A recent visit with Bob Evans (BOBE) management gives us confidence that the company has created a new trend line for growth and earnings. As a paradigm changing company in restaurants they have become a thought leader with a faster entry than other restaurants in the fast casual market. Unlike others starting new concepts, BOBE had the foresight to design take out and bakery into the new store concept in effect creating a fast casual concept while substantially increasing their in house dining experience. The concepts have been so successful and improved same store sales that they have accelerated all stores to be completed in their refresh($225,000 per store) in the next 12 months. Then new store builds will accelerate $2-2.5 mil per store).

In the food segment regional expansion with the newly market leading side dishes has increased velocity of sales for customers. By concentrating on the meat section and breakfast day part in frozen foods the focus has moved away from a primary emphasis on sausage to create double digit growth in their food business. Plant expansion and the vertical integration acquisition of Kettle Creations gave both capacity and margin expansion opportunity. New product introductions into the meat cases of more side dishes in expanding regions give them both a proprietary and somewhat protectable market position. Look for more pasta and rice dishes and addition to the breakfast mix in the freezer case(including sausage).

At multiple roundtables we have hosted the fast casual model has been identified with improving penetration and market share. The Bob Evans off premise focus and the home meal replacement are the focus of the new carry out, bakery and catering offerings. This further leverages the real estate of restaurants like few others in the industry can follow. Day parts are almost even at the restaurants giving them unique opportunities with virtually any new menu items. Combined with a fast growing and distinct food product space Bob Evans is a unique paradigm offering in the packaged food/restaurant space.

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Back-to-school is the second most important shipping season each year but it will be more important than ever for struggling retailer JC Penney especially after the recent rumor that the company was facing serious credit issues. One potential indicator that Penney is getting its business turned around comes from new research by Experian Marketing Services that shows the chain’s website as second only to Walmart’s for back-to-school shoppers. Last year, Penney didn’t even crack the top 10. The chain is touting its new Joe Fresh line for kids and emphasizing discounts on popular own-brands such as Arizona jeans and shirts. Dick Seesel isn’t sold on JCP’s expectations this back-to-school season stating, “I’m skeptical about the Experian data and would like to see other studies backing it up. Just to cite one example, it’s hard to see why Target—a much bigger company with a more robust business in BTS categories—would be surpassed by JCPenney in its recovery mode. The JCP turnaround story (and stock price) was unfortunately clouded yesterday by apparently incorrect reporting about credit issues. (Inaccurate reporting and the New York Post…enough said.) There is evidence that JCP traffic counts and comp sales are starting to improve against terrible 2012 comparisons, but there is also evidence in the stores that the company has a long way to go. Outside of a few pockets of merchandise strength, such as school uniforms, there is not enough conviction in areas like dorm room supplies, even in much-touted areas like the new Home Store.” To read the full article please visit http://www.retailwire.com/blog-post/e9b22de4-02f5-4e89-87d2-579d45f478c6/does-back-to-school-represent-a-turnaround-for-penney.

 
Dick Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry. During his 24 years at Kohl’s, Dick managed the Women’s Accessory, Jewelry, Cosmetics and Intimate Apparel businesses. Prior to Kohl’s, Dick worked for Dayton’s Department Stores (Minneapolis, MN) and his family’s retail business. Dick will be participating in our Retail Roundtable in New York on August 15th at 2 PM ET and if you would like to attend or dial-in to the event please contact info@roulstonresearch.com.

On July 16th, Roulston Research held a retail roundtable with former retail executives Gary White and John Kyees. Gary White is the former CEO at United Retail Group, former CEO at Gymboree, Former COO at Wet Seal, and Former Vice President at Target; John Kyees is the former CFO at Urban Outfitters and Former CFO at Bebe Stores. They got together to discuss current trends in the retail industry, as well as how specific companies are positioned in regards to each other.

The discussion started with the recent tragedy in Bangladesh, where a clothing factory collapsed, killing over 1,000. Due to this accident, many companies are looking to move production of their products away from Bangladesh, to places like Vietnam or China. This is causing a lot of motion as to where supply will be coming from, and could cause some product shortages during the fourth quarter. These shortages likely will affect smaller companies more than larger ones, who have significant supplier diversification. As a result of the general economic and political uncertainty in the U.S., inventories from these firms will likely be small, which also will be impacted by the Bangladeshi tragedy, and will likely cause overall slow sales. On the domestic sales side, companies compete on two fronts: fashion, and price. On the fashion side, American Eagle is struggling more now than in the past, as their clothes are increasingly too “preppy”. Similarly, Gymboree is having some issues, as they are trying to market to an older group, rather than their core market of the under 4 age group. On the pricing side, Forever 21, Gap, and Macy’s are all doing very well by offering products similar to their competitors like Wet Seal, Gymboree, and J.C. Penney’s, only at much lower prices. J.C. Penney’s especially has lost a large portion of its customer base, as business appears to have lost direction. Many of their customers have moved to other stores including Stage Stores, TJ Maxx, and Nordstrom. Other companies discussed include Target, Urban Outfitters, Abercrombie and Fitch, and others. If you would like to hear the whole podcast, or engage in a 1 on 1 discussion with either Gary or John, please contact info@roulstonresearch.com.

The Earnings Scout offers customized reports that provide a unique view of underlying earnings trends that will help active managers exploit market inefficiencies.  Contact info@roulstonresearch.com to learn more on how they can create tailored reports so you can maximize your risk-adjusted returns.

  •  The drug retail industry in the S&P 500 consists of two companies: CVS Caremark and Walgreens.
  • The industry accounts for 0.76% of the S&P 500 index.
  • In 2012, the drug retail industry outperformed the consumer staples sector (18.52% vs. 10.76%) and the S&P 500, which returned 16.00%.
  • In 2013, the industry is outperforming the consumer staples sector (26.94% vs. 18.38%) and the S&P 500, which has a total YTD return of 17.19%.
  • Will the outperformance continue?
  • While we do like the industry long-term, some near-term headwinds are arising.
  • Clearly, the rate of positive change to industry earnings estimates has been decelerating in 2013 and is likely to turn more negative into the 2H of 2013.
  • As such, stock prices for the group are expensive.
  • We recommend booking profits and re-deploying the proceeds into an industry with more favorable earnings trends.

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2Q 2013 Drug Retail Earnings Estimates
Company

Expected

Report Date

2Q13

Estimate

2Q13 Est.

(90 days ago)

90 Day

Estimate Change

CVS Caremark

8/6/2013

$0.96

$0.93

3.23%

*Walgreen

6/25/2013

$0.74

$0.82

-9.76%

Source: The Earnings Scout
*Walgreens already reported 2Q13 results and their figures shown above are their 3Q13 EPS estimates and how they changed from 90 days ago

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There has been quite a bit of discussion recently about whether Walmart’s comparison ads running in markets across the country are working or not. While most consumers are skeptical about price comparisons, the campaign appears to be driving share for the retailer. Dick Seesel has mixed feelings about the long-term viability of the strategy stating, “There is a lot of “fine print” (at least in the newspaper versions of the Walmart vs. Roundys ads running in this market) that would cause skepticism about the campaign. In particular, it’s hard to tell (especially in the TV spots) whether Walmart is doing an exact comparison or cherry-picking the items on both “tape totals” to slant the outcome. If you read the disclaimers, you’ll see what I mean, but there is no doubt that the campaign is working. The price comparisons may be driving share in food and consumables but do not appear to be moving Walmart’s overall sales and margins in the right direction. The focus on the lowest-margin businesses in the store may be counterproductive in the long run.” To read the full posting please visit  Dick’s blog at http://retailinginfocus.wordpress.com/.

Dick Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry. During his 24 years at Kohl’s, Dick managed the Women’s Accessory, Jewelry, Cosmetics and Intimate Apparel businesses. Prior to Kohl’s, Dick worked for Dayton’s Department Stores (Minneapolis, MN) and his family’s retail business.

Sourcing has become an increasingly important issue for retailers due to a tightening of geographic choices. This is causing worldwide cost increases since choices are decreasing while costs are rising due to less options. The recent developments in Bangledesh where there are major safety concerns that are causing retailers to consider dropping sourcing from the country for fear of legal issues after the April collapse of the Rana Plaza complex factory in Dhaka which killed 1,129 people. China will always have supply but quota and tariffs become a larger issue. Retailers like Gap, Target, and Wal-Mart source in emerging markets like Pakistan, Vietnam, and Cambodia but these countries have limitations continuing to make sourcing more challenging. Quality can’t be found everywhere as only certain products can come from certain locations and fabrics can be costly to stage adding to costs. This makes sourcing opportunities challenging. If price isn’t an issue quality and capability can become the issue. Not all countries can make all products at the same cost or same quality required to make the product sellable or the margin level acceptable. Stay tuned there is more to come.

Gary was the CEO of United Retail Group from 2008 to 2010, a 500 mall and strip-center based chain of specialty stores.  He successfully executed a special turnaround, helping move a recently acquired company from public to private, reduce its losses and grow the business. Prior to United Retail Group, Mr. White was the COO and Executive VP at The Wet Seal, where he returned the company to profitability from large losses.  He was the CEO of Savers, Inc for 3 years prior to Wet Seal and the CEO of Gymboree for 4 years.  He spent 16 years at Target in the beginning of his career, moving from a store manager to Vice President Regional Manager – West. If you would like to speak with Gary about this topic or how it will affect individual retailers on a 1 on 1 basis please contact Tom Roulston at (216)780-9581 or tom@roulstonresearch.com.

Nordstrom announced last year that they are looking to double the number of Nordstrom Rack Stores by 2016 while continuing to grow through ecommerce. Despite the expansion, both stores have been able to coexist peacefully with 60% of customers shopping at both the rack and its flagship stores even though rack shoppers are skewed toward the younger audience. Dick Seesel is optimistic on Nordtrom Rack’s growth stating, “Rack stores have some of the hallmarks of Nordstrom stores—plenty of “better” apparel and especially dominant shoe departments compared to the competition—but nobody would mistake the presentation in these stores for a full-line Nordstrom store. I would rank the “store experience” somewhere between a TJMaxx and an Off 5th store, where Saks has taken a more distinctive position on presentation and product development. Rack outlet stores are an important growth vehicle as Nordstrom continues to be very deliberate in the expansion of its anchor department stores. And the credibility of the Nordstrom brand allows the outlet concept to expand into virtually any city, even those who will never see a full-line store being built.” To read the full posting please visit http://www.retailwire.com/blog-post/597a53d1-9285-4012-a1e7-60c6786e6a7b/how-high-is-nordstrom-racks-ceiling.

Dick Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry. During his 24 years at Kohl’s, Dick managed the Women’s Accessory, Jewelry, Cosmetics and Intimate Apparel businesses. Prior to Kohl’s, Dick worked for Dayton’s Department Stores (Minneapolis, MN) and his family’s retail business.