Check out those falling retail earnings.
 
American Eagle posted a decline in quarterly profit as it had to cut prices to offset slumping store traffic and unseasonably
warm weather.
 
Staples also reported a drop in profit, albeit for a one-time charge related to a class-action settlement. The office-supplies retailer also had lower same-store traffic at its U.S. stores.
 
And Talbots earnings fell along with its sales, the latest sign of tough going in women’s apparel.
 
Weakness in clothing has been cutting into profits at a number of retailers and has been one reason many have made tepid forecasts for the holiday season. Discounter Target even said last week that sales were likely to be weak into the middle of next year.
 
Talbots is trying to reverse the trend by changing the pace of promotions and getting in touch with its customers more often. And American Eagle even said that November sales have been slightly positive, with positive traffic trends over the Thanksgiving weekend.
 
More earnings news comes later this week, with reports from Aeropostale, Sears and Dollar Tree, among others.

Also in the basket:
 
Signet likely to miss year forecasts, shares slide
 
Tod’s CEO says expects to meet 2007 targets

Could the battle for Restoration Hardware become another situation like EGL, Inc? If so, Restoration CEO Gary Friedman may be upset at the prospect of a rival bidder, but it sure does help when that rival is willing to pay more.
 
Restoration agreed to be bought on Nov. 8 by a group including Friedman and private equity firm Catterton Partners. The management buyout was valued at $6.70 per share, or around $267 million.
 
Any buyouts that involve management often come under scrutiny, because after all, the deal involves an insider any way you slice it. Despite management's supposed independence from the special committee deciding whether to do such a deal, the committee is intimately close with that manager(s). The likelihood of them getting the green light is pretty high. 
 
On the flip side, an outsider arriving at a management buyout deal is probably not going to get as a warm a reception, for obvious reasons. In the Restoration Hardware deal, Sears is that other party. Not surprisingly, it looks as if the special committee has hardly rolled out the red carpet for them.
 
Sears, the retailer controlled by hedge fund guru Eddie Lampert, offered $6.75 per share for Restoration Hardware on Monday. Sears complains that Restoration is not offering any peaks into its books, despite a go shop period in place following the management-Catterton deal. 

Will Restoration open its books to Sears? That remains to be seen.
 
If you're wondering how this will all end up, take a look at what happened with trucking company EGL, Inc. And keep in mind that Sears' buying power is a lot stronger right now than a private equity firm, which is limited in its borrowing levels thanks to the credit crunch. 
 
In the case of EGL, Inc., a buyout group led by its CEO and Founder, James Crane, looked ready to seal a deal for the company earlier this year. Crane's private equity partner was Centerbridge, which replaced General Atlantic after that firm got cold feet. 
 
The deal looked good until Apollo Management not only offered a higher bid, but complained about being shut out of deal discussions. After some back and forth, Apollo handed over the highest price and won the deal. Money talks.
 
One thing to keep in mind in these situations is the "manager" or "managers" involved. Even though Friedman could end up losing the deal to another party, a bidding war raises the takeout price.
 
So if you're him, which do you prefer? Being part of the company's "go private" transaction, or seeing your stake in the company go up a few million bucks. Reuters data show that Friedman owns 2.6 million shares as of Nov. 8, or more than 6 percent of the company.
 
Sure, he'd probably like to stay with the company. But watching your shares go up in price isn't a bad consolation prize.
 
In the case of EGL's Crane, his original buyout offer was $36 per share. Apollo's winning bid was $47.50 per share. It stinks to lose, but making millions in the process probably softens the blow. 

This year, more retailers are pushing deals online, to encourage consumer spending in this year’s holiday season.

Toys “R” Us is no different.

To ensure that consumers still buy those T.M.X. Cookie Monster, Elmo, Hannah Montana or Transformers toys, Toys “R” Us is offering several online “mystery deals,’ and says new ones will keep coming till Christmas.

The mystery online deals are part of a new plan and were not offered last year, senior vice president of Toysrus.com Greg Ahearn told Reuters. Toys “R” Us also has “one-day-only” and “two-day” offers on its Web site.

In fact, holiday shopping started even before Black Friday for Toys “R” Us.

The retailer revealed online “mystery deals” on Thanksgiving day to lure shoppers, with discounts as sharp as the “up to 60 percent off” offers today — Cyber Monday — Ahearn said. Though just as deep, the number of deals being offered today are greater, he noted. Cyber Monday is meant to mark the start of online shopping and online deal hunting.

And at a time when retailers are struggling to get U.S. consumers, who are battling high gas and food costs and an uncertain housing market, to spend their holiday dollars, online deals are shaping up to be a significant way to boost sales.

The online push from Toys “R” Us looks like it will last well into the holiday season.

(Photo: Reuters)

One thing the NPD Group’s Marshal Cohen could not help but notice during his store visits this Thanksgiving weekend were the number of promotions offered.

“It’s been very promotional,” he said.  “I know the stores are trying to convince us that it’s not.”

He said that last year, retailers offered selected items as ”door busters” to lure shoppers into their stores during the Thanksgiving holiday shopping weekend. But this year, he said some stores were offering 2.5 to 4 times more door busting deals.

“A store that offered 100 items last year, offered 250″ door busters, he said. “This year, JC Penney offered over 400 door buster items.”

He said that so far, while the promotions are up in number, they appear to be planned.

But, he said retailers could run into trouble in the next two weeks if they have to take more markdowns to convince shoppers to keep spending.

“Early December is going to be the key that determines how profits are going to be,” he said. “If the stores have to promote over the next two weeks to keep the consumer engaged, that’s when margins are going to erode.”

(Photo: Reuters)

Check out the Black Friday aftermath.
 
One thing about low expectations: they are pretty  easy to exceed.
 
Many forecasts called for a tepid holiday shopping season. The National Retail Federation, for example, has forecast the smallest sales gain in five years.
 
But at least on “Black Friday” consumers seemed to come out to shop, though various surveys offer mixed views.
 
The NRF’s Black Friday weekend survey showed a 4.8 percent increase in  store traffic, though in keeping with the mixed messages coming out of the weekend, it also showed a 3.5 percent decline in spending by the average customer.
 
SpendingPulse, meanwhile estimated total spending rose 4.5 percent to 5.5 percent over last year for the Friday-Sunday period.
 
Discounters were the store of choice for most shoppers, according to a survey by America’s Research Group. Analysts also said consumer electronics stores did well, at least early, as consumers flocked to stores to grab “door buster” specials.
 
But many observers also said traffic seemed to ease up on Saturday and Sunday.
 
“While the door buster items drew attention, our sense was that traffic softened as the weekend progressed a phenomenon we observed a year ago,” Charles Grom, analyst at JP Morgan, said in  a research report.
 
And analysts also caution that the weekend was just the start for the season. 
 
“While net-net the kick-off to the holiday seemed decent, the majority of sales are still ahead,” Roxanne Meyer, analyst at CIBC World markets, said in a research report.

Also in the basket: 
 
Newell cuts quarter, year sales view
 
Retailers go from in-store to online holiday push
 
After rush, retailers try new shopping lures (WSJ, subscription required)

Best technological-philosophical query heard recently from Wall Street comes from Bernstein Research, whose Jeffrey Lindsay posed the question: “Would Socrates have bought Amazon’s new e-reader product, the Kindle?”     

The answer, according to Lindsay, using the best Socratic analysis, is yes and no.     

While Socrates, originally a stone mason who was unpaid for his philosophical teachings, may have balked at the $400 price, and gone for Sony’s cheaper competing device, given that the great man went about on foot, he may have appreciated the Kindle’s light weight.     

 Furthermore, since Socrates did not write down his teachings for posterity, Lindsay hypothesizes that he would not care about the upload charges to send documents to Amazon to be converted and uploaded to the Kindle. But who knows for sure, seeing as that service is mostly free from Sony already.     

And to the hypothesis whether Amazon has “shot themselves in the metaphorical foot” by making Kindle a closed system, selling it for $399 and charging for newspaper and blogs that are free on the web, Bernstein wrote that Amazon customers have already given the device a modest 2.5 stars, which he said is normally reserved for poorly performing products.     

 On the other hand, “Kindle is an innovative product with game changing potential,” that could be a winner at $200 once refined and improved.

Philosophize on that.   

(Photo from Amazon.com)

Check out the impending Thanksgiving holiday shopping weekend and anxious retailers preparing for the shopping rush with door-busting deals and discounts.

Ahead of the upcoming three-day shopping weekend, which is seen by many as the offical start of the holiday shopping season, numerous groups have offered their view on just how jolly holiday sales will be this year as consumers face a slumping U.S. housing market, rising food and fuel prices, and the credit market crunch.

Below are some excerpts of predictions for the holiday season:

National Retail Federation: The trade group expects total holiday retail sales, which includes November and December, to rise 4 percent to $474.5 billion this year.  That would mark the slowest holiday sales growth since 2002, when sales rose 1.3 percent, and it would fall below the ten-year holiday sales average of a 4.8 percent increase.

Telsey Advisory Group: Speaking to reporters this week Dana Telsey said she expects holiday sales to rise 3 to 4 percent, trailing the average forecast over the past 10 years of 4.8 percent. Her forecast includes sales for November and December. She said the Thanksgiving holiday shopping weekend typically accounts for 9 to 10 percent of holiday sales, while the 10 days before Christmas usually account for 40 percent of holiday sales.

Ernst & Young LLP Consumer Products Practice: Expects the 2007 retail holiday sales increase for November 2007 - January 2008 will be 4.5 percent - down from last year’s retail holiday increase of 4.9 percent.  The forecast and last year’s actual increase includes the month of January due to the growing popularity of gift cards.

The Boston Consulting Group: Based on a survey it conducted between Oct. 10 and Oct. 23 of 2,570 Americans with household incomes over $35,000, BCG says expectations for weak holiday spending could be overblown. “The doom and gloom is overstated. Unemployment is low. Real incomes are healthy,” said Michael J. Silverstein, a BCG senior partner. “Consumers overall predict that this holiday season will be just as good, if not better, than last.”

Customer Growth Partners:  Predicting 5.0 percent to 5.4 percent annual growth for holidays sales, in line with average growth rates of the past decade.  “As we said after 2005’s Hurricane Katrina, when gasoline prices rose well above $3/gallon, Americans are far more resilient that the experts expect,” said CGP president Craig Johnson, “and just as sales rose 7% at Holiday 2005 despite Wall Street expectations of a low-growth Christmas, 2007 will see over 5% Holiday sales growth, held down only by a stubborn housing slump.”

Keep in mind that this year, Thanksgiving falls on Nov 22. That means it will be along holiday shopping season, with 32 days between Thanksgiving and Christmas and five full shopping weekends.

It will be a long time before anyone can figure out if these holiday sales forecasts are on target.

(Photo: Reuters)

Check out retailers releasing a torrent of quarterly results headed into the Thanksgiving holiday shopping weekend.

Late on Monday, Nordstrom reported third-quarter profit above a recently lowered forecast.  The upscale department store chain said sales of designer items, accessories and men’s apparel are strong following two months of disappointing sales at established stores.

That was followed on Tuesday morning by upscale retailer Saks, which said its profit rose more than threefold, helped by strong demand for its updated merchandise and an 11.4 percent increase in same-store sales.

But on the flip side, Target surprised investors, posting a decline in quarterly profit, hurt by weak sales of higher margin goods, like clothing.

The lower results outweighed its announcement of a new $10 billion buyback program and its shares fell in early trading.

Also on Tuesday, Barnes & Noble posted a narrower-than-expected quarterly loss due to better margins and strong sales of new releases, prompting the book retailer to boost its full-year earnings outlook, while jeweler Zale reported a wider quarterly net loss, citing a change in the way it accounts for revenue from warranty plans, and voiced caution about the holiday season.

Office Depot, the world’s second-largest office supplies retailer, reported a lower quarterly profit as U.S. same-store sales fell and promotions pressured margins.  But BJ’s Wholesale, the No. 3 U.S. warehouse club operator, posted higher-than-expected third-quarter profit.

Also in the basket:

Mothers Work posts wider Q4 loss, cuts ‘08 view

Ross Stores posts higher quarterly profit

Hormel profit rises a better-than-expected 12 pct

Gamestop disappointing outlook sinks shares

(Photos: Reuters)

Restoration Hardware is on Eddie Lampert's shopping list this holiday season.

Sears Holdings Corp., the retailer controlled by the hedge fund manager, acquired a 13.7-percent stake in Restoration Hardware Inc., which analysts said could signal a new acquisition phase for Sears.

That could set it on a collision course with a buyout group that sealed a a deal recently to purchase the company.

Earlier this month, specialty retailer Restoration Hardware agreed to a management-led buyout with Catterton Partners. Restoration Hardware, which had rejected an initial overture from Sears in October, had 35 days to solicit better offers.  Sears' purchase of Restoration was disclosed in a filing on Monday.

In an email to employees that Restoration Hardware Chairman Gary Friedman signed "Carpe Diem," the specialty retailer confirmed that Sears signed a confidentiality agreement to review the boutique retailer's books and evaluate the possibilty of making a rival takeover bid.

Sears acquired the stake after the Catterton buyout announcement, "indicating a more agressive approach," Credit Suisse said.

"It is that 'make a deal' potential that continues to support the stock as results continue to deteriorate. Ahead of what should be an ugly Q3 report next week, perhpas we are entering the next phase of the Sears Holdings story," Credit Suisse analysts said.

Restoration Hardware hawks sheets, furniture and gifts to affluent, well educated 35 to 60 year old customers, according to its SEC filings. That might be an odd fit for the more populist Sears. But Credit Suisse analysts said Sears might be trying to fill its home goods void once its partnership with Martha Stewart ends.

Check out the housing market not giving U.S. retailers any slack.

A week after industry leader Home Depot posted a 27 percent drop in quarterly profit and forecast a steeper fall in earnings for the full year, Lowe’s said on Monday its third-quarter profit fell 10 percent and cut its full-year forecast as the U.S. housing slump hurt sales.

Sales at stores open at least a year fell 4.3 percent. Lowe’s cited lower home sales and falling home prices, drought conditions in some states and lower-than-expected U.S. Gulf Coast sales.

Next year will not necessarily bring relief. Lowe’s said it expects pressures from the U.S. housing correction to extend well into next year.

Also in the basket:

SABMiller to buy Grolsch for $1.2 bln

PayPal offers secure way to shop non-PayPal sites

Tainted Ginger’s Long Trip From China to U.S. Stores  (WSJ, subscription required)

(Photo: Reuters)