The Jewelers Board of Trade September 18, 2009
Frequent Inquiry Report page 5
Financial Embarrassments page 5
Current Items of Interest page 5
Rating Changes page 7
Additions to Red Book page 10
now; but Costco saw a 2% decline sharp increase in shoplifting and
and BJ’s Wholesale Club fell 6%. employee theft, up about 7% in `08
according to Jack L. Hayes
The department store segment saw International’s annual Retail Theft
continued weakness with declines of Survey (wwd.com 9/2/09). The value
about 20% at Neiman and Saks, 8% at of goods shoplifted increased about
Nordstrom; 12% at Dillards, 8% for 30% and employee theft rose 3%.
Penney and Macy’s and 5% for Bon An NRF/U. Florida study put the total
Ton. losses just under $37 billion for the
companies it surveyed. Electronics and
One bright spot – the drugstore luxury goods are the most popular
By: Dione D. Kenyon, President, JBT
segment, where traffic is pretty much
guaranteed and innovative operators
like CVS who has increased its focus on
categories: J.C. Penney recently
reported the loss of significant amounts
of jewelry from Texas and Louisiana
August Industry Overview beauty products, have seen good stores from what appeared to be a
results. As a segment this group saw well-organized string of robberies.
Retail Overview: a 4%+ increase in comps for August.
CIT Group Inc., an important
August comp sales fell just under STORES Magazine (September 2009) lender/factor to the apparel industry
3%; not as poor as July’s 5% drop. reported on research from Shop.org and many small businesses continues
There was pretty much no merchandise and Forrester’s Online Q2 survey to struggle, announcing on 9/2/09 it
category left unscathed, but results and “State of Retailing On-line” would defer a $23 million interest
continued to vary by retailer segment. including the following: payment due 9/15/09 to preserve
liquidity; the deferral is permitted under
The New York Times (9-2-09) carried - Average quarterly sales growth the terms of the notes.
a quote from analyst John D. Morris for retailers surveyed was just
of BMO Capital Markets who said under 12%, suggesting increasing WWD.com (8/27/09) reported on a
retailers are… “learning the native market share for this sales recent study on retail published by
tongue of the new consumer…It’s not channel. Granton Thornton LLP, as follows:
only that you need to dangle value in - Free shipping is an important
the face of the consumer…(he is) bored competitive advantage. - Continued consumer migration
with the same old promotions. The - Top five areas of focus for on- from bricks and mortar to on-
smarter companies are…changing the line retailers are checkout line.
marketing message.” process redesign; richer - Online jewelry/watch sales
product content pages; decline in `08 of 34% overall, yet
Discounters continued to do enhanced search; home page only 24% for the online sales
relatively well with TJ Maxx leading design and help functions. segment.
the pack, up 5%. Both Target (-3%) - Forecast U.S. online retail sales - Sustainability, customer service
and Kohl’s (flat) were reported to are $229 billion in 2013 based and online marketing are key
have increases in traffic that haven’t yet on a 10% compound annual retailer success factors.
moved their comps into positive growth rate of 10% each year
territory, but are expected to drive beginning in 2008. On the economic front, despite
better results this Fall. consumers’ increased urge to roam the
As if retailers didn’t have enough retail space, there remain formidable
Wal-Mart reports only quarterly problems, they are confronting a obstacles to a resumption of
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spending. Unemployment rose - The online/catalog of its unrestricted cash) to fund
to 9.7%; prime borrowers are segment saw a lesser its operations for the six months
now defaulting on their revenue decline at 18%. ended 8/1/09.
mortgage debt at a greater rate - For the `09 fiscal year - To address its liquidity needs
than sub prime ones; gold Neiman generated a the Company continues to
reached the $1,000 mark as $668 million loss vs. $143 work on initiatives to increase
overseas investors shifted their million of income in `08. profitability, is considering
sights away from the U.S. dollar on - Private equity funds potential sale of its Boston TV
concerns about the alarming rate of Warburg Pincus LLC and station and other real estate
increase in America’s debt. A 10% TPG Capital own Neiman. assets, and is in the process of
annualized decline in consumer - Recall that Moody’s rated negotiation for an asset-backed
spending for July exceeded forecasts Neiman “Caa1” or line of credit.
and dampened expectations for a “subject to very high credit - Extended payment terms from
consumer led recovery. Credit risk” before these results Vendors are being used to
conditions (Banks’ decreased were released. fund the asset conversion
willingness to lend and tighter credit cycle (inventory – receivables –
terms) are a continued damper on Belk Inc. reported a 15% increase cash). As a result, payable days
growth. And the Conference in net income to $9.4 million for have increased by 20% year-
Board, reporting on August trends the quarter ended 8/1/09 on an over-year.
forecast a flat jobs picture through 8.3% decline in net sales to $760 - Shop NBC has average annual
year end. million and a 9.4% decrease in required cash payments of
comps. Tighter management of approximately $50 million from
2009-2012 for cable/satellite
Globally, manufacturing output inventories and expenses helped to
seems to be picking up steam put the Company in the black. agreements and operating leases.
even in the U.S. which recorded a - The Company’s accounts
4 point increase to an index of Valuevision Media, Inc. (Shop receivable have grown as a
52.9; China saw a .7 point NBC), which released its 8/1/09 result of “increased use of our
increase to 54.0; and the Euro results (6 mos) in August, supplied ValuePay extended credit as a
zone rose 1.9 points to 48.2. The additional disclosures in its 10Q: promotional tool to stimulate
sales”; this comes with potential
U.S. increase passed the all
important 50 point threshold for the Jewelry sales dropped from $118 risk should customer payment
first time since January `08, paper million to $58 million; this delinquencies increase.
and printing products; apparel and category fell to 24% of total sales - And from the Company’s
textiles were categories of strength. vs. 41% a year prior as the discussion of “RISK FACTORS”,
Inventory re-stocking and Company sought to increase the “If we are not able to attain
government stimulus programs diversification of its product mix. profitability and generate positive
account for some of these upticks. cash flows from operations or
The IMF recently revised its forecast - Overall sales declined 15% obtain cash from other sources,
we may not have sufficient
for global economic growth in 2010 to $253 million.
to about 3%, up from 2.5% - Watches, coins and liquidity to keep operating.”
previously. collectibles, and consumer
electronics were growth Jewelry Industry:
Major Retailers: categories and represented
33% and 23% of total sales. Diamond industry analysts are
Neiman Marcus Group Inc. - The Company’s principal commenting increasingly on the
reported on its fiscal Q4 (8/1/09) source of liquidity is its disconnect between activity in rough
as follows: cash, totaling $36 million at (fueled by suppliers pushing goods
- $168.5 million loss vs. 8/31/09; with $8.5 million into the market) and “pull” for
$35.6 million in’08. restricted; “As a result of our polished goods on the consumer side,
- $143.1 million vs. $31 recent and continuing especially in the U.S. One analyst
million in “impairment” operating losses, it is possible suggested there is about $700 million
charges. of excess (not sold) in recently
that our existing cash…may
- 25% decline in sales to polished goods awaiting sale as we
not be sufficient to fund
$768 million; comps embark on the Fall selling season.
down 23%. Seems like an imbalance in supply and
commitments as they come
- 23% reduction in demand….
due beyond fiscal 2009 and we
inventories. may need to raise additional
- 24.1% gross margin; Members are telling us they saw a
down from 30.5% Q4`08 modest uptick of business in the
- The Company used about
and 40% in Spring `08 as summer months; but August was
$29 million (or the equivalent
markdowns took their toll. somewhat soft.
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The industry banking situation pending resolution of accounting associated with renegotiation
is still very difficult, even issues around prepaid advertising of its credit agreements in
companies with strong balance costs/prior period expenses. March of `09. Signet
sheets and low reliance on debt experienced increased pricing
are finding their bank deals (if Signet Jewelers Ltd. and covenant amendments as
they can keep them) priced announced results for the half- well as $6 million in fees and
upward with tightened covenants year ended 8/1/09 as follows: costs associated with this
and a “take it or leave it” As renegotiation.
often happens in financing cycles, Same store sales down 7%. - Walker Boyd, longtime
things got way too loose and Finance Director, will retire
liberal; now lenders have Pre-tax income of $80 million – in June 2010; a search for his
moved to the opposite down 1.6% (before one-time successor is underway.
extreme; those who will fare best charges).
are those who can self-finance as Tiffany & Co. announced its Q2
much as possible, tough for an Total sales decline of 7.4% or and 6 mos. results through
industry with high investment in $1,473 million, adjusted to a 7/31/09, including lower sales and
inventories. decline of 2.2% at constant earnings but “exceeded
exchange rates. expectations’ of management”:
One member said that being
forced “to become lean” over UK and US comp declines were - Net sales for the six
the past two years is serving roughly even, down 4%. months fell 19% to $1,130
the Company well now – it million. Comps, adjusted for
takes less sales to drive While operating income exchange rates fell 18%.
profitability, and the better increased about 19% to $99 - Net earnings from
independents are starting to “turn million, Signet offset $10.5 continuing operations of
up” their business. million in non-recurring relisting $84 million fell 44%.
costs with a $10 million benefit - U.S. comp store sales
Companies that can combine a from U.S. vacation policy changes. dropped 30% with branches
high level of creativity with down 29%, NY flagship down
low price points seem to be The Company improved its 36% and Internet/catalog
getting a good share of the cash/leverage position taking down 12%.
business to be had right now. net debt down by $270 million - Asia-Pacific (ex-Japan) was
vs. a seasonal increase of $60 strong with a 5% decline.
DeBeers has a new diamond million a year prior, reflecting - Europe saw overall sales
jewelry design concept called tight working capital (inventory) growth due to new store
the “Everlon Diamond Knot”, management; no shareholder openings; on a comp. basis
ready for Fall promotion. Retailers distributions and earnings from sales grew 4%.
and sightholders who want access operations. - Wholesale diamond sales
to this product campaign will fell 72% to $9 million.
need to “participate” financially in - Average sale price - Gross margins declined to
the cost of the promotion, declined 7.3% in mall 55.5%, down 200 basis
reported to roll out to consumers brands and 9.2% in Jared. points on higher product
in mid-November. Everlon is a - U.S. net store space is costs.
follow-up to previous campaigns expected to decrease 2% - Interest expense increased
such as Journey, right-hand rings in 2010, including closing 75 due to increases in rates and
and three-stone jewelry. mall stores as leases expire. amount of debt.
- Because over 50% of Signet - Net inventories, although
WWD.com (8/31/09) reported on stores are held by U.S. down 4% since the start of
a new Star of Africa ring residents, as of 1/31/10 the fiscal year, increased 2%
collection rolled out by Royal Signet will file its SEC reports year-over-year.
Asscher with stones “floating” in as 10K and 10Q. - Cash more than doubled to
a snow globe configuration. The - Signet’s Board assessed $334 million; about 60% of
line’s proceeds are reportedly no material change in the this increase came from
earmarked for the benefit of Company’s expected increased debt to $752
children in Sierra Leone, Africa. principal risk factors for the million.
balance of its fiscal year (to - Leverage (debt: tangible net
Jewelry Retailers: 1/31/10). worth) has increased from
- Leverage has declined .90x at 1/31/08 to 1.10x.
Zale Corporation has twice from .77x to .62x on
postponed its quarterly (Q4 and reductions in debt, $100 Blue Nile is revamping its
full year ended 7/31/09) earnings million of which was website for the first time in 10
call and results announcement years with the goal of attracting
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more female buyers; recall that (Palm Beach, NY-Madison, Aspen) these are secured by all assets
the Company’s initial target and will open new doors in Dallas, and cross-guaranteed by
market was the male engagement Las Vegas, and San Francisco. Movado’s affiliates. At 7/31/09
ring customer. Other changes Veronica McMahon Trenk was the Company had $8.5 million of
include improved imaging to more named managing director of unused availability under this $55
realistically represent the product Bulgari U.S. million facility which is subject to
and an easier to navigate one- a number of covenants.
page engagement ring building Richemont reports a 16% (21%
page with adjustable size scales. at constant exchange rates) Bankruptcies/Failures:
The Wall Street Journal (9-1- decline in sales for the five
09) reported that months ended August 31. The next milestone in the Finlay
Expectation for the six months bankruptcy remains the auction of
Blue Nile estimates it has added thru 9/30/09 are for lower its assets later in September.
1% market share (U.S.) for profitability as well. The Asia
engagement rings in the past six market (ex-Japan) is holding its Whitehall Jeweler’s intellectual
months to get to a cumulative own, up 5%. According to a property was auctioned to Bidz.com,
5.5%. Wall Street Journal (9/10/09) Inc., Culver City, CA on September
report, Richemont management is 16, 2009. Bidz now owns the
Jewelry Manufacturers: not certain “the worst is over for trademark registrations and domain
its markets”. The article names for Whitehall Jewelers,
On 9/1/09 Lazare Kaplan commented that the Company is Lundstrom Jewelers, Marks Brothers
International Inc. filed a rich in cash ($1.19 billion) and and White Star Private Label, as well
Notification of Late Filing form expected, longer-term “to play a as customer mailing lists with more
12b-25 with the SEC stating it role in any industry than 800,000 names, addresses and
was unable to file its Annual consolidation…(but) so far…is transaction numbers.
Report on Form 10-K for Fiscal struggling to find any interesting
2009 without unreasonable effort targets.” JBT Statistics/Updates:
and expenses, primarily due to its
inability, at this time, to resolve Movado Group, Inc. After two months of modest year-
announced six-month ended over-year increases, credit inquiries
a material uncertainty
concerning the collectability 7/31/09 results, including: tanked in August, down about
and recovery of certain assets - Net sales decline of 32% 11%. Year-to-date reports ordered
and the Company’s potential to $157 million. are off 9% vs. `08.
obligations under certain lines of - Gross margin decline from
credit and a guaranty, and the 64% to 57%. Listed accounts of 29,960 declined
Company is unable to assess the - 28% decrease in operating 2.3% year-over-year and broke
potential effect the ultimate expenses. through the 30,000 mark. Year-to-
resolution of these matters will - Operating loss of $8 date business failures of 80 are just
have on the financial position and million vs. income of about about double the level of `08. Total
results of operation of the $13 million in `08. discontinuances of 1417 are up
Company. The independent - Cash decreased from $84.5 56% (vs. 906) year-over-year.
auditors have advised the million at 7/31/08 to $47
Company they will not be able to million after approximately
deliver an unqualified opinion $40 million in debt Opinions expressed are those of the writer
with respect to the Company’s reductions and a $10 million and not necessarily those of The Jewelers
Fiscal 2009 financial statements as increase in inventories to Board of Trade and no liability is assumed
a result. Lazare further reported by either writer or JBT for any damage that
may be said to arise on account of reliance
“In light of current adverse - The balance sheet remains at on such opinion. Information is obtained
market conditions impacting the low leverage at .30x from sources cited as indicated and no
Company and the global diamond tangible equity, down from independent verification is attempted with
and jewelry industry…the about .40x a year prior. respect to any such information, and no
Company anticipates that its - On a segment basis the U.S. liability shall be imposed upon the writer
reported results of operations for market generated $15.3 or JBT on account of any inaccuracy.
Fiscal 2009 will reflect significant million in operating
changes from the fiscal year losses, offset by $7.4 million
ended May 31, 2008…” The in income from International.
company anticipates net sales of - Movado recently
approximately $192 million for renegotiated its credit
Fiscal 2009 vs. $370 million for agreement with Bank of
Fiscal 2008. America and Bank Leumi;
Bulgari closed three U.S. stores
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