Author: Chad Symens

August 28, 2014

An increased risk of an emerging El Nino and a continuation of warmer than normal ocean waters in the Atlantic will produce warmer and wetter conditions along the East Coast along with an elevated tropical system risk.  The total number of tropical systems will be reduced overall, but should a storm threaten the U.S., the East Coast would be at highest risk.  Much cooler weather will be common across the Plains with increased rainfall east of the Rockies.  The western third of the nation will trend much drier as the flow of monsoon moisture is cut off earlier than normal, while temperatures are generally similar to last year.  Demand for autumn apparel will lag until the end of the month in the East when demand starts to pick up.  A warm stretch of weather around mid-month in the East will extend the summer season in the South and provide a final opportunity for summer clearance farther north.

Source: Retailing Today, Weather Trends International

August 28, 2014

The Multifamily Production Index (MPI), a leading indicator for the multifamily market released by the National Association of Home Builders (NAHB), posted a gain of five points to a reading of 58 for the second quarter.  It is the 10th straight quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100.  The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.  The MPI provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and “for-sale” units, or condominiums.

In the second quarter of 2014, the MPI component tracking builder and developer perceptions of market-rate rental properties had a significant increase of nine points to 68, which is the highest reading since the third quarter of 2012; low-rent units increased four points to 52; and for-sale units rose two points to 56.

“We have seen steady growth for the apartment market since 2011,” said W. Dean Henry, chairman of NAHB’s Multifamily Leadership Board and CEO of Legacy Partners Residential in Foster City, California.  “There will continue to be strong demand for the forseeable future, but the availability of construction labor is still proving to be a challenge.”

The Multifamily Canancy INdex (MVI), which measures the multifamily housing industry’s perception of vacancies, was essentially unchanged, increasing one point to 38.  With the MVI, lower numbers indicate fewer vacancies.

“The MVI, the vacancy index, has been holding steady at a healthy level of 37 to 38 since late 2013,” said NAHB Chief Economist David Crowe.”  Although this is slightly above the low vacancy numbers we saw in 2011 and 2012, those low numbers were the result of depressed production with few new apartments coming on line.  Meanwhile, the strength of the MPI, the production index, in the second quarter is not surprising, given that we’ve seen employment improve, which allows younger consumers to form their own households.”

The MPI and MVI have continued to perform well as leading indicators of U.S. Census figures for multifamily and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.

Source: National Association of Home Builders

August 26, 2014

The Conference Board Consumer Confidence Index, which had increased in July, improved further in August.  The Index now stands at 92.4, up from 90.3 in July.  The Present Situation Index increased to 94.6 from 87.9, while the Expectations Index edged down to 90.9 from 91.9 in July.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence increased for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers’ spirits.  Looking ahead, comsumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings.  Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market.”

Consumers’ appraisal of current conditions continued to improve through August.  Those saying business conditions are “good” edged up to 23.9 percent from 23.3 percent, while those claiming business conditions are “bad” declined to 21.5 percent from 22.8 percent.  Consumers’ assessment of the job market was also more positive.  Those stating jobs are “plentiful” increased to 18.2 percent from 15.6 percent, while those claiming jobs are “hard to get” declined marginally to 30.6 percent from 30.9 percent.

Consumers were slightly less optimistic in August about the short-term outlook.  The percentage of consumers expecting business conditions to improve over the next six months held steady at 20.4 percent, while those expecting business conditions to worsen fell to 10.2 percent from 12.1 percent.  Consumers, however, were somewhat mixed about the outlook for the labor market.  Those anticipating more jobs in the months ahead fell to 17.0 percent from 18.7 percent, although those anticipating fewer jobs also declined to 15.8 percent from 16.6 percent.  Fewer consumers expect their incomes to grow, 15.5 percent in August versus 17.7 percent in July, while those expecting a drop in their incomes rose marginally to 11.9 percent from 11.1 percent.

Source: The Conference Board

August 28, 2014

Dollar General made the case for the superiority of its Family Dollar takeover bid with the release of second quarter results that revealed consistency as well as some deceleration in sales and profit growth.

Sales at the company’s more than 11,500 stores increased 7.5% to slightly more than $4.7 billion due to new store expansions and a same store sales increase of 2.1% driven by growth in customer traffic and average transaction size.  During the first half of the year, Dollar General opened 426 new stores and remodeled or relocated 585 others.  The second quarter was the 26th consecutive period in which traffic and transaction size metrics have increased, according to Dollar General chairman and CEO Rick Dreiling.

Meanwhile, profits increased 2.4% to $251 million, or 83 cents a share, in line with analysts’ estimates, compared to prior year profits of $245 million, or 75 cents a share.

“Our second quarter same-store sales began very strong with a year over year increase in May of more than 3.5%, however, this growth moderated as we moved through June and July given the competitive environment and a consumer who, although resilient in the face of economic uncertainty, remains cautious with her spending,” Dreiling said.

Sales of consumables continued to outpace sales of non-consumables with the company reporting the most significant growth in categories such as tobacco, perishables, candy and snacks.  The company said it also saw solid same-store sales growth was also reported in the home and apparel categories.  The competitive environment cited by Dreiling prompted Dollar General to increase promotional activities which caused gross margins to decline 53 basis points to 30.8%.  The other source of ongoing margin pressure is the fact that Dollar General continues to derive a larger percentage of its sales from lower margin consumable categories such as tobacco and perishables.

“As we enter the third quarter, we are seeing our sales momentum pick back up and expect that momentum to build as our initiatives gain traction with our customers,” Dreiling said.  “For the second half of the year, we are well positioned to serve our customers and provide them with the everyday low pricing they count on from us.”

Dollar General also believes it is well positioned to consummate one of the largest acquisitions the retail industry has seen in years.  The company hopes to prevail in its efforts to acquire rival Family Dollar which has already agreed to be acquired by Dollar Tree.  The deal has the potential to create a combined company with a massive nationwide footprint of roughly 20,000 locations.

“In regards to our proposal to acquire Family Dollar, we remain firmly committed to the acquisition,” Dreiling said.  “The financial benefits of our offer to Family Dollar shareholders are indisputable, and the proposed combination would unlock tremendous value for Dollar General shareholders.  We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable.”

Dollar General has offered to acquire Family Dollar for $78.50 a share in an all cash deal valued at $9.7 billion it contends could secure regulatory approval with the divesture of as many as 700 stores.  Its takeover offer came after the boards of Dollar Tree and Family Dollar had already approved a $74.50 per share deal valued at $8.5 billion that consisted of $59.60 per share in cash and $14.90 in Dollar Tree shares.

Source: Retailing Today 

August 25, 2014

Sales of newly built, single-family homes fell 2.4 percent to a seasonally adjusted annual rate of 412,000 units in July, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  Sales Numbers for June were revised up 16,000 to 422,000.

“We are somewhat surprised by this dip, considering builder confidence and new home starts are on the rise,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  “However, builders are increasing their level of inventory in anticipation that sales will gradually improve during the rest of the year.”

“Though new home sales is a volatile metric that can fluctuate significantly from month to month, the economic fundamentals are in place for an ongoing housing recovery,” said NAHB Chief Economist David Crowe.  “Consumer confidence continues to improve, mortgage rates are at yearly lows, and the labor market is healing.  These factors should help spur pent-up demand.

Regionally, new home sales fell 30.8 percent in the Northeast, 8.8 percent in the Midwest, and 15.2 percent in the West.  Sales were up 8.1 percent in the South, the country’s largest region.

The inventory of new homes for sale increased to 205,000 units in July.  This is a 6.0 month supply at the current sales pace.

Source: National Association of Home Builders

August 14, 2014

Walmart met low second quarter sales and profit expectations it set for itself, but significantly lowered its full year outlook due to a tepid third quarter sales forecast and increased e-commerce and health care costs.

Total company sales increased 2.8% to $119.3 billion while same store sales at U.S. stores and Sam’s Clubs were flat during the period ended July 31.  The total sales figure included a $696 negative impact related to foreign currency translation, without which sales would have increased 3.4% to $120 billion.  Net income increased 0.6% to $4.093 billion from $4.069 billion, but earnings per share declined to $1.21 from $.123.  Walmart had forecast earnings in a range of $1.15 to $1.25 and analysts’ consensus estimate was $1.21.

Despite the decline from the prior year, Wal-Mart Stores, Inc., president and CEO Doug McMillon said he was pleased with the earnings per share performance.

“As it relates to the positives from the quarter, I’m encouraged by the performance of our International business, our Neighborhood Market sales in the U.S. and by our e-commerce growth,” McMillon said.  “As it relates to our challenges in the quarter, we wanted to see stronger comps in Walmart U.S. and Sam’s Club, but both reported flat comp sales.  Stronger sales in the U.S. businesses would’ve also helped our profit performance.”

The flat U.S. comp performance followed a 0.3% decline the prior year, as an increase in transaction size offset a decline in traffic.  Total sales for Walmart’s largest division increased 2.7% to $70.6 billion due to the addition of new selling space.  However, operating profits fell 2.4% to $5.25 billion.

“We delivered net sales growth of $1.9 billion in the second quarter,” said Greg Foran, Walmart U.S. president and CEO.  “Our e-commerce business, including store-fulfilled sales, delivered double-digit sales growth,” added the former Walmart International executive who replace Bill Simon as head of the U.S. division last week.

Same store sales at U.S. stores are forecast to be flat in the third quarter following a 0.3% decline last year.

Sam’s delivered top line growth due to the addition of new clubs, but same store sales were flat.  Total sales increased 1.7% to $13 billion, excluding fuel.  Operating profits fell 4.6% to $494 million.

“Our top priority at Sam’s Club remains growth – growing our member base and growing sales,” said Rosalind Brewer, Sam’s Club president and CEO.  “We’re taking steps to increase the value of membership through investments in Plus member cash rewards and the cash back Mastercard.  It’s still early, but member response has been positive.

Sam’s is expecting third quarter comps to be slightly positive.

The relative bright spot in Walmart’s second quarter was the international division where sales on a constant currency basis increased 5.3% to %34.6 billion and operating profits grew 8% to nearly $1.5 billion.

“We remain focused on price investment across all our markets and expect to continue driving improved comp performance,” said David Cheesewright, Walmart International president and CEO.  “I am pleased with the trends in many of our markets, which were driven by a continued focus on being the lowest cost operator.”

Faced with ongoing difficulties to drive top line growth at its two U.S. divisions coupled with expense pressures, Walmart said it expects third quarter earnings per share of $1.10 to $1.20 and lowered its full year forecast to a range of $4.90 to $5.15 from an earlier forecast of $5.10 to $5.45.

“Our guidance includes incremental investments in e-commerce and headwinds from higher health-care costs in the U.S. than previously estimated,” said CFO Charles Holley.

Source: Retailing Today

August 22, 2014

Although same-store sales at Gap were flat in the second quarter, the company reported a better-than-expected quarterly profit, buoyed by strong sales at Old Navy, and raised its full-year profit forecast as a result.

Net profit rose to $332 million in the quarter from $303 million a year ago.

Revenue increased 3% to $3.98 billion.  Online net sales increased 11% to $515 million, on top of last year’s 27% increase.  The company noted it continues to advance its successful omnichannel platform with the expansion of its reserve in store service to all U.S. Gap stores.  The company also launched its order-in-store pilot, with plans to roll out the service to select U.S. Gap, Banana Republic, Old Navy and Athleta stores later this year.

Gap also plans to expand its reach to India through 40 franchise-operated stores.  The retailer is partnering with Arvind Lifestyle Brand Limited, a subsidiary of Arvind Limited, which is one of India’s largest textile companies.

“India is an emerging, vibrant market and an important next step in our global expansion strategy,” said Steve Sunnucks, global president of Gap.

Source: Retailing Today

August 21, 2014

Describing second quarter earnings as “unacceptable,” Sears Holdings chairman and CEO Edward Lampert added that his company’s transformation is continuing and online sales are growing.

The company reported second quarter net loss of $573 million, compared with a loss of $194 million in the same quarter last year.  Revenues decreased $858 million to $8.0 billion for the quarter ended August 2, 2014.

“We are taking steps to address our performance on several levels,” Lampert said.  “This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions.”

The revenue decrease included the separation of the Lands’ End business, which was completed in the first quarter of 2014 and accounted for $330 million of the decline.  The revenue decrease also included the effect of having fewer Kmart and Sears full-line stores in operation, which accounted for $256 million of the decline, as well as a decrease of $140 million at Sears Canada.

Sears also experienced a revenue decline in its Home Services business during the quarter, as well as a decline in delivery revenues.

Sears full-line stores experienced comparable-store sales growth of 0.1% for the quarter as compared with a decline of 0.8% in the second quarter of last year, despite the continuing impact of consumer electronics industry trends.

Kmart comparable-stores sales were down 1.7% for the quarter as compared with a 2.1% decline last year.

Sales to Shop Your Way members in Sears full-line and Kmart stores increased to 73% of eligible sales, up from 71% during the second quarter last year.  Online and multichannel sales grew 18% over the prior-year second quarter and 22% over the prior-year first half.

“We continue to evaluate our Sears Auto Center business, as well as our 51% interest in Sears Canada, including a potential sale of our interest of Sears Canada as a whole,” the company said.

Source: Retailing Today

August 20, 2014

Staples chairman and CEO Ron Sargent said that the company has more work to do to stabilize its retail business, following a 20% decline in net income to $81.88 million for the second quarter, from $102.53 million in the prior year.

Sargent added that the company will continue taking steps toward improving customer traffic, reduce expenses and close underperforming stores.

The company’s results included $101 million of pre-tax restructuring and other related charges primarily associated with the closure of 80 stores, along with its previously announced plan to close approximately 40 stores in North America during the second half.

Sales declined 2% to $5.22 billion – above analysts’ estimates.  Same-store sales at Staples North American stores decreased 5%.  E-commerce saw sales growth of 8%.

“We’re accelerating growth in our delivery businesses as customers turn to Staples for more products beyond office supplies,” said Sargent.

Staples forecast third-quarter adjusted earnings of 34 cents to 39 cents a share, excluding any potential impact on per-share earnings from restructuring and related activities.  The retailer plans to take a pretax charge of $40 million to $75 million in the third quarter stemming from restructuring.

Source: Retailing Today

August 15, 2014

Despite an increase of 1% in comparable store sales, Dillard’s CEO William T. Dillard II expressed disappointment in the company’s bottom line performance.

The company’s net sales for the 13 weeks ended August 2 were $1.475 billion, compared to net sales of $1.480 billion for the 13 weeks ended August 3, 2013.  Net sales include the operations of the company’s construction business, CDI Contractors.

Total merchandise sales (which exclude CDI) for the quarter were $1.461 billion, compared to net sales of $1.459 billion for the comparable period last year.  Total merchandise sales remained unchanged on a percentage basis for the quarter.

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. “We are pleased with our inventory management during the quarter and with our ending inventory position,” Dillard said.

Gross margin from retail operations (which excludes CDI) declined 33 basis points of sales for the quarter compared to the proir year second quarter.  The decline resulted primarily from increased markdowns.  Consolidated gross margin for the quarter declined 20 basis points of sales comapred to the prior year second quarter.  Inventory decreased 2% at August 2 compared to August 3, 2013.

As of August 2, the company operated 278 Dillard’s locations and 18 clearance centers spanning 29 states and an e-commerce site.

Source: Retailing Today