LOGISTICS February 8-11, 2009 Gaylord Texan Dallas, Texas. Title Sponsor :

Transcription

1 LOGISTICS 2009 February 8-11, 2009 Gaylord Texan Dallas, Texas Title Sponsor : 1

2 The State of the Retail Industry Jeff Bloomberg Moderator: Office of the Chairman, Gordon Brothers Group Meredith Adler Matt Fassler Susan Lewis Gary Balter Panelists: Managing Director and Head of Retail Equity Research, Barclays Capital Managing Director and Co-head of Retail Equity Research, Goldman Sachs Retail Analyst and Retail Portfolio Manager, Carlson Capital Managing Director and Senior Retail Equity Analyst, Credit Suisse 2

3 Retail Outlook Macro environment very challenging, net negative fundamentals Holiday sales dismal Comparable-store sales outlook grim Inventory levels questionable, driving promotions Downward 4Q guidance revisions prevalent FY09 visibility limited Ratings actions significant and negative Default rates remain historically low, but rising Vendor financing is contracting, putting added pressure on retailers No new issue supply (bank/bond), except potential higher quality refinancing/bank restructuring Equity valuations of retailers have given up all gains of the past five years Source: Barclays Capital 3

4 Retail Headwinds The Macro Environment is Negative The Macro Environment is Negative December Latest Willingness to Spend Consumer Confidence (1985=100) Consumer Sentiment (1966=100) Ability to Spend Income Wealth Real Disposable Income (% y-o-y) Continuing Jobless Claims (000 s) Unemployment Rate (%) Gasoline Prices ($/gallon) Mtge Refis. (MBA VREFI Index) Household Net Worth ($tr, eop) Ratio of Household Assets to Liabilities Median Home Sale Price (% y-o-y) Savings Rate (%) Source: Bureau of Labor Statistics, Federal Reserve and Barclays Capital Estimates 4

5 Willingness to Spend Source: The Conference Board 5

6 Ability to Spend Pressured with Net Negative Fundamentals Positives Declining Energy Prices Savings Rate Over the Long Term Dominant Countering Factors Job Market Deteriorating Declining Wealth Effect from Housing Market Malaise Real Disposable Income Growth Teetering on Negative Territory Increased Savings Rates Over Near Term Wild Card: Obama s American Recovery and Reinvestment Plan Source: Barclays Capital 6

7 Ability to Spend Labor Market 7

8 Ability to Spend Labor Market 8

9 Economic trends remain unfavorable Goldman economists expect unemployment rate to reach 9% in 4Q2009. Source: Goldman Sachs Economics Research 9

10 Ability to Spend Energy Prices 10

11 Ability to Spend - Wealth It has been 50+ years since all asset categories have declined at the same time! 11

12 Ability to Spend - Wealth 12

13 Ability to Spend - Wealth 13

14 Consumer borrowing will be difficult Consumers will continue to find it difficult to borrow. With loans marketed to market in a period of widening spreads new loans are like driving a new car off the dealers lot worth less as soon as it goes out the door! Source: Federal Reserve Board Source: Freddie Mac 14

15 Bank Lending Standards 15

16 Home Equity Extraction and Revolving Credit Cash availability from home equity loans has disappeared. 16

17 Growth in Consumer Spending?? 17

18 Discretionary cash flow definition Source: BEA, Federal Reserve, Haver, Goldman Sachs Research 18

19 Discretionary cash flow is highly correlated to same-store sales (1) sales-weighted; excludes Food and Drug Source: Company data, BEA, Federal Reserve, Haver, Goldman Sachs Research. 19

20 Selected Same Store Sales Data 20

21 Selected Retail Inventory Levels Inventory reductions have not matched decline in sales creating pressure on margins. 21

22 Mall traffic trends Source: Shopper track; Goldman Sachs Research 22

23 Equity Performance Valuation of retailers have given up all of the gains over the past 5-8 years! 23

24 Key numbers in the US economic outlook Good news is low cost of borrowings problem is lack of lending! Strength of dollar should reduce cost of goods Source: Goldman Sachs 24

25 Sector Overview Sector view: Neutral (staple: positive; discretionary: negative) Discretionary retail: Avoid department stores, apparel companies and home improvement retailers Negative view owing to consumer spending Top-line and margin pressure, as discounting is likely to be aggressive Staple retail: Discounters grocers are well positioned to weather current economic conditions Positive view due to defensive characteristics Macro: Weak economy driven by GS economists view that unemployment rate (a top consideration and indicator for retailers prospects) will reach 9% in 2H2209 Retail sales will probably weaken further Consumer defaults continue to increase, coupled with limited credit availability to fund purchases 25

26 There is a Light at the End of the Tunnel $25 + billion of sales from stores that have or will soon close will be redistributed to those stores remaining open! These incremental sales will be highly profitable. Reductions in cost structure will provide excellent operating leverage when sales rebound. 26

27 That was fun, wasn t it? 27

28 EXHIBITS 28

29 Discretionary Cash Flow Sensitivity 29

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33 Discretionary Cash Flow 33

34 RILA Logistics ARS Results - Dallas How long do you think the recession will last? 1. through June 2009 (6 months) 2. sometime in the third or fourth quarter of 2009 (6-12 months) 3. first half of 2010 (12-18 months) 4. second half of 2010 (18-24 months) or beyond 44% 34% 16% 1% 5%

35 RILA Logistics ARS Results - Dallas How high does unemployment (currently at about 7.5%) get at its nadir? 1. less than 8% % %-9% % 5. More than 10% 40% 29% 14% 17% 1%

36 RILA Logistics ARS Results - Dallas Where do you think same store sales will wind up in 2009 vs 2008? 1. up 2. flat 3. down less than 5% 4. down 5-10% 5. down more than 10% 43% 30% 19% 4% 5%

37 RILA Logistics ARS Results - Dallas How is your company planning inventory for 2009 vs 2008 on a Sq. Foot basis? 1. up 2. flat 3. down less than 5% 4. down 5-10% 5. down more than 10% 35% 24% 15% 18% 7%

38 RILA Logistics ARS Results - Dallas Up to what of level of sales decline can your company cut expenses as an offset before overhead and distribution inefficiencies materially hurt profits? 1. negative 1-2% 2. negative 2-3% 3. negative 3-4% 4. negative 4-5% 5. 5 or more % 30% 25% 26% 15% 3%

39 RILA Logistics ARS Results - Dallas How were your distribution costs in 2008 vs 2007? 1. higher 2. essentially the same 3. lower 48% 22% 30% 1 2 3

40 RILA Logistics ARS Results - Dallas Where do you expect distribution costs to be in 2008 vs 2009? 1. higher 2. essentially the same 3. lower 67% 13% 21% 1 2 3

41 RILA Logistics ARS Results - Dallas How have you MOST changed your supply chain to adapt to the current environment? 1. more direct importing 2. less direct importing 3. domestic logistics improvements 4. other means (like pressuring your vendors for lower prices or better terms) 52% 34% 10% 4%