SarahGen (99.82)

Executives Shake Things Up by Coming OR Going in Retail

June 05, 2008 – Comments (2) | RELATED TICKERS: BARE , KCP , TLB

I was very happy to see some positive price action in two of my personal holdings.  Both holdings are retail, but the reasons for appreciation are totally opposite.  Today TLB announced that the COO is leaving, and the stock is up 5%.  And yesterday BARE hired a new President of Retail and the stock is up 10% in two days since.    What is the market seeing and hoping with these two, and what about one or two others like KCP which recently traded a founder CEO for a mover and shaker CEO?

OK, Talbots (TLB) up first.  I really didn't pay much attention to this company as an investment until I had a series of interviews a month or so ago, and I heard from my young interviewers about Talbots: "fuddy duddy", "matronly", and "even my mom won't shop there unless there's a huge sale."  The obstinate contrarian in me sitting in my Talbots suit, with a Talbots jewel neck sweater, said to myself, "self? are you really the only person shopping there?  Surely there must be some hope here.  And if there is, where is it?"  Well, on the fundamental side things were about to get much worse AND better.   I might have shopped there for basics that are available in a wide range of sizes so it's easy to get things that fit perfectly, but apparently many others had stopped.  I can't remember how many women I personally sent to the store to buy their famous no-iron-no-wrinkle shirts which after 100s of washings still retain the same color, but it clearly hadn't helped.  The same-store-sales numbers were down, the sales overall were down.  No time like a recession to really show how bad things were.   And more bad news? A couple banks pulled TLB's credit line.  Ouch. 

There's a reason that many companies come through and out of a recession looking much better than they did going in.  Often unless pushed to the brink, a company won't commit to change.  And we're seeing changes, cost cutting, and process improvement throughout most retailers, and TLB's definitely been on board.  They're closing underperforming locations, have been closing down the unsuccessful men's and children's lines, and they're opening more in-demand stores (like their better selling women's plus and high end outlet malls).  They've massively improved inventory control, and those amazing sales I used to enjoy are going to be gone.  TLB's had a long standing habit of putting nothing at all on sale until end of season, and then items would be marked down very quickly as much as 70%.  Now they're marking items down faster and much less.  And that credit line removal how does that impact things?  Well, it caused TLB's to finally negotiate terms that many retailers already had -  open account with payment in 45 days in 22 days - which massively increased their cash flow:

As reported in the Form 8-K, the Company’s major vendors, which represent approximately 75% of Talbots offshore merchandise purchases, have agreed to “open account” terms with payment in 45 days. The revised terms extend the settlement period to 45 days from approximately 22 days on letter of credit purchases, which the Company expects will effectively add approximately $40 million to the Company’s 2008 operating cash flow.

Recent earnings have shown that Talbots has been able to increase margin, and that these new efforts in cost control and inventory control are paying off.  TLB is an extremely high risk stock, as there are those who feel the company could still go out of business.  But i feel that's where the large upside opportunity lies.  I may be exceedingly early, but the news just got better today.

TALBOTS EXECUTIVE SHUFFLE 

Talbots announced today that as part of their cost control and restructuring they were laying off 9% of executive staff.  And key to that?  Goodbye to the COO, Philip H. Kowalczyk.  Far be it from me to blame all of TLB's problems on Mr. Kowalczyk, but TLB's stock price has mostly gone down ever since he joined in October 2004 when the stock traded at $26/share.  It's now around $8/share.  And when looking at retail/fashion execs, you really have to look at their background.  Where did Mr. Kowalczyk come from? Seven years as Managing Director of Kurt Salmon Associates, a global consulting company.  Did anyone think this really prepared him to run a fashion empire?

Note that TLB doesn't dislike all their execs.  In fact they've been adding good people to their team.  Just a couple weeks ago they added Chris Jackson as SVP Apparel, Design  and Development of the Talbots Brand.  Now that's not fuddy duddy!  Chris Jackson has worked closely with Calvin Klein and Donna Karan.  Not too shabby.

OK, I've taken a lot of time with TLB, my other comments are shorter.  First up BARE.

BARE EXECUTIVE SHUFFLE

For BARE background and pitch, check out my recent blog post on BARE.

BARE recently announced a new President of Retail.  And did he come from a "global consulting company?"  Nope.    Most recently from Williams-Sonoma, and previously gap and J Crew. The Michael Dadario press release is here.

BARE has been a little shy on executive talent (what they had was excellent, but they needed more), so this new hire is great news, and the stock is showing it.

KCP EXECUTIVE SHUFFLE

Kenneth Cole, founder and the outgoing CEO decided that KCP needed some fresh talent and new vision.  He decided to step back, and called Jill Granoff to discuss her taking the job.  She says she wasn't looking, but how could she resist a call with a call from the founder himself?   Ms. Granoff was at LIZ,  overseeing the higher-margin "direct-brands" unit, which includes Juicy Couture, Lucky Brand Jeans and Kate Spade.   ... "He was looking for a partner to take the company to the next level," she said. "I feel very comfortable working with founders and leveraging their strengths."  WSJ article (subscription required).

KCP popped on the news of Jill Granoff joining, but pulled back after earnings were reported a couple weeks later.  It's already recovering.  Hopefully those are some of the last earnings with out Granoff's influence.

I think that's about it for now.  LULU has also undergone some recent executive shuffling that I just wrote about in my last blog post.  We'll see how they work out, but we're talking about a killer exec or two who knows the retail environment.