This morning, Macy’s announced that Finish Line-branded athletic footwear shops will be opened in more than 450 Macy’s department stores in the U.S. and online at macys.com beginning in Spring 2013. Deutsche Bank believes that the the partnership is a positive for M shares. Given the recent excitement surrounding the ‘store within a store concept’ at competitors, like J.C. Penney Company, Inc. (NYSE:JCP), they believe M has made a sound strategic decision to partner with a leading footwear retailer which will provide a broader and specialized assortment within this category, adding ‘newness’ to its footwear offering through a much broader assortment of the fast-growing athletic footwear category than M (or any department store) would likely have attained on its own.
Finish Line Inc (NASDAQ:FINL) Will Provide Shops and Assortments In Store & Online On the specifics, 450 plus locations within Macy’s, Inc. (NYSE:M) will be operated by Finish Line Inc (NASDAQ:FINL) as leased departments. The rollout of these Shops will begin in Spring 2013 and is anticipated to be completed by the Fall of 2014.
At the remaining Macy’s, Inc. (NYSE:M) stores that carry footwear (roughly 225 locations), Finish Line Inc (NASDAQ:FINL) will manage the athletic footwear assortment and inventory beginning in Spring 2013, without the staffing or branding provided in the leased departments. Athletic shoe assortments selected by Finish Line Inc (NASDAQ:FINL) also will be available on macys.com beginning in Spring 2013. Finish Line Inc (NASDAQ:FINL) will also be Macy’s, Inc. (NYSE:M) exclusive partner for men’s, women’s and kids athletic footwear and Macy’s, Inc. (NYSE:M) will be the exclusive host for Finish Line-branded in-store shops.
In other Footwear news, NIKE, Inc. (NYSE:NKE) has reported earnings.
NIKE, Inc. (NYSE:NKE) reported EPS of $1.27, above consensus estimates of $1.12. Sales grew 10% versus estimates of 7.6%, gross margins declined 80 bps versus consensus 106 bps estimate, SG&A rate 30 bps better than expected. Other income and lower share count added $0.04 and $0.01.
The Positives: 1) Sales and EPS beat. 2) GMs beat guidance for the first time in 4 quarters and improved sequentially. 3) Futures remain strong in North America, Emerging Markets, solid in Europe, and improved in Japan. 4) inventory growth = sales growth.
The Negatives: 1) China futures of -6% were worse than feared. There is also no clarity as to when conditions should improve. Industry sources have stated they thought at least a year (some think 2-3 years). Morgan Stanley Analysts believe Nike is taking steps to address the problem but margins in the area are still at risk. Margins contracted 360 bps on 13% revenue growth in 1Q; 2Q should be worse given the negative revenue outlook.
2) 2Q gross margins expected not to show an improvement from 1Q, leading to guidance below consensus (FY guidance relatively unchanged however gross margins now expected to be flat versus up slightly).
China the Focus – But the Rest of the World Helps
Offset.
Morgan Stanley believes that investors will continue to focus on China, but the strength in NIKE, Inc. (NYSE:NKE)’s other regions (most notably US and Emerging markets) will help to offset pain in the region during its adjustment stage. The question remains: How long will it take to turn China around given 1) industry inventory issues 2) changing consumer tastes and 3) evolving retail environment.
Disclosure: Long J.C. Penney Company, Inc.(NYSE:JCP) no other positions in any securities mentioned
