Check out the better-than-expected earnings report from Pier 1. No, really Pier 1.
 
Okay, better-than-expected is relative for the home furnishings retailer, which has been a retail laggard for some time now. The company posted a loss of 11 cents a share from continuing operations. But that was only about half the 21-cents-a-share loss analysts predicted.
 
Sales fell 7.1 percent in the quarter, but the company said that was due in large part to closing 98 stores. Same-store sales fell 1.7 percent.
 
One other big plus for the company — cash flow rose for the first time in seven quarters.
 
The secret? Less emphasis on expensive furniture and more of a focus on smaller decorative items.
 
“Our strategy of profitable sales at sustainable margins, combined with a greater emphasis on lower ticket impulse items, is beginning to pay off,” Chief Executive Officer Alex Smith said.
 
Still, there is work to do. The quarter marked the 11th -straight losing quarter.
 
Smith has said he sees the company’s core wicker and bamboo seating reviving in the spring.
 
Cool! More Papasan chairs!
 
Also in the basket: 

Zale names Childrens Place brand chief as its new CEO

Target tones down presentation for holiday (WWD, subscription required.)
 
Rite Aid loss wider than expected, cuts outlook
 
ConAgra Q2 profit up, consumer segment lags
 
American Greetings posts lower Q3 profit

(Graphic: Logo from pier1.com)

JP Morgan recently held a call with Dan Horne, marketing professor at Providence College, who specializes in the gift card arena.

Here are some excerpts from a research note published by JP Morgan analyst Charles Grom, summarizing the conversation:

-Horne expects “mid-to-high” teens growth in gift card spend this holiday season, above the low 6 percent the National Retail Federation forecast. Gift card sales volume roughly doubles every day beginning on (or about) Dec. 13th. Looking ahead, Horne expects gift card growth to remain solid, increasing roughly 15-20 percent, per annum, for at least the next two to three years.

-Gift cards typically make up 4-5 percent of sales for a retailer with the percentage increasing to roughly 6 percent during the holidays. True gift retailers such as Best Buy could see as much as 15 percent of holiday sales come through gift cards. Roughly 60 percent of gift cards are redeemed by the end of January and nearly 6-7 are never redeemed. Smaller dollar denominated gift cards (say $5-$10) are fulfilled at a lower rate than those with higher dollar values. On average, gift cards are ~$44-$50 (versus ~ $33 in 1992 and ~ $37 in 2003) and consumers typically spend 140% of gift card face value upon redemption, which implies an average spend of $62-$70.
 
 -Gift cards have become increasingly more available, and can now be obtained at gas stations, grocery stores, and drug stores. 
 
-To remain competitive retailers are dedicating more resources to the design, marketing, technology, and functionality of gift cards. Recent developments include (1) personalizing the front of the card with pictures or options supplied by the retailer, (2) co-branded gift cards with entities such as college universities, (3) gift cards with technology supplements such as DVDs with how-to-videos, and (4) further expansion of hybrid loyalty cards. 
 
 (Photo: Reuters)

Pershing Square has taken it on the chin with its Target stake. The retailer's announcement on Wednesday that it's suspending its credit card auction is yet another upper cut.
  
Mind you, Pershing founder William Ackman is one of the best known activist investors out there, having made a boat load of money shorting bond insurers and shaking up companies like Wendy's. And he is said to be approaching his Target investment with a long-term view. (What exactly long-term means to an activist hedge fund is anyone's guess? Two years, three years? Twelve months?)   
    
But so far, his stake in Target has turned out to be a dog, long-term view or not.      
    
For starters, Ackman started scooping up shares when they were around $59 per share. They're at around $51 now. 
    
Second, Ackman wanted Target to sell it's credit card portfolio, which the company really wanted to keep. The business was a cash cow, and had generated big profits for the company.  Ackman wanted greater focus on the capital structure.
    
In a bow to the activist at their doorstep, Target agreed to put its card business on the auction block in September, two months after disclosure of Ackman's stake.
    
Tough timing.
    
The credit crunch sunk its teeth into the markets by late July, and by the time Target put the business up for sale, private equity buyers were out of the deal picture, thanks in part to the division's $7 billion price tag.
    
The thought among some private equity investors was that no matter what price they offered, even in the best of times, GE would likely outbid it. Indeed, GE has a deep history in buying up credit card portfolios. But it apparently isn't interested in Target.
    
So Target has decided to keep its card business for now, promising to revisit the issue in the first quarter.
    
Ackman, no stranger to publicly condemning companies not doing enough for their shareholders, spoke highly of Target's management and strategy at a recent hedge fund conference. Huh? Wasn't he at all ticked at the lagging sale process? The stock price?
    
Perhaps Ackman has come to realize that sometimes, you have to pick your battles. The consumer is not in good shape right now, the large-cap private equity M&A market is dead, and at this point it's not even clear if selling the card business is the right thing for the company. Plus, he's in attack mode right now on the bond insurers, mainly MBIA.
    
"We are not surprised by the news," said Joseph Feldman, a retail analyst with Telsey Advisory Group, of the delay. "I think if it were not for Bill Ackman, they probably never would be considering (the sale) as publicly as they are."
    
Red Gillen, senior analyst with Celent, a Boston-based financial research and consulting firm had the following take: "Given the current business environment of increased consumer credit write-offs and delinquencies, Target suitors may be few and far between."
    
Morgan Stanley M&A banker Rob Kindler said in March that you can't beat an activist. Invite them in, pull up a chair. Don't fight them. Kindler said that in April, when if an activist told a company to sell something, there were a dozen private equity firms ready and willing to buy it. Times have changed.
    
So while Ackman may be inclined to hold onto Target for the long haul, his stake has hardly emulated the quick and profitable action by his previous, ahem, targets.

(Photo. William Ackman)

With a few days left in the holiday selling season, retailer Best Buy is already feeling like a winner as its latest quarterly results show a five-year program focusing on customer needs is bearing fruit.

Called customer centricity, the plan identifies the retailer’s most profitable customer groups, and trains staffers how to service them. Customer data is used to tailor product offerings.

Brad Anderson, Best Buy Chief Executive, said the plan has built stronger relationships with customers and boosted his company’s bottom line. Best Buy reported a 52 percent rise in quarterly profit on Tuesday and raised its full-year forecast, standing out at a time when many other retailers are struggling.

“There is an ability to use this (program) tangibly that I don’t think other retailers have that is demonstrated in our results,” Anderson said in an interview after the earnings were posted.

Anderson said the holiday season had started off a bit slower than planned in December, but added that Best Buy was expecting a strong finish.

“The holiday seems to push closer and closer to Christmas and after Christmas,” Anderson said.

He also said he wasn’t concerned that consumers are obsessed with getting big holiday discounts. He noted that some of Best Buy’s hottest sellers so far have been higher-priced items such as computers and video-game consoles.

“I think the consumer is stronger than some of that fear that’s being registered,” Anderson said. “I’m more optimistic about the capability of the American consumer in terms of the kind of buying power that still exists.”

   The following item is from Darrell Rigby, head of consulting firm Bain & Co.’s Global Retail Practice and Kris Miller, head of Bain’s North America Retail practice. They are not affiliated with Reuters in any way. The opinions and views expressed herein are those of the author and are not endorsed by Reuters.com.
 
   At the start of 2007, Bain listed “green as the new black” as a key trend for retailers looking for new, and profitable, buying behaviors from consumers. We’ve seen many examples of retailers improving their environmental footprint and providing green offerings to consumers. This holiday season, we also worked with Communispace, an online market research firm, to learn more about how consumers are responding. The research pointed to a few factors retailers need to consider to bring “green” to more consumers:
 
   Price has been a concern this holiday season. Consumers on the panel believed that higher eco-friendliness went hand in hand with higher prices. Said one: “I expect the eco-friendly stores to be more expensive, so I stay away from them.”
 
   Consumers are seeking, but not finding, answers. Several panelists commented that they haven’t “a clue which stores or merchants are eco-friendly for the holidays or otherwise.” To get these consumers to change their behavior, retailers are going to have to do a better job of communicating and messaging.
 
   For some consumers, the issue has been access: “I am in a small rural community. . . . There really aren’t a ton of opportunities to buy eco-friendly.” These consumers will either have to purchase products online or wait for green products to become more mainstream.
 
   Even with all of these factors at play, there is a segment of consumers for whom eco-friendliness is a way of life. One characteristic that makes this segment attractive is that some level of price difference is not a barrier to buying. As one of our panelists put it: “I am always interested in purchasing more eco-friendly products . . . even though at times it may cost more.” This lends a certain attractiveness to the segment well beyond this season. In many other parts of the country, both consumer awareness and the availability of green products have considerable room for growth.

 (Photo: Reuters)

More customers are searching online for gift cards and this year, they’re looking for cards they can spend anywhere, according to Hitwise.

The company said searches on the term gift cards have increased 14 percent compared to same week in 2006.

Hitwise also said the top two branded gift cards that were search for last week were Visa and American Express.

Why might those gift cards be popular?

Hitwise said it could be that shoppers, watching as gasoline hovers around $3 a gallon and groceries bills creep ever higher, are looking for ways to help pay for every day expenses after Christmas.

“One big trend this year is that consumers are looking for the gift cards which are more universally accepted across a variety of merchants, such as Visa or American Express, to provide recipients with the options to spend their cards wherever they need, which this year could include necessities like groceries or gas,” said  Heather Dougherty, director of research at Hitwise.

Other top branded gift cards searches included Wal-Mart, iTunes, Best Buy, Target, MasterCard and Hess, it said.

(Photos: Reuters)

Check out General Mills’s earnings.

The world’s second-biggest maker of breakfast cereals said quarterly profit rose 1 percent as more expensive marketing and a pizza recall dampened the the impact of higher sales of its products, which include Cheerios, Wheaties and Lucky Charms.

But more worrisome for investors are the company’s comments regarding its 2008 outlook for the cost of raw materials such as oil, grains and dairy products.

“The company expects input cost inflation will be higher in the second half than in the first half, and that full-year inflation will be greater than originally estimated,” the company said.

General Mills, which also makes Progresso soups, Pillsbury cookie dough and Yoplait yogurt, has raised the price per ounce of its cereal by using smaller boxes and has taken other measures to try to offset those costs, which have soared recently.

But the company said additional price increases, better-than-expected first-half results and productivity improvements should offset the cost pressure, leading it to affirm its profit outlook for the full year.

Also in the basket:

Target delaying decision on credit card business

UST sets 2008 earnings forecast, raises payout

Democracy at the Mall: Giant Costco moving in to fill anchor store void (WWD)

(Photo: Reuters)

Can a survey on rubies from army-ruled Myanmar do to ruby sales what even an Oscar-nominated movie couldn’t do to diamonds?

Perhaps not, considering more than half of all surveyed consumers did not know where most rubies come from, despite nearly half of them being interested in jewelry with the blood-red gems, according to this study by the Jewelry Consumer Opinion Council (JCOC), the consumer research division of MVI Marketing Ltd. The survey questioned 2,104 members between Nov. 29 and Dec. 10.

Famous for their red hue, more than 90 percent of the world’s rubies come from military-controlled Myanmar, where army rulers rely on sales of precious stones such as sapphires, pearls and jade to fund their regime. Rubies are probably their biggest earner.

After its rulers carried out a crackdown on a pro-democracy protest, jewelers including Tiffany & Co and Cartier have already boycotted rubies from Myanmar, formerly known as Burma.

Still, 57 percent of those surveyed by JCOC said issues in the country would not deter them from buying rubies, which are less expensive and nearly not as “high-end” as colored diamonds.

The movie “Blood Diamond,” starring Leonardo Di Caprio and nominated for five Oscars, was thought to raise awareness about conditions in diamond-rich Sierra Leone, but did not hurt jewelry retailers in any significant way.

About one quarter of consumers, however, said they will likely boycott stores that sold rubies from Myanmar. That could cause a dent in holiday jewelry sales, said Liz Chatelain of JCOC. 

According to Chatelain, colored gems account for 7 percent of precious stones’ sales, while rubies ring in about 2 percent of sales in the colored stones category.

Those who are do care would probably switch to other gems like pink sapphires, Chaterlain said. But consumers, already burdened by high food and fuel costs, a housing market swoon and a credit crunch, have planned to go easy with jewelry purchases this season. Will the survey make them sit up and take notice? Maybe holiday sales numbers will tell.

(Photo: Reuters)

What a difference a year makes. Mattel Inc’s T.M.X Elmo was the darling of last year’s holiday season, as it burst onto the market in September and became a key driver for the toy industry in its most important time of year.

This year’s Elmo doll — the T.M.X eXtra Special Edition – is having trouble duplicating its predecessor’s success, according to B.M.O Capital Markets analyst Gerrick Johnson.

“We think this year’s Elmo doll … is selling below plan. We see plenty of Elmo at retail,” Johnson wrote in a research note. “And on many of the Toys “R” Us end caps there is a sign that limits customers to only two dolls per family. Clearly Toys “R” Us was expecting brisker sales.”

Since Tickle Me Elmo’s 1996 debut, there have been numerous incarnations of the plush doll, including “Knows Your Name Elmo,” which greets children by name.

This year’s doll — which is available only through the end of the year – comes with special features that include a tickle sequence that causes the little red monster to fall to the ground laughing and kicking while singing, “Elmo’s ticklish, ticklish, and he’s laughing like he never laughed before.”

But because there is so much excess inventory at Toys “R” Us, Johnson said his team thinks the doll shouldn’t be called the eXtra Special Edition Elmo — it should be branded the  eXcess Inventory Elmo instead.

Mattel and its Fisher Price unit did not immediately return calls seeking comment.

Photo Source: Fisher Price

…..They’ll be among the hottest “colors” of 2008.

According to Color Marketing Group, an association of color design professionals, consumers will be seeking out clothing and merchandise that looks eco-friendly or “green.” 

“In 2008, looking stylish means looking natural. Materials will look hand-made, un-dyed and unbleached.  Products will look more like what they’re actually made of, with lots of texture and all the natural imperfections proudly showing through,” the group said.

Expect to see a lot of off-whites, sandy and “linen-y” colors, rock and soil colors, and brownish-greens.

“The colors of nature are seriously fashionable now,” CMG said.

What else will be hot in 2008?

Blues that remind consumers of sky and water — inspired by environmentalism — remain prominent, even in the kitchen, CMG said. 

The group also predicts that next year will see the emergence of a much blacker blue inspired by technology — “a deep, vibrant navy so dark you’ll swear it’s black.”

And globalism will continue to inspire consumers’ love for ethnic accent colors. 

“They’re coming to us from India, China and Latin America. To Moroccan reds and glowing oranges, add rosy pinks, sunny golden yellows and lots of turquoise. Already here in fashion and home design, these ethnic accents will show up as ‘punch’ colors in hotels, restaurants and retail environments, too - often paired with rich browns as neutrals.”

(Photos: Reuters)