Author: Chad Symens

October 16, 2014

After four consecutive monthly gains, builder confidence in the market for newly built single-family homes fell five points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market (HMI), released today.

“We are seeing a return to the mid-50s index level trend established earlier in the summer, which is in line with the gradual pace of the housing recovery,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“While there was a dip this month, builders are still positive about the housing market.”  After the HMI posted a nine year high in September, it’s not surprising to see the number drop in October,” said NAHB Chief Economist David Crowe.  “However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”  The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”  Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI components declined in October.  The index gauging current sales conditions decreased six points to 57, while the index measuring expectations for future sales slipped three points to 64 and the index gauging traffic of prospective buyers dropped six points to 41.

Looking at the three month moving averages for regional HMI scores, the Northeast and Midwest remained flat at 41 and 59, respectively.  The South rose two points to 58 and the West registered a one point loss to 57.

Source: National Association of Home Builders

October 15, 2014

A much anticipated acceleration of small format Walmart stores failed to materialize on Wednesday when the retailer announced plans to curtail domestic new store growth in 2016.

Walmart said it would open between 200 and 220 Neighborhood Market stores and 60 to 70 supercenters next year.  Both figures are below the company’s projections for current year openings.  Walmart said it will end its current fiscal year with 240 Neighborhood Market stores, below the range of 270 to 300 openings that had been forecast earlier in the year.  The number of supercenters that will open this year is expected to be 120 units, slightly higher than the projection shared at the beginning of the year.

As a result, Walmart said its capital expenditures in the U.S. would range between $6.1 billion and $6.6 billion compared to $6.6 to $6.9 billion during the current year.  Total capital expenditures, including international operations, Sam’s Club and e-commerce, in 2015 are expected to range from $11.6 billion to $12.9 billion, below the $12.5 billion to $13 billion the company expects to spend this year which is below the $13.1 billion spent in 2013.

“We know that our supercenters are an important format for the stock-up trip, but we want to be thoughtful about our investment, ensuring that we align the space to evolving customer needs,” said Walmart U.S. president and CEO Greg Foran.  “To do this, we will moderate supercenter growth in fiscal 2016.  Our investment in Neighborhood Markets will go forward because they continue to show strong results across the box and they provide our customers with convenient access to grocery, pharmacy services, and other quick-trip needs.”

The reduced pace of supercenter expansion isn’t surprising as Walmart currently operates 3,375 of the large stores, but Neighborhood Market is a different story.  Walmart currently operates 428 Neighborhood Market stores and in prior meetings with analysts and during quarterly earnings calls the company has raved about the strong mid-single digit same store sales performance of the small format food and drug stores.  In recent weeks, the company also implemented a new organizational structure which appeared to foretell of greater things to come for a concept said to be gaining share.

Offsetting the reduced pace of physical expansion, Walmart said it was increasing investment in e-commerce to a range of $1.2 billion to $1.5 billion, ahead of current year spending of roughly $1 billion and well ahead of the $400 million spent in 2013.  Those investments will enable the company to build one million square foot online fulfillment centers in Georgia and Pennsylvania and new facilities in Brazil and China.

The increased e-commerce spending comes as Walmart failed to realize current year online sales targets.  The company said current year e-commerce sales will total roughly $12.5 billion, roughly $500 million less than guidance for e-commerce sales of $13 billion shared last year at this time.

Overall, Walmart presented a fairly bleak outlook at its 21st annual fall investor conference which explained why the company’s shares tumbled $2.78 on Wednesday.  In addition to the reduced physical expansion and less than expected online sales, the company said it is operating in a tougher sales environment than it anticipated a year ago.  Consequently, sales for the current fiscal year are expected to increase between 2% to 3% on top of last year’s sales of $473.1 billion.

The rate of sales growth in 2015 has the potential to improve slightly, based on guidance the company provided at its meeting.  Sales are forecast to increase between 2% and 4% next year resulting in the addition of between $10 billion and $20 billion in sales volume.  However, at that rate of growth profits will come under pressure as Walmart said its operating expenses are expected to grow at a somewhat faster rate which in turn will cause operating income to be flat to slightly down in 2015.

Despite a number of worrisome disclosures at the meeting, Wal-Mart Stores, Inc., president and CEO Doug McMillon sought to reassure members of the financial community that the company’s prospects are bright.

“This is an exciting time for Walmart, as there are so many new ways to serve customers.  Exceeding customer expectations has always been our goal, and we have short and long-term opportunities to do that even better,” McMillon said.  “We’ll change the mix of our capital spend next year to provide greater access, while continuing to focus on price leadership, service, and a broad assortment.  We’ll give customers the choices they want and need in ways that only Walmart can.”

Source: Retailing Today

October 15, 2014

The National Retail Federation calculates that September retail sales – excluding automobiles, gasoline stations and restaurants – decreased 0.1 percent seasonally adjusted month-to-month yet increased 4.6 percent unadjusted year-over-year.  While seasonal factors were apparent, especially in August’s downward revision, the drop-off in retail sales was worse than expected.

“Retail sales were surprisingly weak in September,” NRF Chief Economist Jack Kleinhenz said.  “Despite increasing consumer confidence, an uptick in employment, lower gas prices, and with inflation in check, consumers still slowed spending.  Reconciling consumer confdence with consumer spending continues to be a challenge.”

“The consumer appears to have a brighter economic outlook heading into the holiday shopping season,” Kleinhenz said.  “However the erratic stock market, geopolitical events and Ebola may contribute to continued volatility.  Despite the weak results this month, our outlook remains positive.”

Most retail categories witnessed a decrease in sales in September, including clothing, online and nonstore retailers, but the release of new smartphones lifted electronics sales.

Additional findings from NRF’s retail sales analysis include:

• Building material and garden equipment and supplies delaers:
  • -1.1% month-to-month
  • +7% year-over-year
• Clothing and clothing accessories stores:
  • -1.2% month-to-month
  • +3.3% year-over-year
• Electronics and appliance stores:
  • +3.4% month-to-month
  • +8% year-over-year
• Furniture and home furnishing stores:
  • -0.8% month-to-month
  • +2.5% year-over-year
• General merchandise stores:
  • +0.2% month-to-month
  • +2.1% year-over-year
• Health and personal care stores:
  • +0.3% month-to-month
  • +8.1% year-over-year
• Online and other nonstore retailers:
  • -1.1% month-to-month
  • +8.2% year-over-year
• Sporting goods, hobby, book & music stores:
  • -0.1% month-to-month
  • +2.7% year-over-year

Source: Retailing Today

October 14, 2014

A recent study from the National Association of Home Builders (NAHB) revealed significant regional differences in new single-family home characteristics, ranging from price, design features, building materials and even financing.  The new findings come from analysis of the 2013 Census Bureau Survey of Construction.

Of the homes built for sale, the most expensive homes are in New England where the median sales price of new single-family homes started in 2013 reached $400,000.  The least expensive homes are in the East South Central and West South Central divisions with median sales price reaching $221,000 and $223,000 respectively.  Regional differences in home size however do not seem to correlate to home prices.  The nation’s most expensive homes in New England also ranked as some of the smallest with the median size of 2,240 square feet.

“This recent analysis really illustrates the many different types of homes built throughout the country,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “It is fascinating to see how newly built homes can vary significantly not only in design features and building materials, but also in terms of lot size, home prices and financing methods used, simply based on where a home is built.”

Regional home design differences include variations in siding preferences, the number of floors in a home and the type of foundation used.  Nationally, vinyl is the most common primary siding material, used in close to 31 percent of new single-family homes started in 2013, with brick following at nearly 24 percent.  Regional variations in home siding are significant however, with vinyl dominating in the Northeast and Midwest, brick in the South, and stucco was the top choice for new single-family homes in the West.

When it comes to home foundations, most homes in colder climates such as the Northeast and Midwest have basements, unlike new single-family homes in the South that are more typically built on a slab.  The data also showed that 58 percent of the homes built nationwide last year had two or more stories.  Similarly, most of the homes built in the Northeast are two stories, and more than half of the homes started last year in the West have two or more stories.  The South region varies within division but ranges from 47-65 percent of homes built with two or more stories.  In contrast however, more than half of new homes started in the Midwest have only one story.

Among outdoor features, porches ranked as the most popular feature nationwide.  Patios however dominate the new home building in the West South Central division and are as common in the West.  Despite a decline in popularity nationwide, decks remain a top choice for single-family homes built in New England where 63 percent of new homes are built with the feature.

Source:  National Association of Home Builders

October 10, 2014

Import cargo volume at the nation’s major retail container ports is expected to see a final surge and set a new monthly record in October as the holiday season approaches, according to the monthly Global Port Tracker report released late this week by the National Retail Federation.

“Increasing congestion at the nation’s ports as well as the ongoing West Coast labor negotiations are ongoing concerns and retailers are making one last push to make sure they’re stocked up for the holidays,” said NRF VP for supply chain and customs policy Jonathan Gold.  “Retailers are working hard to make sure customers can find what they’re looking for regardless of what happens at the ports.”

Import volume at U.S. ports covered by the Global Port Tracker report is expected to total 1.53 million containers in October, topping the 1.52 million monthly record set in August.  Cargo volume has been well above average each month since spring as retailers have imported merchandise early in case of any disruption in the docks.

The contract between the Pacific Maritime Association and the International Longshore and Warehouse Union expired on July 1, prompting concerns about potential disruptions that could affect back-to-school and holiday merchandise.  Dockworkers remain on the job as negotiations continue but the lack of a contract and operational issues have led to record congestion at the ports.

The 1.52 million 20 ft. equivalent units handled in August, the latest month for which after-the-fact numbers are available, was up 1.5% from July and 2.1% from August 2013.  One TEU is one 20 ft. cargo container or its equivalent.

September was estimated at 1.48 million TEU, up 2.8% from the same month the prior year, and October’s forecast of 1.53 million TEU would be up 6.4% from 2013.  November is forecast at 1.39 million TEU, up 3.7%, and December at 1.37 million TEU, up 3.9%.

Those numbers would bring 2014 to a total of 17.1 million TEU, an increase of 5.3% from 2013’s 16.2 million.  Imports in 2012 totaled 15.8 million.  The first half of 2014 totaled 8.3 million TEU, up 7% from the previous year.

January 2015 is forecast at 1.42 million TEU, up 3.5% from January 2014, while February is forecast at 1.35 million TEU, up 8.5% from the previous year.

The import numbers come as NRF is forecasting 4.1% holiday season sales growth and 3.6% growth for 2014 overall.  Cargo volume does not correlate directly with sales but is a barometer of retailer’s expectations.

Source: Retailing Today

October 7, 2014

The 2014 holiday shopping season will be characterized by cautious spending, while economic realities create one of two American holiday shoppers – survivalists and selectionists – according to a new report released from PricewaterhouseCoopers U.S. and Strategy, titled “2014 Holiday Outlook: Top trends, consumer behaviors and implications for retailers.”

The report was based on a survey of more than 2,000 shoppers nationwide and was far different from the National Retail Federation’s bullish seasonal spending forecast.

“The upcoming holiday shopping season will look very similar to 2013 as shoppers remain cautious on the economy and are concerned about disposable income, the rising cost of living and insufficient salary, leading surveyed participants to project an average household spend of $684, down from $753 in 2013,” stated Steven Barr, PwC’s U.S. retail and consumer practice leader.  “The spending divide among shoppers is widening, creating two distinct groups that we are tracking – survivalists and selectionists – and retailers must cater to both segments.  And with shoppers coming to expect a seamless omnichannel experience, deals to woo them into stores and having no tolerance for another season of data privacy invasion, it’s a complex retail landscape that retailers need to master – or they risk losing loyal shoppers.”

10 trends are expected to drive the 2014 holiday shopping season:

1. Shoppers express strong overall concerns about holiday shopping, as they remain cautious on the economy with 72% believing a same or worse environment when compared to the year before.
2. The 2014 holiday shopper is segmenting into two distinct groups: survivalists – those making under $50,000 per year, representing 67% of American shoppers; and selectionists – those making more than $50,000 per year, representing 33% of American shoppers.
3. Spending drivers are clearer than ever this holiday season, with as many as 84% of shoppers citing best practices as the main reason for choosing a place to purchase gifts (up from 74% in 2013).
4. Expect more channel fragmentation as shoppers budget for not only dollars, but their time.
5. It will be important to understand the cash/credit position of shoppers during the entire season.
6. The 3 S’s of shopping – searching, showrooming and selection – have become permanent.
7. Shoppers are clear about what they will spend their holiday dollars on, making it critical for retailers to differentiate within those categories.
8. Shoppers recognize that experiences are beginning to count just as much, or more, than gifts.
9. Shoppers plan to shop at multiple stores as well as websites.
10. Retailers have significantly upped their game in planning for and investing in improved in-store and omnichannel experiences.

“With consumers having even higher demands for their shopping experience – no matter the channel – we conducted this survey to better understand how retailers can meet the needs of their shopping habits this holiday season,” Barr said.  “What we learned was that to compete effectively at retail this year, it demands a new level of organizational and operational excellence.”

Source: Retailing Today

October 9, 2014

Fred’s CEO Bruce A Efird is confident about the company’s initiatives to reposition the convenience-center model, expand marketing and implement new technology – all factors that he expects will help restore growth in the fourth quarter and next year.

Efird added that the initiatives are already producing positive results, despite customer traffic remaining a challenge in the company’s markets.

Total sales for September increased 3.3% to $183.6 million from $177.8 million in September 2013.  Comparable store sales for the month increased 0.2% on top of an increase of 2.8% in the same period last year.  General merchandise inventory has been significantly lowered, Efird said, and the company’s clearance programs to address unproductive inventory, once again, exceeded the sales plan for September.

Fred’s total sales for the year-to-date period increased 1.5% to $1.32 billion from $1.30 billion for the same period last year.  On a comparable store basis, year-to-date sales decreased 0.5% versus an increase of 0.8% for the year-earlier period.

“Our September comparable store sales continued the positive trend we have experienced in recent months in spite of the strong sales performance posted in the same month last year.  Our initiatives to emphasize our convenience-center model continue to gain traction throughout the business,” Efird added.  Additionally, our pharmacy department performed well with increases in both comparable scripts and sales.  We are very excited to have our new pharmacy prime vendor agreement in place, which will not only accelerate gross margin improvement in the pharmacy department, but will also support our pharmacy expansion initiatives.”

During the month, Fred’s closed five full service stores and one Xpress location.  Fred’s operates 701 discount general merchandise stores, including 21 franchised Fred’s stores, in the southeastern United States.

Source: Retailing Today

October 9, 2014

Family Dollar’s fourth quarter results were affected by decreased customer traffic, prompting chairman and CEO Howard R. Levine to point out that the company is still in the early stages of its turnaround plan.

Levine expects that the strategic actions taken in fiscal 2014 will position the company for better sales and earnings performance in fiscal 2015.  Although he anticipates that the first quarter will be the most challenging of fiscal 2015, Levine is optimistic that momentum will build through the rest of the year.  But he stopped short of giving specific details regarding financial guidance for 2015 in light of the company’s pending merger with Dollar Tree.

Total net sales for the quarter increased 4.5% to $2.61 billion from $2.5 billion in the prior-year quarter.  Comparable store sales increased 0.3% as a result of an increase in the average customer transaction value, partially offset by fewer customer transactions.  Sales in the fourth quarter of fiscal 2014 were strongest in the consumables and seasonal and electronics categories.

Gross profit for the quarter was $861.3 million or 32.9% of net sales.  During the quarter, the company implemented a series of restructuring initiatives, including the closing of 375 underperforming stores.  As a result, the company incurred $10.4 million in inventory write-downs in an effort to sell through merchandise at stores scheduled to close.

Net income in the quarter was $34.5 million compared with $102.2 million in the fourth quarter last year.  Adjusted to exclued the inventory write-downs, restructuring charges and merger fees in the quarter, and the favorable accounting adjustment in the quarter, net income for the quarter was $83.9 million, compared to adjusted net income of $99 million in the fourth quarter last year.

“Although our fourth quarter results continue to reflect the difficult competitive environment, as well as the financial challenges facing our customers, we are continuing to execute our previously announced restructuring initiatives to improve our performance,” added Levine.

Source: Retailing Today

October 9, 2014

Tight mortgage lending standards continue to affect sales for single-family builders across the nation, according to a survey released by the National Association of Home Builders (NAHB).  Well over half of the single-family builders surveyed indicated that lending standards were “tight” or “very tight,” while only 11 percent indicated that standards were “somewhat easy” and no builders described them as “very easy.”

“While housing has seen some positive growth throughout the year, there is no denying that tight credit conditions are hindering a full, healthy housing recovery,” said NAHB Chief Economist David Crowe.  “These persistently tight mortgage credit standards continue to limit the number of creditworthy borrowers, particularly younger families and first-time home buyers, from entering the housing market.”

The survey also asked builders if they had lost any sales over the last six months due to buyers not qualifying for a mortgage.  Eighty-three percent answered “yes,” and of these, the average share of sales lost was 9.7 percent.  NAHB estimates that this 9.7 percent translates to 18,700 new-home sales lost because buyers were unable to qualify for mortgages.

“NAHB advocates for prudent lending standards, but we’ve seen banks and regulators swing the pendulum too far and create an environment where lending standards are too restrictive,” said Kevin Kelly, NAHB chairman and a home builder and developer from Wilmington, Delaware.  “We want a return to reasonable lending standards where qualified borrowers are able to obtain a mortgage and create the American dream for themselves.”

NAHB has supported many housing finance reform policies that would help reverse tight lending conditions, including:

• Improved credit scoring models
• A reduction of guarantee fees – known as g-fees
• Passage of the Housing Finance Reform and Taxpayer Protection Act of 2014 (Johnson-Crapo)
• FHA and FHFA to continue and expand their efforts to reduce lender concern over mortgage insurance denials and forced loan buybacks

A tight lending market for potential home buyers is just one of the headwinds impacting the housing recovery today.  Builders also report that rising costs for building materials and shortages of finished lots and labor are problems they are facing.

Source: National Association of Home Builders

October 7, 2014

Shop.org today released its 2014 online holiday sales forecast, expecting sales in November and December to grow between 8-11 percent over last holiday season to as much as $105 billion.

Shop.org forecasts sales based on government data including consumer credit, disposable personal income, and previous monthly retail sales releases.  Holiday non-store sales in 2013 grew 8.6 percent.

Source: National Retail Federation