher initial markups and tighter inventory management. Expense margins
                                    improved 160 basis points to 21.7% primarily the result of leveraging off the increase in comps. This
                                    produced an operating margin of 20.0% compared to 18.4% the previous year, while net income
                                    gained 50.1% to $95.2 million.

                                                                                                                         (Continued on page 10)

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Volume 3, Issue 7                                                                                                       February 6 - 12, 2006
                                                                                                                                         Page 2

                                   Bankruptcy Blotter
                                    … Glazed Investments LLC, of which Krispy             have agreed to accept about $43.5 million of
                                    Kreme Doughnuts Inc. owns 97% and which is a          debt repayment, which is $5 million less than
                                    Krispy Kreme developer for three states, filed for    they were owed. The reorganization will create
                                    Chapter 11 protection in order to facility the sale   two companies operating the Save-A-Lot and Buy
                                    of its assets for $10 million to Westward Dough,      Low banners separately and controlled by differ-
                                    a Krispy Kreme Doughnuts developer for five           ent members of the Buehler family.
                                    states. The sale is now subject to higher bids at
                                    auction and includes 12 Krispy Kreme stores, as       … Defunct Heilig-Meyers Co. has requested that
                                    well as franchise development rights for Colorado,    that the court convert the Rhodes Inc. Chapter 11
                                    Minnesota and Wisconsin. Upon completion of           case to Chapter 7, as Rhodes’ liquidation plan is
                                    the sale, Krispy Kreme will no longer retain an       “patently unconfirmable”. Heilig-Meyers claims it
                                    ownership position.                                   has been unfairly subordinated to other unse-
                                                                                          cured creditors, who will receive approximately
                                    … In unrelated news, Krispy Kreme announced           15% of its claims, while it will receive nothing
                                    that a subsidiary agreed to end its relationship      under the proposed plan. In addition, Rhodes’
                                    with a Houston-area franchisee and that the six       former CFO is now the company’s liquidating
                                    locations there will no longer operate as Krispy      agent, creating a conflict of interest. A hearing
                                    Kreme stores as of March 8. The agreement             has been set for February 15th.
                                    allows both sides to settle outstanding disputes
                                    and claims, inducing the dismissal of a lawsuit … Crescent Jewelers will keep exclusive control
                                    filed by Lone Star Doughnuts Ltd., the subsidiary. over its Chapter 11 case through March 6th, as it
                                                                                         attempts to find an investor or buyer to bring it
                                    … The court denied Winn-Dixie’s equity security out of bankruptcy. The company reached a deal
                                    holders’ request for reinstatement of an official with several creditor groups to extend its exclu-
                                    committee to represent their interests in the sive period to file a plan and time to solicit sup-
                                    bankruptcy case. The company stated that the port for the plan until May 5th.
                                    decision is appropriate now that it appears that
                                    equity holders will likely be out of the money un- … Musicland Holding Corp. won a temporary re-
                                    der any reorganization plan.                         prieve in its battle to win bankruptcy court ap-
                                                                                         proval of a $75 million DIP loan. The court au-
                                    … Despite opposition from its creditors’ commit- thorized borrowings up to $60 million pending a
         Feedback?                  tee, the court granted preliminary approval to February 17th final hearing on the full DIP facility.
                                    Buehler Foods Inc.’s bankruptcy reorganization The company’s creditor committee took issue
         Questions?                 disclosure statements, paving the way for the with the aggressive pace for a sale saying it would
                                    company to emerge from Chapter 11 protection not give the company time to maximize the value
                                    by the first week in April. As part of the reorgani- of its assets. The committee also objected to the
       Suggestions?                 zation, Associated Wholesale Grocers has agreed company’s proposed incentive plan for key em-
                                    to loan Buehler $15 million in cash, offer $2 mil- ployees, which would pay senior executives $1.2
                                    lion in credit and extend repayment of about $10 million if they sell the company’s assets or lead it
         Click Here                 million in pre-bankruptcy debt. Buehler's banks out of bankruptcy.

                                    Rating Changes and Outlooks

                                      S&P Rating Changes
                                                                                            Credit Rating            Credit Outlook
                                                        Company                       Current          Prior      Current        Prior

                                      PEP BOYS MANNY MOE & JACK                            B-           B-          NM           NEG

                                      PORT TOWNSEND PAPER CORP                            CCC+          B-          NEG          NEG

                                      PIER 1 IMPORTS INC                                   B            BB          NM           NM
                                      HCA INC FKA COLUMBIA/HCA                            BB+          BBB-         STA          STA

                                      TEXTRON FINANCIAL CORP                               A-          NM           STA          NM

                                      NEIMAN MARCUS GROUP INC THE                          B+          BBB          STA          NM
                                      WAL MART STORES INC                                  AA          NM           STA          NM

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service
Volume 3, Issue 7                                                                                                          February 6 - 12, 2006
                                                                                                                                          Page 3

                                   Management on the Move
                                    … The Board of Directors of The Pep Boys -             GapBody, a part of Gap, Inc., as President. A
                                    Manny, Moe & Jack reiterated its support for the       replacement has not yet been named.
                                    company’s CEO Larry Stevenson by extending his
                                    employment, which was scheduled to expire in           … Gap, Inc.’s International President Andrew
                                    April. In an effort to separate the roles of Chair-    Rolfe will be leaving the company as of February
                                    man and CEO, Director William Leonard will as-         17th. He will be joining TowerBrook Capital Part-
                                    sume the role of non-executive Chairman of the         ners, LP, a private equity firm. The company does
                                    Board. In addition, the board engaged Goldman,         not plan on replacing Mr. Rolfe, as business units
                                    Sachs & Co., its long-term financial advisor, to       in Europe and Japan will report to Paul Pressler,
                                    explore strategic and financial alternatives for the   President and CEO of the company.
                                                                                       … Guess?, Inc. announced some organizational
                                    … Gerald L. Storch, the previous Vice Chairman of changes and global restructurings, which in-
                                    Target Corporation, was appointed Chairman of cludes Frederick G. Silny, SVP and CFO leaving
                                    the Board and CEO of Toys “R” Us.                  the company on May 9th. In addition, Stephen
                                                                                       Pearson, formerly of J. Jill Group, joined the com-
                                    … Joseph Zekoski was named General Director of pany in the newly created position of EVP, Chief
                                    Goodyear Tire & Rubber Company, replacing Jean Supply Chain Officer; Laurent Marchal, who previ-
                                    Bergh, who is retiring. Mr. Zekoski most recently ously was a Managing Director of Zara Canada,
                                    served as director of the company’s North Ameri- was named President of Guess Canada, also a
                                    can Tire retread business.                         new position; Harriet Sustarsic was promoted to
                                                                                       SVP, General Merchandise Manager, Retail Divi-
                                    … After a tough year, Jack Lewis, the President sion; and Wendy Klarik was promoted to SVP,
                                    and CEO of Kirklands, was fired. Chairman of the General Merchandise Manger, Factory Division.
                                    Board, Robert Alderson, wills serve as interim Lastly, Guiliano Sartori was promoted to VP, Inter-
                                    President and CEO.                                 national Licensing Business Development,
                                                                                       Stephane Labelle was named SVP, Licensing
                                    … At its annual stockholders meeting, Ameri- Products for Guess Europe, and Terence Tsang
                                    sourceBergen reelected two directors, Richard C was appointed to lead Guess Business Develop-
                                    Gozon and J. Lawrence Wilson, and named Mr. ment of the Asia region and India.
                                    Gozon as Chairman of the Board, succeeding
      Register a Colleague
                                    James R. Mellor.                                   … Christine Johnston was named to the newly
                                                                                       created position of SVP for Cosmetics for the
     Today to insure they           … Quicksilver, Inc. appointed a new president for Macy’s East division of Macy’s banner, oversee-
                                    DC Shoes naming Nick Adcock, who has been ing the fragrance, cosmetics and treatment busi-
    receive their own copy of       with the division for three years and previously nesses of the division.
                                    was the Australian GM. He is replacing Ken Block,
                                    who will take on the new role of Chief Brand Offi- … SUPERVALU elected Philip L. Francis, the Chair-
    “ R etail Sector Weekly ”
                                    cer.                                               man and CEO of PetSmart, Inc., to its board.
               and                  … John T. Wyatt, the President and CEO of Cutter … Frank Castiglione was hired as SVP of Market-
                                    & Buck Inc. announced that he was relinquishing ing and Advertising of Cost Plus, Inc. Mr. Castig-
    Monthly Comps Analysis          his positions on March 8th and leaving to join lione previously spent 10 years with Target .

                                    Heard in the Grocery Aisle
                                    … In a bid to better compete with such operators       convenient location for quick, simple medical
                                    as Whole Foods and Wild Oats, Safeway opened           assistance. The clinics will be staffed by nurse
                                    its redesigned lifestyle store in Boulder, Colorado,   practitioners who can write prescriptions, provide
                                    which rolls out a shopping concept that highlights     diagnosis and treatments of common ailments
                                    thousands of organic and natural items, a new          and minor injuries, and other wellness care.
                                    expanded perishable department, and such spe-
                                    cial features as a fresh sushi bar and an interac-     … Smart & Final will release its fourth quarter and
                                    tive culinary center where chefs will run cooking      full year results on Tuesday, February 14, 2006.
                                    demonstrations and customer can buy cookbooks          Be sure to look Global’s insightful analysis shortly
                                    and kitchenware.                                       thereafter.

                                    … Publix Super Markets and The Little Clinic LLC … Yucaipa, the private equity firmed owned by
                                    signed an exclusive agreement to open medical Ronald Burkle, increased its stake in Wild Oats
                                    clinics within Publix stores, following the recent Markets Inc. to 14.9% from its previous 9.2%
                                    trend of supermarkets offering its customers a                                  (Continued on page 4)

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Volume 3, Issue 7                                                                                                       February 6 - 12, 2006
                                                                                                                                        Page 4

                                   Heard in the Grocery Aisle
                                    (Continued from page 3)

                                    ownership. In its filing with the SEC, Yucaipa said   cents per share, compared to $46.2 million, or
                                    that it could engage in talks with other persons or   34 cents per share for last year.
                                    entities “regarding potential strategic transac-
                                    tions” involving Wild Oats and other supermar-        … As part of its plan to restructure its financial
                                    kets and retail companies. The supermarket’s          position and create opportunities for its future,
                                    stock price increased on the news.                    Marsh Supermarkets will close eight stores and a
                                                                                          restaurant by the end of the month. The closures
                                    … A pharmacists’ “sickout” day closed many            include one Marsh Supermarket, one Savin$
                                    Pathmark drugstores. The “sickout’ was related        store, six village Pantry convenience stores and
                                    to contract talks, which are aimed at replacing an    its Trios Di Tuscanos restaurant. In addition, it
                                    agreement that expired in October 2005.               has terminated 25 headquarters positions - in-
                                                                                          cluding four officers who were third-generation
                                    … Giant Food Stores and Tops Markets are em-          members of the founding Marsh family: David
                                    barking on two new ways to add even greater           Marsh, Arthur Marsh, Don Marsh Jr. and Joe
                                    value for customers: a new “Guaranteed Value”         Heerens. These actions are expected to save the
                                    grocery and household product line and a new          company $12 million annually.
                                    “Your Neighborhood Drugstore” concept for its
                                    health and beauty care and sundries categories.       … Off to a very good start, Ingles Markets re-
                                    Marketed under the “Guaranteed Value” brand           ported its first quarter ended December 24, 2005
                                    name, shoppers will find prices averaging 20% to      results. With net sales increasing 11.5% to
                                    35% less than they would pay for similar national     $623.4 million and comps increasing 9.8%, net
                                    brands. The “Your Neighborhood Drugstore”             income increased 53.4% to $7.8 million from
                                    concept will help customers find a selection of       $5.1 million for the year ago period.
                                    everything found at a traditional drugstore, but at
                                    much lower prices.                                   … Britain’s dominant super market chain Tesco
                                                                                         PLC plans to expand into the United States by
                                    … SUPERVALU declared a regular quarterly divi- developing smaller convenience stores. With a
                                    dend of 16.25 cents per share payable on March plan to invest $435 million annually to establish
    WANT TO BE SEEN????             15th to stockholders of record on March 1st. In new stores, it will shake up the industry.
                                    addition, the board amended the company’s by-
         Advertise in               laws to adopt a majority-vote standard for the … The Pantry, Inc. completed the acquisition of
    Global Credit Services’         election of directors in uncontested elections, 19 convenience stores in North Carolina form
     Retail Sector Weekly           which will take effect with the next election of Lee-Moore Oil company, which operated the
         Newsletter                 directors in May 2006.                               stores under the TruBuy and On-The-Run® ban-
                                                                                         ners. The deal also included various dealer fuel
    For Further information,        … Kroger has managed to earn a 54% market supply arrangements for 20 additional stores.
       please click here            share in the Toledo market, according to the Actual terms of the deal were not disclosed.
                                    Toledo Blade, up from 45% six months ago and
                                    47% a year ago. The increase of market share … Thornton Oil Corp., a 161-store convenience
                                    could be from the benefit from the closing of store chain, plans to issue a PIN-based ACH debit
                                    A&P’s Farmer Jack and Food Basics stores last card program from Debitman in an effort to cre-
                                    year. Meanwhile, the source said that Meijer’s ate a card that could be accepted and reduce its
                                    market share dropped to a 19 % share from 22% interchange fees. Thornton plans to merge a
                                    a year ago.                                          loyalty program with the ACH card so that it can
                                                                                         issue a lot of cards. Merchants accepting its ACH
                                    … In an effort to promote development and sup- card pay just 15 cents per transaction in inter-
                                    port local businesses, Kroger began to sell prod- change and switching fees. In addition, as issu-
                                    ucts made it its own backyard. The company, ers of the card, retailers earn 6 to 9 cents per
                                    which opened a new store in the Brewer’s Yard transaction in their stores, as well as when the
                                    area of Ohio, is taking the neighborhood-store card is used at more than 200,000 locations that
                                    concept a step further by offering meats from the are part of Debitman’s Retailer’s Network, includ-
                                    Herman Falter Packing Co. and fresh baked ing stores operated by Wal-Mart Stores, Sam’s
                                    bread from Omega Bakery, both of which produce Clubs, CVS, Duane Reade and Walgreen. Retail-
                                    their products in the area.                          ers who join the network also gain the benefit of
     RETURN TO FIRST PAGE                                                                the low interchange rate when accepting the card.
                                    … With average weekly sales reaching a record
                                    $585,000, Whole Foods Market reported excel- … While Roundy’s Supermarkets continues to
                                    lent results for the first quarter ended January 15, look to make retail acquisitions, the chain itself
                                    2006. Sales increased 22% to $1.7 billion, while will likely be sold or recapitalized by the middle of
                                    net income increased 26% to $58.3 million, or 40 next year, according to its CEO, Robert Mariano.

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service
Volume 3, Issue 7                                                                                                         February 6 - 12, 2006
                                                                                                                                         Page 5

                                   Off the Rack
                                    … The Talbot’s, Inc. entered into a Revolving Loan      nana Republic opened four store locations in
                                    Credit Agreement with Mizuho Corporate Bank,            Japan in September 2005, its first store locations
                                    Ltd., as lender, for up to $400 million to be repaid    outside North America.
                                    no later than August 2, 2006. On February 6,
                                    2006, the company borrowed $400 million under           … Charming Shoppes, Inc. will accelerate its new
                                    the Loan Agreement and $45 under an existing            store-opening plan, primarily in the Lane Bryant
                                    credit facility with Mizuho in connection with the      brand, including the launch of the Lane Bryant
                                    company’s acquisition of The J. Jill Group, Inc.        Outlet concept. Approximately 75 to 80 Lane
                                    The $45 million borrowed is due on July 28, 2006.       Bryant Outlet stores will open in July and August,
                                                                                            which will be accomplished through assumption
                                    … In other news, Talbot’s renewed its $100 mil-         of store leases acquired from Retail Brand Alli-
                                    lion revolving credit facility with The Hong Kong       ance. The company also plans to open 80 tradi-
                                    and Shanghai Banking Corporation Limited. The           tional retail stores – 60 Lane Bryants net of 15
                                    facility is subject to review at any time and, in any   closings, 15 Fashion Bugs net of 20 closings and
                                    event by September 15, 2006.                            5 Catherines Plus Sizes net of 15 closings. In
                                                                                            addition, the Lane Bryant concept will be ex-
                                    … Representing a major expansion for the nor-           panded into catalog sales in late 2007.
                                    mally conservative company, Boscov’s Inc. ac-
                                    quired 10 stores under the Kaufmann’s, Macy’s           … In addition to the above, Charming Shoppes
                                    and Strawbridge’s banners from Federated De-            provided earnings guidance for the first quarter
                                    partment Stores. The company, which had been            ending April 29, 2006 in the range of 23 cents to
                                    exploring opportunities including a potential sale      25 cents per share and total year guidance for
                                    of the business, has now turned the family busi-        the year ended February 3, 2007 in the range of
          Did You Know…?            ness over to a younger generation.                      81 cents to 83 cents per share.

 Valentine’s Day can be a big       … Nordstrom, Inc. broke ground on its first full-     … Citing its ability to connect with its customers,
 drag, putting pressure on peo-     line store in Hawaii. The three-level store will be   Cache Inc. reported that sales for the 52-week
 ple to buy flowers and candies     approximately 200,000 square feet and is sched-       fiscal 2005 ended December 31, 2005 rose
 as an expression of love, while    uled to open in the spring of 2008.                   7.7% to $266.3 million compared to $247.3 mil-
 leaving the single set at home                                                           lion, in the 53-week period in fiscal 2004. Net
 drowning their sorrows in a        … Maple Leaf Heritage Investments Acquisition income for the year rose slightly to $13.4 million,
 gallon of ice cream! Twenty-       Corporation extended and increased its all-cash compared to $13.3 million last year.
 seven percent of Americans         offer for all of the outstanding common shares of
 complained Valentine’s Day is      Hudson’s Bay Company and the company’s 7.5% … Urban Outfitters, Inc. reported record sales for
 simply a fake holiday engi-        convertible unsecured subordinated debentures the fourth quarter and year-end ending January
 neered by card companies and       due December 1, 2008. Heritage increased its 31, 2006. Sales for the fourth quarter jumped
 florists. Fifty-one percent of     share offer from C$14.75 per share to C$15.25 27% to $319 million, while sales for the year rose
 Americans would not be upset       per share and extended the expiration date of its 32% to a record $1.1 billion. Total comp store
 if their significant other         offer to February 24, 2006.                           sales for the year were up 11% versus a 22%
 skipped the holiday and 46%                                                              increase last year.
 feel that candy and flowers are    … Hudson’s Bay Company reached an agreement
 so boring , but they don’t know    with GE Money, the Canadian consumer lending … Mothers Work, Inc. reported strong operating
 what else to get.                  business of General Electric, to sell its credit card results for the first quarter of fiscal 2006 ended
                                    portfolio. Proceeds of the transaction are ex- December 31, 2005 and significantly increased
                                    pected to be approximately C$370 million net of its targeted earnings guidance range for the full
                                    the securitized receivables, related costs and year fiscal 2006. Net income before stock option
                                    taxes. Approximately 650 employees of Hudson’s expense for the first quarter was $0.7 million, a
                                    Bay will be transferred to GE Money, working at significant improvement from the net loss for the
                                    their present locations.                              comparable period last year. As a result, the
                                                                                          company raised its targeted earnings per share
                                    … Gap Inc. will open two Banana Republic store for fiscal 2006 to a range of 79 cents and $1.03
                                    locations in Tokyo and Kobe this spring. With per share, after stock option expense, from its
                                    these new store locations, Banana Republic will previous target of 64 cents to 87 cents per share.
                                    have a total of six store locations in Japan. Ba-

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Volume 3, Issue 7                                                                                                        February 6 - 12, 2006

                                    Health & Beauty Aids
                                     … CVS Corp. will undergo outside safety reviews      expects to grow this component of sales to
                                     at its 309 pharmacies in Massachusetts as part       greater than $20 million during 2006, from less
                                     of an unprecedented state settlement over            than $5 million during 2005.
                                     scores of prescription errors, some of which re-
                                     sulted in patients being hospitalized. The agree-    … Walgreens Health Initiatives, the pharmacy
                                     ment requires CVS to enter a consulting contract     benefit management subsidiary of Walgreen Co.,
                                     with the Institute for Safe Medicine Practices and   added two drugstore chains representing 5,000
                                     submit to two years of ongoing review by the na-     pharmacies to its Advantage90® network, Medi-
                                     tional nonprofit organization. The unusual action    cine Shoppe and Rite Aid. The program, which
                                     by the Massachusetts Board of Registration in        offers patients at select retail pharmacies a 90-
                                     Pharmacy is in response to complaints by con-        day supply of medications taken on an ongoing
                                     sumers who said they received the wrong dos-         basis, continues to accomplish its goal of lower-
                                     ages or medications from CVS pharmacies. In all,     ing costs.
                                     the board investigated 80 complaints and sub-
                                     stantiated 62 of them. Although no one died           … AmerisourceBergen completed its purchase of
                                     because of the errors, some patients did not re-      Network for Medical Communications & Research,
                                     ceive the proper medications and may have suf-        LLC, a privately held provider of physician accred-
                                     fered unnecessary side effects.                       ited continuing medical education and analytical
                                                                                           research for the oncology market for $90 million.
                                     … DrugMax, Inc. announced that it has been mak- The acquired company will become a part of
                                     ing significant progress toward its earlier stated AmerisourceBergen Specialty Group.
           Did You Know…?
                                     strategic initiatives aimed at increasing sales and
                                     profits for 2006. During the first quarter of 2006, … Strong results for the fourth quarter and full
   Due to many U.S. retailers        the company believes it will implement and de- year ended December 31, 2005 resulted in Shop-
   having strong growth in Can-      ploy at least 6 new Express Pharmacy Patient, pers Drug Mart Corporation increasing its quar-
   ada last year into the Christ-    which it believes will allow it to capture additional terly dividend payments by 20% to C12 cents per
   mas season, now More U.S.         patients and expand pharmacy sales from medi- share. Fourth quarter sales increased 8.8% to
   retailers are planning to         cal campus physicians. DrugMax also announced C$1.833 billion, while comps increased 6.4%.
   open stores north of the          that it has launched a new technology platform to Prescription sales increased 8.6% to C$805 mil-
   border. In part due to the        improve sales and accounts receivables manage- lion, accounting for 43.9% of total sales, while
   positive exchange rates,          ment in its growing infusion, specialty and home comp prescription sales increased 7.2%. Net
   everyone is seeing opportu-       medical care products segments. The technology, income of C$115.1 million, or C53 cents per
   nity and putting efforts into     purchased through a licensing arrangement with share, compared to C$96.9 million, or C45 cents
   selling in Canada.                Fastrack Healthcare, Inc., is expected to help per share, for last year.
                                     accelerate organic revenue growth in these areas
                                     by greater than 50% during 2006. Finally, the … Cardinal Health, Inc. announced its Cardinal
                                     company is expanding its medical supply sales to Health connectivity Partner Program, which will
                                     physician and healthcare providers for specialty enable hospitals to improve the flow of data by
                                     pharmaceuticals and healthcare products via a interfacing Cardinal Health solutions with third
                                     greater utilization of its CRM link to its telesales party technologies. Cardinal Health has reached
                                     consultants. Each day the telesales force can agreements with several companies including,
                                     reach up to 500 new potential healthcare provid- CardioPulmonary, CliniComp, Emergin, Misys
                                     ers through its programmed interface, thus it Healthcare Systems and Philips Medical Systems.

                                    Mass Merchant Musings
                                    … Even though the stock was trading higher that       cluding the extra week comp store sales increased
                                    the $14.70 offered, Sears Holdings Corp. mailed       2.0%.
                                    out its tender offer for the remaining stock of
                                    Sears Canada at the initial offering of $14.70.    … For fiscal 2005 ended December 31, 2005,
                                    Evidently, shareholders were expecting a sweet-    Canadian Tire reported net income of $330.1
                                    ened bid.                                          million, an increase of 13.3% compared to $291.5
                                                                                       million for the prior year. Excluding non-operating
                                    … Dollar General Corporation reported that sales gains and losses, net earnings were $313.8 mil-
                                    for the 14-week fourth quarter ended February 3, lion, a 17.3% increase compared to $267.5 mil-
                                    2006 were $2.5 billion compared with $2.2 billion lion in 2004.
                                    for the 13-week fourth quarter last year. Exclud-
                                    ing the extra week in the current year’s results, … The state of Washington released a study claim-
                                    comp store sales decreased 1.6% for the quarter. ing that it cost taxpayers $12 million in 2004 to
                                    For the 53-week fiscal year ended February 3, provide government-subsidized health care to Wal-
                                    2006, sales were $8.6 billion compared with $7.7 Mart employees there. The report says that Wal-
                                    billion for the 52-week fiscal year last year. Ex-                                   (Continued on page 7)

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service
Volume 3, Issue 7                                                                                                       February 6 - 12, 2006
                                                                                                                                        Page 7

                                   Mass Merchant Musings
                                    (Continued from page 6)
                                    Mart also has the most employees on both Medi-      18 months to make them more inviting, adding
                                    caid and the state’s Basic Health Plan. By way of   touches such as faux wood floors, wider aisles
                                    comparison, Safeway, which has the same num-        and digital television display walls. The remodel-
                                    ber of employees as Wal-Mart in the state, has      ing program, which management says will not
                                    fewer than half as many of them getting subsi-      require a large capital outlay, is part of a broader
                                    dized health care. Wal-Mart contends the figures    strategy to interest consumers who are already in
                                    are flawed and outdated.                            the store for basics to buy more fashions, elec-
                                                                                        tronics, home furnishings and fancier foods.
                                    … Wal-Mart Stores Inc. plans to open more than
                                    1,500 stores in the U.S. in the coming years, on  … reported that total revenue for
                                    top of the nearly 3,200 it already operates. The  the fiscal year ended December 31, 2005 was up
                                    company is on schedule to meet an announced       63% to almost $804 million, but that operating
                                    target of between 335 and 370 new U.S. store      costs grew more significantly, increasing the net
                                    openings this year after 341 last year.           loss for the year to $25 million versus a $5 mil-
                                                                                      lion loss last year. For details of the company’s
                                    … In addition to the above, Wal-Mart will remodel fiscal results see Global’s latest “Discussion with
                                    1,800 of its existing Supercenters over the next Management”.

                                   Specialty Items
                                    … Troubled Pier 1 Imports, Inc. is offering $150    combination of cash and the company’s common
                                    million of convertible senior notes due 2036 in a   stock, at a conversion rate to be determined.
                                    private offering. In addition, the company ex-
                                    pects to grant the initial purchaser an option to   … Hancock Fabrics will close 50 under perform-
                                    purchase an additional $15 million. The notes       ing locations in 2006. Costs to close the sites,
                                    pay interest semiannually and will be convertible   including future lease payments, are expected to
                                    upon the occurrence of specified events into a      approximately $8 million.

                                   Hi Tech Entertainment
        Did You Know…?
                                    … OfficMax® Incorporated will release its fourth proximately 23% compared with year ago period.
                                    quarter and full year 2005 results on February 22, The company previously issued earnings guid-
  The Retail Sector Newsletter
  has increased readership          2006. Look for Global’s analysis soon thereafter. ance for the period approaching the high end of
                                                                                         its range of $1.06 to $1.16 per share. This out-
  each week since publishing
                                    … With November setting the record for the high- look assumes a comparable store sales gain of
  began?                            est sales month in its history, followed by Decem- 6% to 7%. For fiscal 2006, Best Buy now expects
                                    ber, which eclipsed that record, Conn’s Inc. re- earnings per share to be in the range of $2.24 to
                                    ported record sales results for the fourth quarter $2.29. The new guidance represents growth in
                                    and fiscal year ended January 31, 2006. Net earnings per diluted share of approximately 29%.
                                    sales for the fourth quarter increased 30.5% to In addition, the company expects to open 90 new
                                    $141.7 million from $184.9 million for the year stores in the next year, which will bring more than
                                    ago period, while comps jumped 22.6%. Fiscal 9,000 new retail management, sales and ser-
                                    year net sales of $620.8 million, increased vices jobs to communities in its markets. By the
                                    25.6% from $494.2 million, with comps of 16.9%. end of fiscal 2007, the company expects to em-
                                                                                         ploy more than 140,000 people.
                                    … Now providing a convenient way for consumers
                                    to comply with new California disposal require- … Office Depot will release its fourth quarter and
                                    ments for rechargeable batteries, Best Buy Co., year end results on Wednesday, February 15,
                                    Inc. consumers are invited to dispose recharge- 2006. Look for Global’s analytical insight.
                                    able batteries, as well as used cell phones and
                                    ink jet cartridges, at in-store recycling kiosks lo- … CDW Corporation held the official opening of its
                                    cated in the entryway of each Best Buy store new Western Distribution Center in north Las
                                    across the U.S.                                      Vegas, Nevada, which more than triples the com-
                                                                                         pany’s capacity for shipping IT products to cus-
                                    … RadioShack Corporation will release its fourth tomers. The facility is more than 513,000 square
     RETURN TO FIRST PAGE           quarter earnings on February 17, 2006. Look for feet, making it the second and largest of CDW’s
                                    Global’s insightful analysis shortly afterwards.     distribution centers. It has a capacity of handling
                                                                                         96,000 outbound cases of IT products each day.
                                    … Best Buy also raised its earnings outlook for
                                    the fiscal 2006 fourth quarter and year end. For … Gregg Appliances, Inc. will release its results
                                    the fourth quarter, the company expects earnings for the quarter ended December 31, 2005 on
                                    of $1.25 to $1.30 per share, an increase of ap- February 14, 2006. Look for the news release.

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service
Volume 3, Issue 7                                                                                                          February 6 - 12, 2006
                                                                                                                                          Page 8

                                    The Global World of Sports and Footwear
                                    … Footstar, Inc. received a Wells notice from the       Sales for the third quarter grew 3.7% to $99.7
                                    SEC in connection with proceedings into the facts       million, while net income of $3.0 million repre-
                                    and circumstances that gave rise to the Com-            sented a drop of 18.0% versus net income last
                                    pany’s restatement of financial results from 1997       year of $3.7 million.         See Global’s latest
                                    through 2002. The Wells notice states that the          “Discussion with Management” for a detailed
                                    SEC, as a result of its investigation, is considering   review of third quarter results.
                                    recommending that the SEC bring a civil injunc-
                                    tive action against Footstar for alleged violations     … Construction began on the new Bass Pro Shops
                                    relating to the maintenance of books, records           store in Garland, Texas. The 120,000 square
                                    and internal accounting controls. Under SEC             foot outdoor store will feature a more than 8,000
                                    procedures, a Wells notice indicates that the           square foot Islamorada Fish Co. restaurant, cour-
                                    agency has made a preliminary decision to rec-          tesy boat docks and many of the signature fea-
                                    ommend the SEC authorize the staff to bring a           tures of Bass Pro Shops stores. The store is
                                    civil or administrative action against the recipient    scheduled to open in October.
                                    of the notice.
                                                                                            … Collegiate Pacific will release its third quarter
                                    … The above reported Wells notice comes just            ended December 31, 2005 earnings results on
                                    days after Footstar emerged from Chapter 11 on          Tuesday, February 14, 2006. Collegiate Pacific
                                    February 7, 2006, the date that the company’s           owns approximately 73% of Sport Supply Group’s
                                    First Amended Joint Plan of Reorganization be-          issued and outstanding common stock.
                                    came effective.
                                                                                            … Nasdaq approved Shoe Pavilion’s application
                                    … Despite being able to see benefits in its overall     to move its exchange listing from the Nasdaq
                                    strategy of being less weather and geography            Capital Market to the Nasdaq National Market.
                                    dependent, Sport Chalet’s results for the third         The company’s shares began trading on the Na-
                                    quarter ended December 31, 2005 were im-                tional Market on February 8th. The company’s
                                    pacted by the lack of a heavy and early snowfall,       securities will continue to be listed under the
                                    as experienced in the third quarter last year.          trading symbol SHOE.

          Did You Know…?

  U.S. consumer credit rose by
  a less-than-expected $3.35
  billion in December as credit     Earnings Release Dates
  card debt dipped, while con-
  sumer credit for the full year
  posted the smallest rise         Apparel/Department Stores                                      Mass Merchants
  since 1992.                      Abercrombie & Fitch                            14-Feb          Wal-Mart Stores, Inc.                 21-Feb
                                   Too, Inc.                                      15-Feb          Dollar Tree Stores, Inc.              22-Feb
                                   J.C. Penney Company, Inc.                      16-Feb          BJ's Wholesale Club, Inc.             28-Feb
                                   Federated Department Stores, Inc.              21-Feb          Cost-U-Less, Inc.                      2-Mar
                                   The TJX Companies, Inc.                        22-Feb          Dollar General Corp.                  21-Mar
                                   Gap, Inc.                                      23-Feb
                                   Kohl's Corporation                             23-Feb
                                   Limited Brands                                 23-Feb          Sporting Goods & Footwear
                                   American Eagle Outfitters                       1-Mar          GSI Commerce Inc.                     15-Feb
                                   Talbots, Inc.                                   2-Mar          Foot Locker, Inc.                      1-Mar
                                   Nordstrom, Inc.                                 2-Mar          Genesco Inc.                           2-Mar
                                   Children's Place Retail Stores, Inc.            9-Mar          Shoe Carnival                         16-Mar
                                   Stage Stores, Inc.                              9-Mar
                                   AnnTaylor Stores Corporation                   10-Mar          Specialty
                                   Cato Corporation                               14-Mar          Guitar Center, Inc.                   15-Feb
                                   Charming Shoppes, Inc.                         15-Mar          Advance Auto Parts, Inc.              16-Feb
     RETURN TO FIRST PAGE          Ross Stores, Inc.                              15-Mar          O'Reilly Automotive, Inc.             28-Feb
                                   Hot Topic, Inc.                                15-Mar          Jo-Ann Stores, Inc.                    6-Mar
                                   New York & Company                             16-Mar          Michaels Stores, Inc.                  8-Mar
                                   Stein Mart, Inc.                               16-Mar          Kirkland's, Inc.                      10-Mar
                                   Casual Male Retail Group, Inc.                 30-Mar          Cost Plus, Inc.                       16-Mar
                                   JoS. A. Bank Clothiers Inc.                     3-Apr          Bed Bath & Beyond, Inc.                5-Apr

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service
Volume 3, Issue 7                                                                                                     February 6 - 12, 2006
                                                                                                                                        Page 9

                                   The Gain And Pain Of SOX
                                    (Continued from page 1)

                                    The overall increase in financial scrutiny, coupled with this new, up-close and personal tie between
                                    executive and the corporate information being disseminated by corporations – and the costs associ-
                                    ated with it – has sparked an ongoing debate in boardrooms across the country. In 2005, Financial
                                    Executives International surveyed 217 public companies and found that it took an average of 26,000
                                    additional staff hours and about $4.3 million to fully comply with Section 404. The SEC originally
                                    estimated the tab to be $91,000 per company. Fortunately, the initially onerous financial burdens of
                                    Section 404 are now dropping.

                                    According to a recent survey conducted by the Big Four accounting firms, large public companies,
                                    those over $700 million in revenue, will see their Section 404 compliance costs drop by approxi-
                                    mately 42% in 2006; most of it related to costs incurred in the initial year for documenting internal

                                    So, what lessons have been learned, what can be done to further streamline the compliance process,
                                    and further reduce costs for 2006 and beyond?

                                    The professionals repeatedly sound two themes: details and risk. Originally, many companies and
                                    external auditors tested every process and control, even at the transactional level. But most are now
                                    moving away from such scrutiny of routine transactions, which are considered low-risk. Instead, re-
                                    sources are being focused on the testing of mid-level or company-wide controls, putting the emphasis
                                    back into longer-term and big-picture issues by utilizing a more efficient, risk-based approach.

                                    This approach levels the playing field and adheres to capital market philosophy, by rewarding the
                                    most efficient companies and their shareholders with greater returns.

                                    Beyond the accounting specifics of SOX 404 implementation, smart financial managers are also look-
                                    ing for opportunities to leverage 404 compliance work to enhance the overall business reporting
                                    process. This is especially true of large, multinational companies that can use SOX implementation
                                    as a vehicle to gain more consistency across business functions and geographies.
          Advertise in
     Global Credit Services’        The first year of Sarbanes-Oxley was costly and no doubt painful for many, particularly for small and
      Retail Sector Weekly          micro-cap companies, but it is here to stay. In typical free-market fashion, innovative, well-managed
          Newsletter                businesses have learned how not only to navigate the daunting regulations, but also to use the new
                                    rules to improve business operations.
    For Further information,
       please click here                                                                                                        First Page

                                                                                 Key Note:

                                           Five Key Understandings About Ethical Issues:

                                           ♦     Ethics is like rocket science. It isn’t easy and doing the right thing can of-
                                                 ten be a struggle.
                                           ♦     The more vested your interest, the more likely you are to make bad ethical
                                           ♦     People can rationalize almost anything when it serves their interest.
                                           ♦     Decisions affect others. Understand how your ethics impact other people.
                                           ♦     Making ethical decisions is easier when you have people you can trust to
                                                 help you decide what is the right thing to do.

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service
Volume 3, Issue 7                                                                                                         February 6 - 12, 2006
                                                                                                                                         Page 10

                                   Urban Outfitters, Inc.: Retailer of the Week
                                    (Continued from page 1)

                                    WORKING CAPITAL
                                    Working capital continues to be driven by hefty profits, despite a fairly aggressive store expansion
                                    program. As a result, working capital at the end of the third quarter was up $87.1 million to $244.5
                                    million. Four quarters of earnings powered a $146.4 million increase in net worth as the major
                                    source of working capital. The only other source was an increase in long term liabilities of $23.2
                                    million. The principal use of working capital was an increase in PP&E of $75.9 million with a $6.7
                                    million gain in deferred assets as an additional use. Working capital represents 13.1 months of ex-
                                    penses compared to 10.7 months the prior year.

                                    FINANCIAL CONDITION
                                    The financial condition remains stalwart with mountains of liquidity and light leverage. Despite the
                                    current ratio remaining flat, it stands at a strong 2.91:1. A further illustration of liquidity is cash and
                                    marketable securities of $156.3 million versus total current liabilities of $127.7 million. Although
                                    total liabilities increased $68.8 million, net worth was up $146.4 million, and leverage also remained
                                    fairly even. Liabilities represent 38% of equity versus 34% the prior year. Inventory jumped 50.8%,
                                    way in excess of the increase in sales and inventory turn slowed from 92 days to 102 days, however
                                    this can be mostly explained by the 50 new stores added over the past two years.

                                    Cash flow from operations of $67.7 million was mainly generated from net income of $95.2 million
                                    plus depreciation and amortization of $28.5 million and an increase in accounts payable and accru-
                                    als of $27.1 million, less an increase in inventory of $71.5 million. Cash used in investing activities
                                    of $89.2 million was in capital expenditures of $78.1 million and a net increase in marketable securi-
                                    ties of $14.8 million. Cash generated from financing activities of $11.9 million was due to the exer-
                                    cise of stock options. All these activities resulted in a net decrease in cash of $9.7 million to $20.1

                                    CRITICAL ISSUES
                                    Over the past five years, top line growth at Urban Outfitters has more than tripled, as has operating
          Did You Know…?            margins, producing a tenfold gain in the bottom line. Although comparable store sales are not in the
                                    heady 30 percent range of last year, the Company is still maintaining low double digit increases.
   U.S. unemployment claims         Surely the comps and profitability increases have slowed, but having a relatively small store base,
   rose less than expected last     there is plenty of room for growth. Meanwhile the hefty bottom line allows the Company to finance its
   week in the latest sign of       expansion internally, while maintaining an impeccable balance sheet. Wall Street may not be overly
   tightening labor markets.        happy at a lower rate of growth, but Urban Outfitters remains an excellent credit risk.
   The Labor Department said                                                                                                   First Page
   that the number of U.S.
   workers making new claims
   for state unemployment           FYI for the DIY
   benefits rose 4,000 to
   277,000 in the week ended        … Richelieu Hardware Ltd. closed the acquisition      … Home Depot will release its fourth quarter and
   Feb. 4. Wall Street analysts     of Nystrom Group Inc., a Toronto, Ontario based       fiscal year end results on Tuesday, February 21,
   had forecast a larger in-        distributor which whom an agreement in principle      2006. Be sure to look for Global’s insightful
   crease, to 285,000.              had been signed in December 2005. This acqui-         analysis shortly afterwards.
                                    sition adds revenues of more than C$5 million
                                    annually to Richelieu's sales and should immedi-  … Home Depot is in talks to buy up to 49% of
                                    ately contribute to its earnings. This acquisitionChinese retail chain Orient Home for more than
                                    is Richelieu's third since the beginning of fiscal$200 million. Although no deal has been signed
                                    2006, after those of Atlantic Countertops Limited yet and the talks with Orient's parent company,
                                    (Nova Scotia) in December 2005 and Kiika Inter-   Orient Group Inc., could still collapse, Orient
                                    national, LLC (Pennsylvania) in January 2006.     Home had held talks with a number of interna-
                                                                                      tional retailers but indicated that Home Depot
                                    … Operating results benefited from its aggressive was the favorite.
                                    market and product expansion strategies for Hut-
                                    tig Building Products’ fourth quarter and fiscal … Building Materials Holding Corporation gener-
     RETURN TO FIRST PAGE           year ended December 31, 2005. Sales of ated the best results in its history in fiscal 2005
                                    $264.5 million increased 18% from $224.8 mil- as evidenced by its fourth quarter and fiscal year
                                    lion, while net income dropped slightly to $3.3 ended December 31, 2005 results. Net sales
                                    million, or 16 cents per share, compared to $3.5 increased 52% to $818 million compared to
                                    million, or 17 cents per share, due to mostly to $539 billion last year. Net income of $33.5 mil-
                                    increased operating expenses.                     lion, or $2.25 per share, increased 76% from 19
                                                                                      million, or $1.34 per share, last year.

      © 1996-2006 Global Credit Services, Inc. All rights reserved. By using this site you accept our Terms and Conditions of Service

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