Fossil 2Q16 Earnings Call Notes

Fossil Group (FOSL) Kosta N. Kartsotis on Q2 2016 Results

Wearables launch will be the biggest we’ve ever done

” the wearables launch we’re doing there is one of the biggest launches we’ve ever done. There’s going to be huge amount of awareness, PR, advertising, celebrity input, social media, digital, video. It’s going to be very significant, and we’re expecting that could change the direction pretty quickly.”

The smart watches are going to get better

“One other thing to keep in mind is not only on display smartwatches but on hybrids and also trackers, because the technology is going to get better and better, it’s going to get smaller, more efficient, better battery life. The display smartwatches will get smaller which will enable them to fit on a female brand. They’re going to be untethered at some point, a huge amount of innovation and technology is going to make these products even more compelling to more brands, and it’s a very significant opportunity.”

Gregory A. McKelvey – Executive Vice President, Chief Strategy Officer & Chief Digital Officer

Launching a large number of wearables over the next three months in two waves

“The next three months are really going to amount to unprecedented launch in wearables. So we’ll have eight brands across three product categories, 100 SKUs, 40 countries, 20 languages, all launching in the next three months. You’ll see that in two waves. The first wave will be Fossil and Michael Kors smartwatches on Google’s Android Wear platform. Those will hit the market at the very end of August and early September.”

“Our wave two comes later in September and in October, some early November. And what we’ll see there is hybrid smartwatches and trackers across eight brands, so Fossil, Michael Kors, kate spade new york, Armani, Diesel, Misfit and Chaps by Ralph Lauren. And what we’re doing there is with hybrid smartwatches we’re adding the Misfit technology into traditional watches that people love today. ”

Under Armour 2Q16 Earnings Call Notes

Under Armour (UA) Kevin A. Plank on Q2 2016 Results

Great brands are storytellers

“Great brands are iconic and inspirational storytellers, especially where product meets the consumer. For Under Armour, an important piece of that story is the retail experience we create and drive with our own brand houses.”

Talking about universities as part of key markets

“We recently signed two sports marketing deals with great iconic brands in key North American geographies, specifically Los Angeles and the Bay Area. Bringing both the UCLA and Cal Berkeley athletic programs into the Under Armour family raises the profile in California that we already have through great partners in sporting goods, mall, as well as existing and even new department store partners like Kohl’s, which has over a 100 stores in California. This is a great example of how we are thinking all the way through, all the assets that we could bring to bear to get after the opportunity in that very, very key market.”

Big shift in the workplace to casual and comfortable

“We also recognize that I think there’s a shift that’s happening in the consumer workplace right now, and I don’t know how many people in the call have people in their offices that are wearing suits and ties. And so there’s this massive shift to casual and comfortable, and I think what we’ve done to establish our brand is that our shirts aren’t just – they don’t just look great, but they actually do something.”

We need to meet the consumer at the transaction, which is shifting

“I think as we think about what defines the brand, our job is to be iconic, and the consumer’s going to have places where they choose to interact with our brand, where they choose to purchase our brand. Our job is to meet them at that transaction. And one thing we know is certain, particularly we’ve learned over the last 12 months or even shorter than that is that moment in time, that place will always be shifting. And so we need to be ready for that. We need to be prepared for that.”

China is writing the script of e-commerce

“And the other thing is our eCommerce over there. Our eCommerce in China has basically exploded for us as well. And so this is not just a bricks-and-mortar story. And frankly, China may actually end up being the palette that we’re able to write the script of what is that balance. Because I think, one of the questions that everybody is having in this space right now is, where – some of our competitors specifically, they talk about the power of their growth in terms of the number of retail stores. I think that’s one indicator for it, but I’m not sure that all the retail stores that are open today are going to be open in the future.”

JC Penney at Piper Jaffray Conference Notes

Marvin Ellison – CEO

The consumer is in pretty positive shape

” what we’ve determined pretty consistently is that the consumer is in a really positive shape from a financial standpoint. The consumer tells us that their wages are up, their job stability is better than it’s been in many years. They have price appreciation in their home. They have more money in their savings accounts than they have had quite a while and energy prices although up are still down relative to last year. So overall, the consumer is telling us, they feel really good about their personal economic position.”

Consumers are also telling us that they are pulling back on spending because of some of the uncertainty that may exist

“What they’re telling us is that they are pulling back a little bit on apparel related spend because they are spending more on experiences and entertainment but also because of some of the uncertainty that may exist in the broader macro that they can’t predict.”

The JC Penney of 2010 will not win in 2020

“one thing we’re pretty sure of the J.C. Penney of 2010 will not win in 2020. That business model can’t work for the future. There are elements of that business model we are very confident that can work and specifically that element is private brands. It’s a huge competitive advantage that we have as a Company?”

Online is only a modern view of what catalogue was 50 years ago

” we had to create a true omni-channel experience. I know the omni-channel term is overly used in retail but for me it’s very appropriate because JCPenney was once a dominant catalogue retailer. So, you could argue that JCPenney was one of the first omni-channel retailers between brick-and-mortar and catalogue. And online is only a very sophisticated modern view of what the catalogue was 50 years ago. And that was totally lost in the leadership transition and change in philosophy.”

Lululemon 1Q16 Earnings Call Notes

lululemon athletica’s (LULU) CEO Laurent Potdevin on Q1 2016 Results – Earnings Call Transcript

Revenue +19%

While store traffic comps wasn’t as strong in Q1 as in Q4, we delivered a total revenue increase on a constant currency basis of 19%, driven by an 8% combined comp, the result of continued positive comps in our stores and e-commerce growth in the high teens.

Sponsoring Canadian beach volleyball team

This summer will mark the first Olympic Games where lululemon has partnered with Canada’s beach volleyball team, to create one of a kind equipment designed specifically for them. The custom gear was developed with real-time feedback from the athletes of the Canadian women’s and men’s Beach Volleyball Team. Rigorous testing on-court and in-house at lululemon’s white [ph] space, resulted in the ultimate designs that will allow the athletes to perform at their best, without distraction, while looking fantastic.

Square footage growth of 18%

in Q1, we opened two new lululemon stores along with six new ivivva locations. This supported our total square footage growth in Q1 of 18%, keeping pace throughout our 12% annual goal.

Stuart Haselden

Ecom penetration was flat but no red flags

Hey Sharon, it’s Stuart. So yeah, the e-comm growth, still double digits, high teens. We are not going to feel bad about that. It is a little lower than what we have seen last year. We feel like the penetration has the potential to go well above 20%; easily could reach 25% to 30%, I think we talked about that in our five year goals. I would expect, as the digital team is able to ramp up the full impact of our full web site, as we are able to bring online, particularly in the second half of the year, the full capabilities of our CRM efforts. We are going to see healthy trends in that e-comm sales trends, and would expect penetrations to increase over time. And so, we are not seeing any red flags per se, in the Q1 results.

Traffic trends improved in last couple of weeks

the traffic was softer in the first quarter versus what we saw in Q4, and it was softer late in the quarter as well, and that persisted in the first couple of weeks of May, in Q2. We have seen the traffic trends improve in the last couple of weeks.

Kors FY 4Q16 Earnings Call Notes

Michael Kors Holdings’ (KORS) CEO John Idol on Q4 2016 Results

Building on omni-channel

“We continue to build upon our omni-channel capabilities and remain focused on seamlessly integrating the customer shopping experience across all touch points, as well as taking steps to enhance our mobile shopping experience. We look forward to seeing the benefit of these efforts over the coming year.”

Expect to be challenged by a difficult retail environment

“In fiscal 2017, we expect our results to be challenged by a difficult retail environment, pressured by weak traffic and tourism trends. We will respond by carefully managing our exposure to the U.S. wholesale channel, maintaining disciplined inventory controls, and remaining committed to our relentless focus on designing world class fashion product driving brand engagement with compelling marketing programs and delivering a jet-set luxury shopping experience in our stores and our digital flagships.”

It’s flat out not true that our brand is losing its vibrancy

” Our customer continues to respond to the brand. I see constant communication from various press related things about the brand is dead or losing its vibrancy, et cetera. And that’s just flat-out not true. And along with that, we’re shipping double-digit unit increases.”

Customer research shows the brand loyalty is the highest it’s ever been

” all of our consumer research shows that the brand engagement and the brand loyalty is at highest levels that it’s ever been. And your analysis that you do annually indicated the same thing. So we just — we don’t like the amount of product that’s ending up out in the marketplace. So this is not an issue of doors or anything like that. This is really more an issue of having the right amount of product, given where we want to get back to in terms of full price selling versus promotional selling.”

Handbag business is flat to down but units are up double digits. Promotions are hurting

” Let me start with the industry. We believe that the North American handbag business is flat to down low single digits in total. I know that that’s different from what some other people have reported but that’s just our belief. So we believe that the North American business, handbag business, is about flat to down low single digits and that’s I think primarily because of the promoting that’s going on. Obviously units are up double digits and I think it’s for most of us.”

We’ve seen an acceleration in softening of mall traffic, don’t see tourism rebounding

“We believe that there’s softening that’s continuing in mall traffic. We’ve actually seen an acceleration of softening in mall traffic and this is not just our stores. This is what we see from ShopperTrak, which is a company that we use that looks at our — that looks at not only ours, but other retailers’ numbers. So we compare ourselves to that on a pretty regular basis. So mall traffic continues to soften in North America. We do not see the tourism rebounding. So we’re taking a slightly more pessimistic view of Q1 and Q2 for us. Q3 and Q4 we feel pretty optimistic about. ”

Our teams are excellent at developing content that’s engaging

“I think we’re really good as a company and our teams are excellent at developing content that is engaging and that’s exciting the customer and keeping them engaged with the brand. They may not actually shop from us but I think they love being a part of the Michael Kors family and so I think in today’s world you have to be there.

Mall traffic declining where consumers have high degree of digital access

“I think many times we’re the first company or the most honest company to come out and say these traffic trends you’re starting to see in other places in the world. So mall traffic is declining in Europe now. It’s declining in the U.K. in particular. And I would tell you that in the most sophisticated digital markets is where you see the most mall traffic slowing. So we start out — and this is just our theory and just our hypothesis — that consumers who have high levels of digital product availability are shopping less in shopping malls”

We’re done with expanding our store count

“expanding the stores, we did a handful of them. It really hasn’t been a great return for us. So I would tell you that we’re not going to do that. That’s kind of over with. There will be a handful of select locations where we’ll do that but you’ll be able to count those on your two hands and they’ll be more flagshippy type things. We just did it in London and which happens to be working, thank God. Where we did them in more regional locations it really didn’t provide the uplift from our profitability standpoint that we were anticipating. So unless we see something changing on that, that will not be part of our strategy going forward. And in terms of outlets in North America, we’re basically done at this point. I think there’s one or two more that we’re going to open and it’s over with. And that’s pretty much worldwide also.”

DSW 1Q16 Earnings Call Notes

DSW’s (DSW) CEO Roger Rawlins on Q1 2016 Results

Expense growth has outpaced sales growth

” Over the past several years we have invested heavily in technology, new stores, marketing and support services, while we’ve seen top-line growth from these investments our expense growth has outpaced sales and we haven’t grown our bottom-line. ”

We are still happy with the results we’re getting with new stores

“We are viewing 2017 to be in the net 15 to 20 doors in that range. We are still working on a thought on what it looks like beyond 2017 as it relates to some of the new stores. We have actually been very happy with the results we are getting. We are achieving the ROI targets we had set for the doors we opened in 2015 and obviously so far in 2016.”

We still do believe in new stores

“So we still believe in new stores, I mean I think they create an incredible place for our customer to touch and feel the product, they make our digital platform more competitive and ultimately they create brand awareness. I think we have opportunities to leverage them perhaps differently than we do today to create different and unique experiences”

Thoughts on general environment

“As far as general softness in retail and our belief what is happening. I will tell you everything we see says that traffic in general in the industry was down roughly in the 6%, 7% range for the quarter our traffic was down about 2%, so I feel like we did a lot to drive consumers into our store. I think obviously there are some folks having some success whether it’s the restaurant industry, the services, autos, those kind of folks which ultimately put pressure on our area, the discretionary spending. ”

Mary E. Meixelsperge

Challenging Q1

Thank you, Roger. Q1 was a challenging quarter for DSW. After a strong early start, sales weakened measurably in late March through the balance of the quarter. Total sales increased 3.9%, for $681 million with the 1.6% comparable sales decline compared to last year’s 5.1% comp increase. Comp for the DSW segment decrease 1.4%.

Deborah L. Ferree

Gap 1Q16 Earnings Call Notes

The Gap’s (GPS) CEO Arthur Peck on Q1 2016 Results

Clearly we need to move faster

“over a year ago, I spoke to you very directly about the fact that we were not where we needed to be in terms of products, across our brands, and how we needed to bring product to market. And we have done a great deal of work across the company over the last 12 months-plus to be focused on product, focused on restoring the aesthetic of our brands, quality where is appropriate, consistent fit and a number of elements of product, including building responsive product capabilities. I am pleased with the work, it is the right work and we will scale this work progressively period-over-period as we go forward. But clearly, we need to do more, faster.”

When a business isn’t going to deliver you have to make tough decisions

“As part of this, we have announced that we will be winding down our Old Navy operations in Japan, partly due to the macro factors in that environment and partly due to, frankly, needing to apply the resources to greater and higher potential opportunities. I am obviously disappointed that we’re going to be discontinuing operations, but I view it as a sign of a good company, when you acknowledge that the business isn’t going to deliver, and you make changes and move forward.”

When you start tightening in promotion you are playing a game of chicken with your customers

” I will be the first to say that when you start tightening up in promotion, you are playing a game of chicken with your customers, and they try to way you out. And so we’ve been playing that now for really the last quarter. And we’ve seen more effects on this quite honestly. It will be easier in Gap, where we’re seeing the numbers move more consistently in the right direction, a little more sporadic inside of Banana. Maybe we have been promotional. We are promotional. We missed execution in Q1 from a marketing standpoint, and we are really tightening up the commercial messaging for Q2 and Q3, but we are going to continue to be promotional there.”

Traffic converts at a much lower rate on mobile than in store

“I think it’s really a question to place where we have had strength and we continue to have strength. And we see it obviously as everybody does, I think, a long-term progressive shift of the consumer moving in that direction. Let me go straight to mobile for a second, but let me do the, sort of, what I call the leaky bucket. If you think about business moving from stores to a desktop or laptop to mobile, stores for the industry, conversion of traffic into stores, whether its in the mid-20s to the high-30s or something like that; if you go down to a desktop or a laptop experience, where someone is buying, that traffic converts somewhere in the low-single digits for most people out there.”

Sabrina Simmons

We are operating in an evolving retail environment

“With regard to our earnings outlook for the remainder of the year, we are operating in an evolving apparel retail environment and it’s unclear whether the trends in Q1 will play forward for the remainder of the year. Therefore, we are not reaffirming our 2016 guidance.”

Our global growth strategy remains intact

“In closing, our global growth strategy remains intact. We are simply focusing our talents in capital on areas that have the greatest potential for profitability. After our actions, we will still have a presence in over 90 countries. While we’re disappointed with the results for the quarter, we’re energized about our plans to evolve our business and to capitalize on the competitive advantages we have.”

L Brands 1Q16 Earnings Call Notes

L Brands’ (LB) Q1 2016 Results

Stuart Burgdoerfer

Decline at Victoria’s Secret

“Although we delivered first quarter results above our initial expectations, we were not satisfied with our overall results, as adjusted operating income declined to 4% compared to last year, primarily driven by a decline at Victoria’s Secret.”

Did experience a deceleration in macro trends

“From a macro perspective, we did experience a deceleration in trends through the quarter but we are focused on what we can control and we have opportunities to improve our execution.”

Amie Preston

Significantly reduced catalog spend

“Great, okay. So with respect to catalog, we did test the elimination of catalog into significant markets for a year, and saw a relatively small to no impact on sales. And if one does simple math on it, need to get a lot of sales or meaningful amount of sales to take for the catalog. And round numbers, we were spending $125 million to $150 million a year on the catalog and we ran it again for a year and two significant markets, and didn’t see a significant change in sales. ”

Nick Coe

The consumer is staying consistent, is prepared to act when there’s a good story told

“Hi, Lindsay. I think she is behaving pretty consistently actually in an odd way. I think she continues to want to be excited. I think she continues to want to have a story or a compelling story telling to her, even though she has remains value oriented, but if she sees something that she likes or if she’s engaged, clearly that value price fluctuates and we can see it in both ways. We see it fluctuates to really important when a compelling story isn’t told, but we can also see it become significantly less important when the product is good. So from that perspective I think it’s actually pretty consistent behavior. There’s lot of talk about where is the customer, what’s she doing. But from our perspective I think it’s a pretty consistent story. And I think that also ties itself to traffic where we have been — we’ve seen pretty consistent levels of traffic. Now we’re having to work very hard to maintain the traffic, given the modest assets, but my overall point of view is that the traffic is there, we’re working hard to get it and her behavior is consistent.”

Perry Ellis 1Q17 Earnings Call Notes

Perry Ellis International’s (PERY) CEO Oscar Feldenkreis on Q1 2017

It’s all about product and inventory management

“It’s all about product, Eric. And I think that in today’s day and age, we’re seeing that when retailers deliver newness and product that is comfort that is as well as has some performance attributes and features it does extremely well. Also managing inventory and churn is very, very important as everybody is managing inventory cash flow has become topic — is number one topic. ”

Department stores will readjust their business model

“Department stores today represent about 25% of our revenues and we believe the department stores will continue doing well. I think that department stores are readjusting their business model and making a big focus on eCommerce digital, which is important as well as I think tourism has hurt department — some department stores more than other. And I think you’ll see a lot of changes in how they market themselves more for the local consumers versus talking so much to tourism”

E-commerce is more expensive vs brick and mortar

“we’re looking at ways to improve how we consolidate the distribution side. But, it is a challenge, eCommerce definitely is a lot more expensive versus brick and mortar. But, we have to adapt to the new way of — as mobility apparel online sales today account for about 18% and we’ll continue to grow even further. So it’s something that we’re looking out. We’re making a lot of improvements to ensure profitability.”

Amazon is a top 15 customer not quite top 5 yet

“They are probably up 15 they’re not top five at this present stage. Our business is good with them. We continue to meet with them to try to understand their new business model which is — they’ve taken an approach to understand better. And our relationship with them is very strong and looking to continue growing with them. And we have strong brands that are performing extremely well for them. ”

George Feldenkreis

H&M, Zara etc have taken share in women’s business

“Certainly the women business has been more of a challenge especially with the advent of the international competitor like Zara, H&M, et cetera, which unquestionably have taken market share away in the women’s and junior business from change on department. ”

The over-storing of America is coming to an end

“Time to recognize the over storing of America is coming to an end and that the sooner we reduce the store count the better, it will make retailer stronger, more focused and more profitable. In our case, we are reducing our full price store count and being very selective in opening new stores especially as retail developers continue to increase rents as all leases expire.”

Urban Outfitters FY 1Q17 Earnings Call Notes

Urban Outfitters’ (URBN) CEO Richard Hayne on Q1 2017 Results

Deflation is impacting apparel spend

“As for the apparel category, I believe she is still buying approximately the same number of items per year, but because of unit price deflation, her total annual spend on apparel is down on a year-over-year basis. This has been true for a number of years and it continued in the first quarter this year.”

Need to invest in more proprietary products

“we believe it is important for URBN to continue to invest in the following areas: larger assortments and a higher penetration of proprietary products in all categories, especially in the expanded ones; new and enhanced capabilities, including better marketing, to support the rapidly growing and changing direct-to-consumer channel;”

Our customer is in relatively good shape

“Obviously, the retail industry is going through a rather painful period of rationalization. Rarely have I read so many negative articles about our industry. Unlike much of what has been written, I don’t believe the consumer is the problem. I think our customer is in relatively good shape.”

America is overstored and overstocked

“The problem as I see it is more of a supply issue, especially in the apparel category. Simply put, America is over-stored and overstocked. We have approximately 10 times more retail space per capita than our European counterparts and more direct-to-consumer choices too.”

Companies have been trying to drive demand through promotions rather than product differentiation

“Rather than trying to differentiate their products and experiences, many retailers try to drive demand by offering constant and ever-larger price promotions that erode not just the bottomline, but brand equity as well. When that isn’t enough, companies start closing stores in an attempt to right-size their fleets.”

We think bricks are synergistic with clicks

“Our brands were early direct-to-consumer adopters. And while we continue to invest more in electronic shopping capabilities, we also strongly believe that bricks is synergistic with clicks, and that a well-conceived and executed store strategy is a powerful competitive advantage. Another advantage for URBN brands is that most of our offerings consist of unique products. This is increasingly important in the age of comparison shopping via the internet.”

Price deflation has been ongoing in retail for 25 years now

I think that I was talking about the industry, where there has been price deflation. And I think the price deflation is going on for probably 20 to 25 years now. Not exactly sure, I haven’t looked back at the statistics, but it’s long time and it’s ongoing.”

Green shoots in fashion

“The fashion trend, yes, I talked about a lot of, what I would call, green suits, early in spring. And I think the number of those green suits have proven to be correct. I see a lot of fashion excitement and newness out there. I think our Urban and Free People brands are the ones that typically get to those things quicker.”

David McCreight

Comp is lagging in May, I’d say it’s the weather’s fault

“And Lindsay, you wanted us to talk about a bit about May to date, and Ill do that. So far in May, our retail segment comp is lagging behind the first quarter trend, and I’m going to attribute that, as far as I can tell, to whether. If I had to say which weather, the three biggest reasons I’d say, weather, weather and weather. And then the follow-up reason to that might be the calendar.”

The weather has been really bad on the East coast

“I would direct you too the weather in the first week of May, we had six out of seven days of rain here in the Mid-Atlantic and temperatures were somewhere between 10 and 20 degrees below normal. The differential that we’re seeing between the comps on the West Coast where the weathers behave relatively normally and the East Coast where it’s been atrocious, is up to almost a 1,000 basis points, which is extremely unusual. So we believe that’s one sign.”