Perhaps I bring the most value to the industry when a reader sends me something they think is important but that they don’t want to be directly associated with. And they figure, “Send it to Jeff! He’ll publicize anything.”
Most of the time, they’re right and this is one of those times.
During the quarter, Zumiez increased its sales and reduced its loss compared to the same quarter last year. It continued to follow its strategy and its balance sheet remains solid- perhaps a bit stronger than a year ago.
I’ve generally been a supporter of Zumiez’s strategy. It’s not that they necessarily know any better than any other retailer how things are going to shake out as retail consolidation winds its way through the industry, or that they are certain how, exactly, brick and mortar and online are going to evolve and influence each other. But they’ve made a couple of bets (that we’ve been talking about for some quarters bordering on years now) that are complementary to their long-term strengths and strategies and that offer them the data and flexibility to respond when, inevitably, things don’t turn out exactly as they expect.
Globe is no more immune to economic conditions than any other company. But what I’ve always liked about them is they seem to be in touch with reality and have a positive attitude about it. They haven’t always been right (me neither) but they’re not slow to realize when something should change and in making it happen. Their results for the year ended June 30, 2017 demonstrate that.
As usual, we don’t get very much useful information in their statutory report, and nothing by brand, but I’ll give you what I’ve got.
Here’s what I said six months ago about Billabong:
“Six months ago [talking about a year ago], reporting on Billabong’s results for the whole year, I said this was a challenging turnaround, Billabong was doing things right, they were starting to see results, but the market was tough, and implementing their plan was taking longer and costing more (perhaps because it’s taking longer) than they’d initially expected. That’s all still true…”
And it’s still, still true as we review the results for the year ended June 30, 2017. I thought the delay was especially highlighted in Billabong’s July 28 “Omni Update” press release where they noted they’d “…terminated the agreement with the Omni-channel solution provider…” and taken a write down of AU $11.7 million as a result. Billabong continues to try and change the engine oil while driving the car. Tough task- but it’s what they have to do.
As you probably know, Emerald Expositions (EE) is the owner and manager of Surf Expo, Outdoor Retailer, and now what was formerly SIA’s Snow Show. Overall, they operate over 50 shows as well as other events. They’ve grown by acquisition, and expect to continue to do so. Their shows are in many industries and include the International Drone Conference and Exposition (kind of cool!), the National Pavement Expo (who knew there was one?), American Craft Retailers’ Expo, and the Digital Dealer Conference and Expo (no idea what they do there). These, along with the Snow Show, are among their most recent acquisitions.
The 10-Q reads this way:
“…in light of the recent and continuing changes in the retail environment, we also believe it is prudent to further reduce our global brick and mortar footprint. We expect to continue to reduce our footprint through a combination of store closures and the conversion of owned stores to partner retail stores, and, accordingly, we anticipate generating future cost savings. We are currently targeting a worldwide retail store count of approximately 125 owned stores by the end of fiscal year 2020.”
At June 30, Deckers had 96 concept stores and 63 outlet stores for a total of 159. These are “predominantly” UGG stores. Getting down to 125 stores will be a reduction of 21.4%. Some of the decline will be due to converting owned to partner stores. Partner stores “…are branded stores that are wholly-owned and operated by third parties. Upon conversion or opening of new partner retail stores, each of these stores become wholly-owned and operated by third parties.”
One can’t help but ask why, if Deckers doesn’t want to own these stores because of “changes in the retail environment,” the potential partners will. Perhaps that suggests these will mostly be store closures.
Before I dive too deep into the financial weeds, let’s look at VF’s overall strategy as explained by CEO Steve Rendle and Chief Financial Officer Scott Roe in their conference call discussing the results for the quarter ended June 30, 2017.
Strategy Stuff
Steve: “…while we expect the retail landscape to remain uncertain, we will invest against our largest growth opportunities to create momentum rather than wait for it.”
They have the cash flow and balance sheet to do this.
Marcato Capital Management has taken what is now a 6% position in Deckers’ common stock. That Marcato was buying Deckers’ shares first became public knowledge towards the end of May. Partly in response to this and, apparently, to growing unhappiness on the part of other large shareholders, Deckers has undertaken a strategic review process to determine what should happen to the company.
Recently, Marcato sent Deckers’ Board of Director a letter saying that if the review process didn’t lead to an attractive sale of the company, “…we will be prepared to seek significant Board change at the Company’s next annual meeting by nominating a slate of director candidates to replace the entire Board.”
Here’s a link to the letter in its entirety. It’s pretty damning of Deckers’ management and board and, if the letter is accurate, they aren’t the only ones unhappy. I can see why they might be concerned that Angel Martinez, the former CEO and still Chairman of Deckers, is running for Mayor of Santa Barbara rather than focusing on the company.
I guess I see this as the final denouement in the purchase and destruction of the Sanuk brand. That might not have been the only problem Deckers has, but it’s certainly a major and public symptom of what went wrong.
If I were to read between the lines of the Marcato letter, what I hear them saying is, “Look, UGG is a great brand with real potential, but your attempts to make the company into a big footwear player by buying all these smaller brands has fallen flat on its face. It’s cost you a pile of money, time, and focus. Get rid of them or sell the company or we’ll come in and do it for you.”
I will be interested in watching how this moves forward.
At this point, it’s common knowledge that diminishing mall traffic is leading retailers to close stores and/or renegotiate leases with landlords. There are also some store openings going on as retailers, hopefully, find locations and configurations better suited to the fast changing brick and mortar and e-commerce world.
But relationships between retailers and landlords are not quite as cut and dried as, “Give me a lower rent or I’ll leave.”
The conference calls get shorter and shorter as Wall Street and its analysts decide the retail sector just isn’t worth their attention. I don’t and won’t invest in anything I write about but damn, this feels like one piece of putting in a bottom in the retail sector. Maybe it will take the recession to finish the process.
Zumiez had a quarter which I’ll describe as uninspiring. Like every other industry retailer, they find themselves in circumstances of declining mall traffic, sluggish demand and an uncertain future that changes faster than you can react to it.
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