Author: Chad Symens

September 19, 2014

Investors don’t seem to care that Home Depot’s data breach is being characterized as the largest ever in the retail sector with shares of the company hitting a new high on Friday.

Home Depot shares touched a 52-week high of $93.75 on Friday, a day after the company disclosed details about an extensive data breach which went undetected for months and compromised the information of 56 million customers.

The company confirmed that the malware used in its recent breach has been eliminated from its U.S. and Canadian networks and provided new details about the completion of a major payment security project designed to increase data security.  The project provides enhanced encryption of payment data at the point of sale in the company’s U.S. stores, offering significant new protection for customers, the company said.  Roll-out of enhanced encryption to Canadian stores will be complete by early 2015.  Canadian stores are already enabled with EMV or “Chip and PIN” technology.

Despite the expense of the IT investigation and remediation efforts, the strength of Home Depot’s business during the period when hackers were stealing customers’ data enabled it to increase its full year profit forecast by two cents to $4.54.  While the updated guidance includes various expenses already incurred, it does not reflect potentially substantial accruals for future losses the company said are probably but cannot be quantified at this time.

Source: Retailing Today

September 19, 2014

The merger between Albertsons and Safeway is expected to close in a few months and when it does the combined company already has a new senior leadership and field operations structure in place.

The companies late Friday announced key leadership positions it said drew on strong talent within both organizations to build an innovative, customer-focused and growth-driven company.

“We are confident in this team’s ability to build a great company that’s positioned to win over the long term by earning the loyalty of grocery shoppers in every market we serve and delivering superior operational and financial results,” said Safeway president and CEO Robert Edwards.

Edwards will serve as CEO of the combined company once the deal closes and current Albertsons CEO Bob Miller will become executive chairman.  The combined company will operate nearly 2,400 stores under banners such as Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, ACME, Albertsons, Jewel-Osco, Lucky, Shaws, Star Market, Super Saver, Amigos, Market Street and United Supermarkets.

“We know the best way to grow our business is to have the highest quality fresh departments, lower prices, clean, well-stocked stores and the best customer service in the market,” Miller said.  “Our teams will focus on delivering what customers want locally, and we will give our store teams more flexibility to make decisions that are right for their neighborhoods.  The division teams will have the responsibility to have the right assortment for their markets.”

Shareholders of both companies approved the merger on July 25 and the deal is now under review by the Federal Trade Commission but is expected to close during the fourth quarter.  The new company will be comprised of three regions and 14 retail divisions that will be supported by corporate offices in Boise, ID, Pleasanton, CA, and Phoenix, AZ.

Source: Retailing Today

September 18, 2014

Led by a steep 31.7 percent decline in multifamily production, nationwide housing starts fell 14.4 percent to a seasonally adjusted annual rate of 956,000 units in August, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  Single-family housing starts dropped 2.4 percent to a seasonally adjusted annual rate of 643,000 units.

“The August drop in multifamily starts is not too surprising, given how volatile the numbers have been the last 18 months,” said David Crowe, chief economist of the National Association of Home Builders (NAHB).  “And while single-family starts registered a slight decline, low mortgage rates, affordable home prices and pent up demand will keep single-family production moving forward in 2014.”

“Our members are telling us that traffic to new model home sites and sales expectations are on the rise,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “Despite the monthly blip, single-family starts are still 8 percent above last year’s level.”

Combined housing starts fell in all regions of the country.  The Northeast, Midwest, South and West posted respective drops of 12.9 percent, 10.3 percent, 10.9 percent and 24.7 percent.

Issuance of building permits registered a 5.6 percent loss to a seasonally adjusted annual rate of 998,000 units in August.  Multifamily permits fell 12.7 percent to 372,000 units while single-family permits decreased 0.8 percent to 626,000 units.

Regionally, the Northeast, Midwest, South and West registered overall permit losses of 11.6 percent, 12.4 percent, 0.6 percent and 8.3 percent, respectively.

Source: National Association of Home Builders

September 18, 2014

Solid same store sales growth at Rite Aid caused second quarter profits to surge but looming pressure on pharmacy margins prompted the company to reduce its full year outlook.

Rite Aid reported revenues of $6.5 billion for its second quarter ended August 30, representing a 3.9% lift credited to rising pharmacy same-store sales.  Rite Aid revised its year-end guidance, however, based on anticipated lower pharmacy margins going forward.

“In the second quarter, our team of dedicated Rite Aid associates worked together to execute our strategy and deliver results that reflect growth in net income and adjusted EBITDA and significant increases in same-store sales and prescription count,” stated Rite Aid chairman and CEO John Standley.  “Heading forward, while we believe that our key initiatives will continue to drive top-line growth, we are revising our guidance based on lower than anticipated pharmacy margin in the second half of fiscal 2015.  As we navigate these headwinds, we will remain focused on growing our business, generating continued operational efficiencies and positioning our associates to deliver a consistently outstanding experience for our customers.”

Same-store sales for the quarter increased 4.1% over the prior year, consisting of a 1.1% increase in front-end sales and a 5.6% increase in pharmacy sales.  Pharmacy sales included an approximate 199 basis point negative impact from new generic introductions.  The number of prescriptions filled in same stores increased 3.7% over the prior year period.

Prescription sales accounted for 68.8% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.

Net income was $127.8 million or $0.13 per diluted share compared to last year’s second quarter net income of $32.8 million or $0.03 per diluted share.  The improvement in net income resulted primarily from an increase in adjusted EBITDA, a lower LIFO charge due to pharmacy inventory reductions and a $62.2 million loss on debt retirement in the prior year, partially offset by higher income tax expense.

Adjusted EBITDA was $364.2 million or 5.6% for the second quarter compared to $341.6 million or 5.4% of revenues for the like period last year.  Adjusted EBITDA improved due to an increase in front-end and pharmacy gross profit, partially offset by an increase in selling, general and administrative expenses related to the company’s higher level of sales.

The improved pharmacy gross profit was driven by the increase in pharmacy revenues and the impact on inventory valuation related to the company’s transition to its new drug purchasing and delivery arrangement with McKeeson, partially offset by lower reimbursement rates.  The net effect on inventory valuation resulting from the transition to the outsourced McKesson arrangement is not expected to be material to fiscal 2015 results, but did increase gross profit, adjusted EBITDA and pre-tax income by approximately $40 million in the second quarter.

In the second quarter, the company relocated 5 stores, remodeled 117 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 1,433.  The company also opened 1 store and closed 10 stores, resulting in a total store count of 4,572 at the end of the second quarter.

Based upon current estimates for reimbursement rates and anticipated lower profitability from new generics and generic drugs that recently lost exclusivity, the company is expecting decreases in pharmacy margin in the second half of fiscal 2015 as compared to its prior estimates and therefore is lowering its guidance for adjusted EBITDA, net income and net income per diluted share.  Adjusted EBITDA is expected to be between $1.2 billion and $1.275 billion.  Net income is expected to be between $223 million and $333 million and income per diluted share between $0.22 and $0.33.  The company is also narrowing guidance for sales and same-store sales.  Sales are expected to be between $26 billion and $26.3 billion and same-store sales to range from an increase of 3% to an increase of 4% over Fiscal 2014.  Capital expenditures are expected to be approximately $525 million.

Source: Retailing Today

September 17, 2014

Builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September to a level of 59 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.  This latest four-point gain brings the index to its highest reading since November of 2005.

“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers,” said NAHB Chief Economist David Crowe.  “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”

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 posted gains in September.  The indices gauging current sales conditions and traffic of prospective buyers each rose five points to 63 and 47, respectively.  The index gauging expectations for future sales increased two points to 67.

Builder confidence also rose across every region of the country in September.  Looking at the three-month moving average for each region, the Midwest registered a five-point gain to 59, the South posted a four-point increase to 56, the Northeast recorded a three-point gain to 41 and the West posted a two-point increase to 58.

Source: National Association of Home Builders

September 16, 2014

• Millennials will spend over $2 trillion on home purchases and rent in the next five years.
• Millennials’ housing aspirations are not so different than previous generations.
• Most plan to purchase homes and live in suburbs, and nearly all already have cars.

Millennials will play a critical role in shaping housing demand over the next five years, concludes a new report by The Demand Institute (TDI).  They will spend $1.6 trillion on home purchases and $600 billion on rent, more on a per-person basis than any other generation in the next five years.  Millennials will make up one in every four dollars spent on housing over this period.

According to the report, there will be 8.3 million new millennial households formed between now and the end of 2018 as these young adults increasingly venture out on their own.  While most of these new households will rent, many existing millennial households will purchase homes.  The vast majority plan to buy a home in the future.

Released today by The Demand Institute, a non-advocacy, non-profit think tank jointly operated by The Conference Board and Nielsen, the report Millennials and Their Homes: Still Seeking the American Dream finds that, in contrast to the common refrain about Millennials, these young adults have similar aspirations and intentions as previous generations when it comes to housing.  The vast majority plan to own homes, and nearly all already have cars.  Most planning to move intend to have their next home in the suburbs, not the city.

Millennials and Their Homes: Still Seeking the American Dream, examines the demand for housing among the youngest adults, who will drive a significant portion of this market over the next five years.  This analysis is supplemented with proprietary economic and consumer research.  The report is the result of an 18-month research program that includes in-depth interviews with 10,000 U.S. consumers, including more than 1,000 Millennials, along with analysis of 2,200 cities and towns in America and projections of the national and regional U.S. housing markets.  The findings offer insight into the forthcoming housing choice of adults aged 18-29 to help business and policy leaders identify opportunities to better meet the needs and aspirations of America’s newest household heads.

“A fundamental question abou Millennials is whether their coming of age in the Great Recession has shaped their goals and aspirations to be different from those of previous generations,” said Louise Keely, President of The Demand Institute and Senior Vice President at Nielsen.  “We found that, while this generation has many unique characteristics when it comes to their housing choices, they share many of the same intentions as young adults in previous decades.  As Millennials’ economic situations strengthen, their demand will be important drivers of the housing market.”

“One important difference between Millennials and young adults in previous decades is the unique financial challenges of home ownership today, resulting from graduating into a weak job market with growing student loan debt,” said Jeremy Burbank, Vice President at The Demand Institute and Nielsen.  “Many Millennials are open to alternative approaches to housing finance, including single-family rentals and rent/own hybrid contracts such as lease-to-own.”

Source: The Conference Board

September 12, 2014

Hudson’s Bay Company is reaping the rewards of its acquisition last year of Saks.  The company’s retail sales soared 86.6% to $1.8 billion, from $948 million in the prior year.

Consolidated same-store sales increased by 1.9% on a local currency basis, with increases of 1.1% at HBC’s department store group (DSG), 2.2% at Saks Fifth Avenue and 14.9% at Off 5th.  Digital commerce sales totaled $162 million, including $116 million from Saks and growth of 82.2% at DSG.

In terms of merchandise category performance, sales growth at DSG was driven by men’s apparel, home and cosmetics.  Sales growth at Saks Fifth Avenue was led by menswear, gifts and accessories.  Sales growth at Off 5th was strong across the majority of categories.

Gross profit jumped to $700 million, from $368 million in the prior year, again primarily attributable to the inclusion of Saks.

“HBC’s quarter was characterized by strong performance from the higher end of our businesses, demonstrating the sustained strength of affluent consumers, and softer performance from our more moderate businesses.  Off 5th, buoyed by its new digital business, experienced outsized same store sales growth for the quarter,” said Richard Baker, HBC’s governor and CEO.  “We continued to invest in HBC Digital, where we witnessed tremendous sales growth.  Based upon our results for the first half of the year and our positioning for the back-to-school and holiday quarters, we are affirming our outlook for full-year fiscal 2014.”

During the second quarter, HBC began the integration of the Home Outfitters business with the Home business of the Hudson’s Bay banner.

“Joining our two Home businesses not only allows us to create a more powerful Home destination, but also drives efficiency by combining our merchandising and marketing efforts and organizations,” said Donald Watros, HBC’s president.

HBC is currently in the process of assessing its Home Outfitters locations and previously announced the closing of locations in Mississauga, Ontario, and Abbotsford, British Columbia, in December 2014 and January 2015, respectively.  Beginning with this year’s third quarter results, Home Outfitters will be included in HBC’s department store segment.

During the quarter, the company opened four new Off 5th stores located in Boston, Massachusetts; San Diego, California; Charlotte, North Carolina and Lousiville, Kentucky.  During the third quarter, HBC expects to open a Lord & Taylor store in Albany, New York, Off 5th stores in Eagan, Minnesota; Costa Mesa, California; and Columbus, Ohio and a Hudson’s Bay Outlet in Mirabel, Quebec.

HBC also recently announced the planned opening of a Saks Fifth Avenue store in the fall of 2016 at Brickell City Centre in downtown Miami, Florida.  Previously, the company has announced plans for Saks Fifth Avenue stores in San Jual, Puerto Rico, in the spring of next year and in Honolulu, Hawaii, in the spring of 2016.

Looking ahead to the full fiscal year, the company anticipates total sales ranging from $7.8 billion to $8.1 billion.  This implies low-to-mid single-digit consolidated same store sales growth calculated on a local currency basis, driven in part by strong digital sales growth.

As previously announced, Paul Beesley joined the company during the second quarter as CFO.  Subsequent to the second quarter, John Caplice joined HBC as SVP, treasury and investor relations, a week ago.  Caplice most recently served as SVP, treasurer and investor relations, at Shoppers Drug Mart Corporation, Canada’s largest retail drug store chain with annual sales in excess of $11 billion, from 2000 to 2014.

Source: Retailing Today 

September 12, 2014

The National Retail Federation calculates that August retail sales – excluding automobiles, gasoline stations and restaurants – increased 0.5 percent seasonally adjusted month-to-month and 2.7 percent unadjusted year-over-year.  When combined with revisions to July, August sales indicate a consistent improvement in consumer confidence and spending but run contrary to August’s lackluster jobs report.  NRF fully anticipates upward revisions in employment and payroll numbers next month.

“The rise in cosumer confidence, labor markets and retail sales is encouraging,” NRF Chief Economist Jack Kleinhenz said.  “August sales figures signal that consumers are willing and ready to spend as the economy improves.  However, until the pace of income picks up, we should not expect a sustained surge in spending.”

All retail categories improved over the previous month with the exception of general merchandise stores.  Even though year-over-year sales slowed from 4.2 to 2.6 percent, “by and large merchants had a strong fiish to the back-to-school season, especially those selling clothing and electronics,” Kleinhenz said.

“My overall impression is that the economy is moving in the right direction but that other factors, including rising concerns over the uncertainty in the Middle East, may produce some drag.  We remain hopeful but cautious.”

Additional findings from NRF’s retail sales analysis include:

• Building material & garden equipment & supplies dealers:
  • +1.4% month-to-month
  • +3.3% year-over-year
• Clothing & clothing accessories stores:
  • +0.3% month-to-month
  • +1.0% year-over-year
• Electronics & appliance stores:
  • +0.7% month-to-month
  • +0.5% year-over-year
• Furniture & home furnishing stores:
  • +0.7 month-to-month
  • +0.7 year-over-year
• General merchandise stores:
  • -0.1% month-to-month
  • +1.8% year-over-year
• Health & personal care stores:
  • +0.6 % month-to-month
  • +6.4% year-over-year
• Nonstore (online) retailers:
  • +0.1% month-to-month
  • +4.2% year-over-year
• Sporting goods, hobby, book & music stores:
  • +0.9% month-to-month
  • +4.1% year-over-year

Source: Retailing Today

September 12, 2014

Overall retail spending growth in August 2014 was the strongest in more than a year.  Retail dollar volume growth reached 2.8% in August – compared to 2.6% in July – as back-to-school shopping propelled spending growth in several retail categories.

August’s overall average ticket growth remained positive at 1.2%, slipping slightly from July’s 1.5% on a year-over-year basis.  Looking at growth rates of different payment types, credit transactions grew 5.8% in August, while signature debit card transactions rose 3.9% and transactions using PIN debit cards increased 3.4%.  Check transactions decreased 5.9% and prepaid card transactions grew 6%.

“Two important factors, back-to-school spending and late summer vacationing, contributed to strong overall consumer spending in August and despite stagnant wage growth and a moderate housing market, consumer confidence rose in August.  Robust credit card spending at 5.8%, was healthy again last month, surpassing both PIN and signature debit growth.”

The report examined the period for August 2 through September 2, 2014, compared to August 1 through September 1, 2013. 

Dollar volume growth at furniture and home furnishings and general merchandise stores was positive on a year-over-year basis and increased sequentially compared to July, with a growth of 4.5% and 4.4%, respectively.

Source: Retailing Today 

September 11, 2014

Kroger reported total sales of $25.3 billion, representing an increase of 11.6% for its second quarter.  Total sales, excluding fuel, increased 12.4% in the second quarter over the same period last year.

“We are winning with customers because we offer a full range of advantages including a great overall shopping experience, excellent customer service, a complete assortment of both national and corporate brand products and everyday low prices and promotional offerings,” stated Rodney McMullen, Kroger CEO.  “As we improve our connection with customers, we are also executing our growth plan and delivering on our key performance indicators – all of which is fueling strong financial results for shareholders.”

Net earnings totaled $347 million, or $0.70 per diluted share, and identical supermarket sales growth, without fuel, was 4.8% in the second quarter of fiscal year 2014, marking the 43rd consecutive quarter of positive identical supermarket sales growth.

Net earnings in the same period last year were $317 million, or $0.60 per diluted share.

Based on the second quarter results, the company raised and narrowed its adjusted net earnings per diluted share guidance to a range of $3.22 to $3.28 for fiscal 2014.  The previous guidance was $3.19 to $3.27 per diluted share.  Kroger raised its identical supermarket sales growth guidance, excluding fuel, to 3.5% to 4.3% for fiscal 2014.  The previous guidance was 3% to 4%.

This is the second consecutive quarter that includes Harris Teeter in Kroger’s statement of operations.  Year-over-year percentage comparisons are affected as a result.

Source: Retailing Today