Author: Chad Symens

November 13, 2014

Firming home prices in markets across the country contributed to a slight dip in nationwide housing affordability in the third quarter of 2014, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), released today.

In all, 61.8 percent of new and existing homes sold between the beginning of July and the end of September were affordable to families earning the U.S. median income of $63,900.  This is down from the 62.6 percent of homes sold that were affordable to median income earners in the second quarter.

The national median home price increased from $214,000 in the second quarter to $221,000 in the third quarter.  Meanwhile, average mortgage interest rates decreased from 4.44 percent to 4.35 percent in the same period.

“Low mortgage rates, strong job growth and affordable home prices make this a good time to buy a home,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“Even with nationwide home prices reaching their highest level since the end of 2007, affordability still remains fairly high by historical standards,” said NAHB Chief Economist David Crowe.  “Rising employment and incomes, interest rates that remain near historically low levels, and pent-up demand should contribute to positive momentum heading into next year.”

Youngstown-Warren-Boardman, Ohio-Pennsylvania claimed the title of the nation’s most affordable major housing market, as 89.1 percent of all new and existing homes sold in this year’s third quarter were affordable to families earning the area’s median income of $52,700.  Meanwhile, Cumberland, Maryland-West Virginia and Kokomo, Indiana each tied as the most affordable smaller market, with 94.8 percent of homes sold in the third quarter being affordable to those earning the median income of $54,100 in Cumberland and $56,900 in Kokomo.  Other major U.S. housing markets at the top of the affordability chart in the third quarter included Syracuse, New York; Indianapolis-Carmel, Indiana; Harrisburg-Carlisle, Pennsylvania; and Dayton, Ohio; in descending order.

Meanwhile, smaller markets joining Cumberland and Kokomo at the top of the affordability chart included Davenport-Moline-Rock Island, Iowa-Illinois; Mansfield, Ohio; and Springfield, Ohio; in descending order.  For an eighth consecutive quarter, San Francisco-San Mateo-Redwood City, California was the nation’s least affordable major housing market.  There, just 11.4 percent of homes sold in the third quarter were affordable to families earning the area’s median income of $100,400.

Other major metros at the bottom of the affordability chart were Los Angeles-Long Beach-Glendale, California; Santa Ana-Anaheim-Irvine, California; San Jose-Sunnyvale-Santa Clara, California; and New York-White Plains-Wayne, New York-New Jersey; in descending order.

All five least affordable small housing markets were in California.  At the very bottom was Napa, where 10.2 percent of all new and existing homes sold were affordable to families earning the area’s median income of $70,300.  Other small markets included Santa Cruz-Watsonville, Salinas, Santa Rosa-Petaluma, and San Luis Obispo-Paso Robles; in descending order.

Source: National Association of Home Builders

November 3, 2014

New Orders, Employment and Production Growing; Inventories Growing; Supplier Deliveries Slowing

Economic activity in the manufacturing sector expanded in October for the 17th consecutive month, and the overall economy grew for the 65th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business. 

The report was issued today by Bradley J.  Holcomb, CPSM, CPSD, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.  “The October PMI registered 59 percent, an increase of 2.4 percentage points from September’s reading of 56.6 percent, indicating continued expansion in manufacturing.  The New Orders Index registered 65.8 percent, an increase of 5.8 percentage points from the 60 percent reading in September, indicating growth in new orders for the 17th consecutive month.  The Production Index registered 64.8 percent, 0.2 percentage point above the September reading of 64.6 percent.  The Employment Index grew for the 16th consecutive month, registering 55.5 percent, an increase of 0.9 percentage point above the September reading of 54.6 percent.  Inventories of raw materials registered 52.5 percent, an increase of 1 percentage point from the September reading of 51.5 percent, indicating growth in inventories for the third consecutive month.  Comments from the panel generally cite positive business conditions, with growth in demand and production volumes.”

Manufacturing expanded in October as the PMI registered 59 percent, an increase of 2.4 percentage points when compared to September’s reading of 56.6 percent.  This is the same reading as reported in August 2014, which is the highest reading for the index since March of 2011 when it registered 59.1 percent.  A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy.  Therefore, the October PMI indicates growth for the 65th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 17th consecutive month.  Holcomb stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (55.6 percent) corresponds to a 4.1 percent increase in real gross domestic product (GDP) on an annualized basis.  In addition, if the PMI for October (59 percent) is annualized, it corresponds to a 5.2 percent increase in real GDP annually.”

Of the 18 manufacturing industries, 16 are reporting growth in October.

Source: Institute for Supply Management

November 13, 2014

J.C. Penney is in the final phase of its turnaround and the company’s stores are customers’ preferred destination for great style, quality and value, according to company CEO Mike Ullman.

Those comments came after J.C. Penney said its third quarter same store sales were flat and it forecast a fourth quarter comp increase of 2% to 4%.  Total sales in the quarter ended November 1 declined slightly to $2.76 billion from $2.78 billion.

The company reported an operating loss of $54 million, but that was a massive improvement from the prior year when the company reported a staggering operating loss of $401 million.  Other positives from the quarter were gross margins which expanded to 36.6% of sales, compared to 29.5% in the same quarter last year, thanks to strength in the home and fine jewelry categories.  The company also reduced expenses and reduced inventories by 10.4%.

“This quarter shows the progress we are making in the final phase of J.C. Penney’s turnaround.  We continued to significantly improve the profitability of our business with gross margin expansion of 710 basis points, a $342 million improvement in EBITDA and bottom-line financial results that exceeded even our own expectations,” Ullman said.  “Like most retailers, following a strong start to the back-to-school season, sales did slow in September and October as unseasonably warm weather hindered the sale of fall goods.”

Ullman’s observation on the third quarter was that during what he called “appointment shopping periods” such as back to school and holidays, J.C. Penney is the customers’ preferred destination for discovering great style, quality and value.

“This year, we are confident customers will once again choose J.C. Penney for meaningful holiday gifts that fit their family budget.  We are well positioned to complete this holiday season and I would like to thank our associates for their hard work, warrior spirit and commitment to delivering an exceptional customer experience every day,” Ullman said.

Source: Retailing Today

November 13, 2014

Kohl’s is heading into the holidays with a loss of momentum after third quarter same store sales declined 1.8% and the company missed analysts’ earnings estimate by four cents.

The third quarter comp decrease of 1.8% was on top of a prior year decline of 1.6%.  Total sales at the operator of 1,163 stores declined slightly to $4.37 billion from $4.44 billion.  Net income declined to $142 million, or 70 cents a share, from $177 million, or 81 cents a share.

The 1,163 stores Kohl’s operated at the end of the quarter was five more units than the company had in operation at the end of the third quarter the prior year.

Source: Retailing Today

November 13, 2014

A third quarter same store sales decline of 1% at Dillard’s wasn’t enough to dissuade CEO William Dillard, II from declaring the company is very well positioned for the holidays.

Total merchandise sales also declined 1% to $1.42 billion while net incomes increased to $55.2 million, or $1.30 a share, compared to $50.9 million, or $1.13 a share.  The third qurater earnings per share benefited from a one time gain of $3.8 million, or nine cents a share, related to the sale of a store location.

“Returning cash to shareholders was a high priority during the quarter, and we completed the remaining $224 million of share repurchase authorization,” Dillard said.  “Although comparable sales declined 1%, we were pleased with a 69 basis point merchandise gross margin improvement, with our inventory control and with our strong operating cash flow.  We believe we are positioned very well for the holiday season, and we look forward to providing premium Dillard’s service to our customers.”

The company said its sales trends were strongest in juniors’ and children’s apparel followed by men’s apparel and accessories.  Sales were weakest in the home and furniture category.  Sales trends were strongest in the central region, followed by the eastern and western regions, respectively.

Source: Retailing Today

November 13, 2014

Walmart’s same store sales turned positive during the third quarter, ending a two year drought, prompting the company to forecast a U.S. comp increase of as much as 1% during the fourth quarter.

Third quarter same store sales at U.S. stores increased 0.5% and were aided by inflation and the impact of a 5.5% comp increase at the company’s Neighborhood Market locations.  Fourth quarter comps at U.S. stores are forecast to be flat or up 1%.  One percent may not sound like much, but if realized or possibly exceeded the additional sales volume would be substantial considering the U.S. stores division generated third quarter sales of $70 million, a 3.4% increase from the prior year.

Total company sales increased 2.8% to $118.1 billion, including a negative impact of nearly $400 million related to currency exchange fluctuations.  Profits declined 0.7% to $3.7 billion, but earnings per share increased by a penny from the prior year to $1.15, squarely in the middle of the company’s guidance range of $1.10 to $1.15 and three cents better than analysts forecast.  Walmart’s earning per share calculations benefited from the repurchase of 1.1 million shares during the quarter.

Despite the slight advance in earnings, Walmart Stores, Inc., president and CEO Doug McMillon called the profit performance “solid.”  He singled out as positives the U.S. stores comp increase, a 21% increase in e-commerce sales and profitablility of the Sam’s Club and Walmart International businesses.

“We’re investing in key areas of our business, including wages in our U.S. stores and in e-commerce and mobile capabilities.  We continue to see opportunities to improve our business,” McMillon said.  “Being the price leader is an ongoing priority for us and a commitment to customers.  As with every year, that is even more important during the holiday season.  We have some things in our favor this fourth quarter, including lower fuel prices in the U.S. and other key markets, and we’re set to deliver for customers during this time.”

Same store sales at Sam’s Club, excluding fuel, increased 0.4% and total sales, excluding fuel, increased 2.3% to $12.7 million.  Despite the modest top line growth, operating profits increased 12% to $493 million, the strongest improvement of Walmart’s three divisions.

Walmart International sales increased 1.7% to $33.7 billion, but on a constant currency basis increased 2.9% to $34.1 billion.  Operating profits increased 3.7% to $1.43 billion.  Operating profits at U.S. stores declined 1.2% to $4.9 billion.

Looking forward, Walmart forecast fourth quarter earnings between $1.46 and $1.56 and full year earnings per share to range from $4.92 and $5.02, lower than the company’s earlier guidance of $4.90 to $5.15.

“Our earnings per share guidance assumes several important factors, including the economic conditions in several of our largest markets, and a highly promotional holiday season,” said Walmart CFO Charles Holley.  “As a reminder, our full year EPS guidance includes the four factors we discussed last quarter, which were higher U.S. health-care costs, incremental investments in e-commerce, ongoing investments in Sam’s Club, and our effective tax rate.”

Source: Retailing Today 

November 12, 2014

Procrastinators and bargain hunters alike are taking their time getting started with their holiday shopping bonanza, possibly to take advantage of deeper discounts over Thanksgiving weekend and late in the season.  According to NRF’s Holiday Consumer Spending Survey, 45.6 percent of holiday shoppers say they haven’t started shopping yet, relatively flat with last years’ 46.2 percent but the lowest in the sruvey’s seven-year history.

“Many consumers are going to wait and see how great the promotions will be later this season before making any commitments,” said NRF President and CEO Matthew Shay.  “Retailers have reacted to this ‘wait and see’ mentality with fewer October deals and a much quieter entry into November, when we’ll start to see retailers ramp up with offers for exclusive merchandise, deep discounts and unique online savings opportunities.”

The survey found that while slightly fewer people haven’t started shopping yet, 20.6 percent have finished 10 percent or less of their shopping, while 12.4 percent have completed about one-quarter of their lists; 2.2 percent are saying they can sit back and relax as they have already finished their shopping for friends and family.

Unsurprisingly, apparel, toys and video games will be popular gift items this year.  The survey found six in 10 (60.9%) will buy clothing and accessories, 46.3 percent will buy books, CDs, DVDs and video games, and two in five (42%) will buy toys.  Likely having loaded up on wearable technology items and new smartphones throughtout the year, slightly fewer people will buy electronic items as gifts (30.7% vs. 33%).  Some people are in for a real treat: 24 percent of shoppers will buy jewelry for a friend or family member, the highest percent since 2006.  Gift cards continue as a favorite for both shoppers and recipients as six in 10 (60%) will buy gift cards, similar to the 59.2 percent who planned to do so last year.  In an October NRF survey, 60 percent of shoppers also said they’d like to receive gift cards, making gift cards the most requested gift item for eight years in a row.

Shoppers look for inspiration for gifts from every corner, and with the innovative creation of retailers’ wish lists, many consumers this holiday season will take to the web to point loved ones to specific, perfect gift ideas.  The survey found 32.1 percent say they will look for inspiration on wish lists, up from 28.8 percent last year.  Others will conduct online searches (47.7%), discuss options with family and friends (41.7%), check out advertising circulars (34.3%) and email advertisements (20.1%), and even search Facebook (10.6%).

“Retailers make holiday shoppers’ job easy with so many options to find the perfect gift, and with little room to waste on gifts that don’t make sense, consumers today want to be sure what they buy is used and enjoyed by their loved ones.  On the hunt for bargains, quality merchandise that is unique and even exclusive, gift givers this holiday season will seek out both practical and indulgent gift items, though being sure not to break the bank.”

When it comes to how shoppers will pay for their gifts, nearly four in 10 (38%) will use their credit card, the most in the survey’s history and up from 28.5 percent last year; one in five (21.6%) will use cash and 38.4 percent will use their debit or check card.  Just 2.1 percent will use a check, the lowest in the survey’s history.

When broken down by age group, young adults ages 18-24 are the least likely to use credit to pay for gifts at just 17.7 percent, and 65+ are the most likely to use credit cards at 56 percent.  Nearly half of 18-24 year olds (48.9%) plan to use their debit or check card to buy gift items.

Source: Retailing Today 

November 12, 2014

World economic growth, which stands at 3.2 percent for 2014, will accelerate modestly to 3.4 percent in 2015, The Conference Board reported today.

The Conference Board Global Economic Outlook provides output growth projections for 2015, 2015-2019, and 2020-2025, including 11 major regions and over 50 mature and emerging economies.  Overall, annual global growth is projected to average 3.3 percent from 2015-2019, but could decline to an average of 2.7 percent in the period 2020-2025 on the basis of the current trend.  According to the Outlook, long-term growth around 3 percent is sufficient to sustain a moderate increase in global living standards, but is too low to meet all the future challenges posed by rising middle classes in emerging markets and aging populations in mature economies.

“Growth in 2014 met our cautious projections, which were at the low end of analysts’ views,” said Bart van Ark, Chief Economist of The Conference Board.  “Optimists are poised to be similarly disappointed in 2015 – and more so as the long-term growth trend dips below 3 percent.  While many in both advanced and emerging economies continue to await a ‘full recovery’ to pre-crisis growth rates, we believe businesses and policymakers would stand better to focus on managing three key macroeconomic certainties that will define the slowdown in the decade ahead: First, a looming labor shortage; second, a drop in productivity growth; and finally, a lack of investment in productive assets.”

Recovery “Bonus” Shrinking for Mature Economies

Across the advanced economies, the Outlook predicts 2.3 percent growth in 2015, compared to 1.9 percent in 2014.  Growth in the Euro Area should improve to 1.6 percent from 0.9 percent in 2014; Europe as a whole is projected to grow 2.0 percent.  This modest spike in recovery is expected to last a few years and is apt to bring European growth somewhat higher – and closer to U.S. levels – than anticipated by the current consensus forecasts.  Beyond a brief period of upside potential, however, the long-term picture remains stagnant: The Outlook sees Euro Area growth averaging 1.9 percent across 2015-2019, before dipping back to 1.2 percent in 2020-2025.

Meanwhile, U.S. growth is expected to rise from 2.2 percent in 2014 to 2.6 percent in 2015.  This improvement reflects an economy steadily returning to full capacity – and will be difficult to sustain into the future as the risks of slower productivity growth sink in.  In the medium-term, the Outlook does expect the U.S. to sustain 2.4 percent annual growth during 2015-2019, but the long-term trend sees growth slowing to just 1.9 percent in 2020-2025.  In the same two periods, Japan is expected to grow at 1.4 percent and 1.1 percent, respectively.

“For much of this decade, forecasters have assumed that mature economies still face a large output gap between their actual production and their potential performance if operating at full capacity,” said van Ark.  “This offered a recovery ‘bonus’ that would allow advanced economies to make up what was lost in the recession at growth rates higher than the longer-term trend.  While the U.S., Europe, and others will still see some of these effects in 2015 and the following few years, we believe the output gaps have shrunk considerably and any post-recession ‘bonus growth’ will be relatively small and fleeting.”

Easy Growth Coming to and End in Emerging Economies – and the World

From the late 1990s until recently, emerging markets have powered the global economy, based on an unprecedented growth differential between emerging and advanced economies.  This historical anomaly is fading as many emerging economies are entering a phase in which rapid catch-up growth has come to an end, with the need for serious, long-term and politically problematic economic reforms coming to the fore.  In 2014, positive growth surprises in India and Mexico couldn’t offset major disappointments in Brazil and Russia, while China’s extended “soft fall” proceeded apace.

Overall, growth in developing and emerging economies is projected to inch down to 4.7 percent in 2015, compared to 4.8 percent in 2014 and 6.2 percent in 2010-2013.  The slowdown will be largely driven by the Chinese economy, for which growth is anticipated to decline further in 2015 to 6.5 percent, down from 7.3 percent in 2014.  Other large emerging markets will remain stagnant or see slight improvements in 2015, with growth projected at 5.5 percent in India; 4.3 percent in the rest of developing Asia; 1.8 percent in Latin America; and 3.4 percent in the Middle East and North Africa.  Sub-Saharan Africa will see solid growth improvement, from 4.2 to 5.0 percent, while growth will rebound to a still-anemic 1.4 percent in Russia, Central Asia, and Southeast Europe.

Looking further ahead, the medium trend in Chinese growth is projected to fall to an average of 5.5 percent in 2015-2019 and 3.9 percent in 2020-2025.  The corresponding numbers in India are 5.5 percent and 5.0 percent, meaning the Indian economy is likely to be growing significantly faster than China’s by the beginning of the next decade, making it a potential bright spot and strengthening contender in the global market.  Growth throughout 2015-25 should average 3.1 percent in Brazil and 2.8 percent in Mexico.  By the middle of the 2020s, emerging markets will still substantially outpace advanced economies – growing at an average 3.7 percent versus 1.8 percent – but by perhaps the smallest margin in a generation.

“While the growth contributions from emerging economies are by no means gone, and their growth will continue to be faster than that of mature economies, the significant downshift in their growth trajectories should make us aware that success from the recent past provides no guarantees for the future,” explained van Ark.  “For the year ahead in particular, the confluence of multiple geopolitical fissures in Eastern Europe, the Middle East, Western Asia, and (to a less urgent extent) the South China Sea make it even less likely that an emerging-market boom will ride to the rescue of global growth, as it has in the recent past.”

While the global picture appears downcast, it does offer opportunities for firms and governments with a realistic understanding of the challenges.  Ultimately, this decade of slower growth could offer a foundation for overcoming the risk of extended stagnation.

“At 3 percent global growth on average,” said van Ark, “the next ten years may come to look like the 1980s – a time of modest growth during which structural reforms in many economies facilitated the transition from the old post-World War II ‘golden years’ to an era driven by the rise of services and new innovations.”

Source: The Conference Board 

November 12, 2014

Macy’s third quarter sales were lower than expected but the company still managed to grow profits by 30% and expressed optimism regarding the fourth quarter.

The department store retailer said same store sales declined 0.7% while total sales declined 1.3% to slightly less than $6.2 billion during the third quarter ended November 1.  Net income increased 22.5% to $217 million while earnings per share, aided by the repurchase of nine million shares, increased 30% to 61 cents a share.

“We knew we were up against very strong third quarter sales growth for our company last year, and thus we had anticipated that our year-over-year comparison would be lower in the third quarter than in the fourth quarter.  Even so, sales did not live up to our expectations in the quarter,” Lundgren said.

Looking forward, the company said it expects same store sales to increase 2% to 3% in the fourth quarter, but also lowered its full year profit forecast to a range of $4.25 to $4.35 cents from a range of $4.40 to $4.50 cents.

Lundgren said he is optimistic about the fourth quarter for a variety of reasons, including strong digital capabilities.

“First we have developed an outstanding merchandise assortment for holiday gift-giving and self-purchase rooted in great style, exclusive offerings and outstanding value during this key shopping period,” Lundgren said.  “Second, we have enhanced our transition to fresh post-holiday vacation and resort assortments.  Third, we have new store, omnichannel and marketing strategies in place that we believe will drive incremental business throughout the fourth quarter.”

For example, Macy’s said its buy online pickup in store capability is now rolled out to full-line Macy’s and Bloomingdale’s locations and it has same day delivery pilots up and running in eight major Macy’s markets and four Bloomingdale’s markets.  The company said it also has improved functionality and usability in upgraded mobile apps.

Lundgren is also counting on the weather to lend a hand this holiday season.

“We are poised to capitalize on a return to more normalized weather patterns after the unusually severe snowstorms in the fourth quarter last year,” Lundgren said.

Source: Retailing Today

November 6, 2014

Builder confidence in the single-family housing market for the third quarter is up year over year, according to the National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today.  Compared to the third quarter of 2013, the single-family index jumped nine points to a level of 59, which is the highest third-quarter reading since the inception of the index in 2008 and the 12th consecutive quarter of year over year improvements.

“Demand for 55+ housing has never been higher, and this quarter’s index clearly demonstrates that,” said Steve Bomberger, chairman of NAHB’s 50+ Housing Council and president of Benchmark Builders Inc. in Wilmington, Delaware.  “Consumers in this market are looking for a home that caters towards their specific needs, and 55+ builders and developers are able to create homes and communities that address these needs.”

There are separate 55+ HMIs for two segments of the 55+ housing market: single-family homes and multifamily condominiums.  Each 55+ HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic).  An index number below 50 indicates that more builders view conditions as poor than good.

All components of the 55+ single-family HMI posted increased from a year ago: present sales jumped 13 points to 65, expected sales for the next six months climbed 10 points to 63 and traffic of prospective buyers rose three points to 46.

The 55+ multifamily condo HMI posted a four-point gain to a reading of 41, which is also the highest third-quarter reading since the inception of the index.  All components of the index increased for the third quarter: present sales rose five points to 42, expected sales for the next six months climbed three points to 43 and traffic of prospective buyers increased three points to 38.

The indices tracking production and demand of 55+ multifamily rentals also posted positive results in the third quarter.  Present production rose four points to 52, expected future production increased two points to 52, current demand for existing units climbed four points to 64 and future demand increased five points to 65.

“The consistent rise in home equity has contributed to the strong gains in the 55+ housing market,” said NAHB Chief Economist David Crowe.  “Many consumers who had been sidelined due to the inability to sell their current homes at an acceptable price are now in a position where they can sell their homes, enabling them to rent or buy in a 55+ community.”

Source: National Association of Home Builders