Author: Chad Symens

August 18, 2014

Dollar General bid $78.50 for Family Dollar this morning in a $9.7 billion deal that exceeds the $74.50 a share Dollar Tree offered for Family Dollar on July 28.

The deal would create a small format powerhouse with nearly 20,000 stores in 46 states and sales of more than $28 billion.

“For Family Dollar shareholders, our proposal is financially superior to the current transaction agreement with Dollar Tree and would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares,” said Rick Dreiling, Dollar General’s chairman and CEO.  “We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement that provides enhanced value to Family Dollar shareholders and enables Dollar General to realize the benefits of this combination.”

The $78.50 per share Dollar General offers represents a 29.4% premium over the $60.66 closing price of Family Dollar shares the day before Dollar Tree made its offer.  The deal Dollar Tree offered Family Dollar is valued at about $8.5 billion and involves Family Dollar shareholders receiving $59.60 in cash and $14.90 in equivalent Dollar Tree shares.  The offer has already been unanimously approved by the boards of both companies.

To get the deal done, Dollar General said it had done significant economic and antitrust analysis and was prepared to commit to divesting as many as 700 stores.  The company also committed to paying the $305 million termination fee Family Dollar will owe Dollar Tree if the previously announced deal falls through.  In addition, Dollar General CEO Dreiling said he would remain in his current role to oversee integration of the companies after previously indicating he would retire in 2015.

Dollar General and Family Dollar operate complementary business – similar size stores with similar product assortments – which is expected to result in operational synergies and annual savings of between $550 and $600 million three years after the proposed merger is complete, according to Dollar General.

“Dollar General has developed extensive integration plans across work streams.  The expected synergies would be derived from sales growth driven by an improved merchandise offering and store presentation, purchasing and sourcing efficiencies, distribution and transportation optimization and administrative savings,” according to the company.

Source: Retailing Today 

Health Costs, Weak Store Traffic Hinder Wal-Mart

August, 14, 2014

The world’s largest retailer is having a hard time returning to growth and doesn’t expect sales to improve in the U.S. for much of the rest of the year.

Wal-Mart Stores Inc. (WMT -0.66%) cut its earnings guidance for the year after it posted its seventh straight quarterly decline in U.S. store traffic and said growth in online sales would slow.  It cited sluggish consumer spending and higher costs associated with building new smaller-format stores, increased health-care expenses, and greater investments in its e-commerce operations.

Sales excluding newly opened or closed stores in the U.S. were flat.  That was a mild improvement after five straight quarters of declines, but nevertheless underscored the challenges facing a division that made up 60% of the retail giant’s $476 billion in revenue last year yet hasn’t seen positive comparable-store sales since 2012.

“We wanted to see stronger comps in Wal-Mart U.S. and Sam’s Club,” Chief Executive Doug McMillon said.  “Stronger sales in the U.S. businesses would’ve also helped our profit performance.”

A rough streak of results from retailers is raising concerns about the health of the consumer as the economy chugs through the second half of the year.  The bad news came not just from Wal-Mart, but also from Macy’s Inc. (M -0.67%), Michael Kors Holdings Ltd. (KORS -0.41%) and Kate Spade & Co. (KATE +0.29%), companies that until recently had weathered the weak demand and heavy discounting that have plagued the industry.  The Commerce Department said Wednesday that spending at U.S. retailers was flat in July.

For the three months ended July 31, Wal-Mart posted a profit of $4.09 billion, up a hair from $4.07 billion a year earlier.  Revenue rose 2.8% to $120.1 billion.

Wal-Mart investors had low expectations going into Thursday’s report.  The departure of U.S. chief Bill Simon earlier this month had stoked concerns that efforts to improve store merchandise and operations hadn’t managed to materially boost sales.  Meanwhile, Wal-Mart’s core low-income customers continue to struggle with depressed wages and cuts in government benefits.

“Our customers are still under pressure,” Chief Financial Officer Charles Holley said.  “They are concerned with their cost of living and employment.

Shoppers like Jessica Manzanares, 28 years old, continue to pinch pennies.  “All the prices are going up on gas, food, school supplies,” said the mother of three as she compared notebook prices at a Wal-Mart store in Denver.  “Notebooks used to be 97 cents, now the ones my boys want are $2.47.”

This year Ms. Manzanares is comparing school-supply prices between the dollar store chain where she is an assistant manager and a nearby Wal-Mart.  “It’s a little bit cheaper here, and a penny here and there adds up.”

One expected headwind came from health care, where costs are rising quickly as more employees sign up for coverage.  The company said it now expects to shell out an additional $500 million in health-care expenses related to increased employee enrollment and higher costs, up from the $330 million in increases it originally expected.

“Health-care costs increased approximately $180 million versus last year and were well above our initial estimates,” said Wal-Mart U.S. CEO Greg Foran, who stepped into the role this week following the departure of Mr. Simon.

The company said it now expects full-year earnings of $4.90 to $5.15 a share, down from its previous range of $5.10 to $5.45 a share.  U.S. comparable-store sales in the three months ending October 31 should be relatively flat, the company said.

Mr. Foran, who has never worked in the U.S., joined Wal-Mart in 2011 after being passed over for the top job at Woolworths Ltd. (WOW.AU +0.06%) in Australia.  He served as president of Wal-Mart China, where he presided over the company’s expansion as it tangled with compliance issues and government regulation, and was appointed head of Wal-Mart Asia in April.

Wal-Mart said it continued to spend on compliance costs, including $43 million on costs related to a continuing investigation into alleged violations of the U.S. antibribery law and changes to its global compliance program.  It also added more labor hours for employees in the front end of the store, as well as overnight stockers and bakery workers, bumping up salaries and wages by $200 million from the year before.

Wal-Mart now expects to spend an additional 5 cents to 7 cents a share on e-commerce, including building a new distribution center this year in Indiana.  It previously said it expected to spend an additional 2 cents to 4 cents a share.

The company also cut its online sales growth projections for the year to “mid-20s” from 30%.  Its online sales, as well as its smaller-format grocery stores, have been among the few positive sales drivers for the company.  During the quarter ended July 31, global online sales grew by 24% and contributed 0.3 percentage point to Wal-Mart’s U.S. sales, excluding newly opened or closed stores.  Wal-Mart brought in $10 billion in online sales last year.

“We grew faster than the market, but we didn’t grow as fast as we wanted to,” said Neil Ashe, who leads global e-commerce at Wal-Mart.

Source: The Wall Street Journal 

August 13, 2014

Facing slight headwinds from economic pressures and mounting concerns over global unrest, consumers in July cut back on discretionary spending, reflecting a trend that shows many are juggling their spending between goods and services.

NRF retail sales in July, which exclude autos, restaurants and gas, were largely unchanged over June, increasing 0.1 percent; year-over-year unadjusted sales increased 4 percent.  The Commerce Department said on Wednesday, July retail sales, which had increased 0.2 percent in June, were flat over the previous month and up 3.7 percent unadjusted year-over-year.  Much of the unexpected weakness came from a lack of spending in key areas such as furniture, home furnishings and electronics stores.

June and July’s combined year-over-year growth averages approximately 4 percent, which NRF’s Chief Economist Jack Kleinhenz believes is still on track to meet expectations of annual sales growth of at least 3.9 percent for the remainder of 2014.

“Overall, I still believe the economy and the consumer are headed in the right direction as consumer fundamentals such as positive income, employment and confidence remain relatively sturdy,” said Kleinhenz.  “Retailers right now are witnessing a choppy pattern of spending, choosing between large ticket items and other discretionary purchases, with services they may need.  Families today are still displaying behavior tht shows they continue to struggle with purchase decisions, based on needs versus wants.  It is also evident some consumers are cautious about leveraging up credit to support purchases.”

Sales in July were up against a strong showing in July 2013, making comparisons slightly more difficult.  Specifically, electronics stores sales decreased 0.1 percent over June and increased 1.3 percent year-over-year; sales at apparel and accessory stores increased a solid 0.4 percent over June and 2.7 percent year-over-year.  Health and personal care stores’ sales increased 0.4 percent seasonally adjusted over last month and a healthy 7.2 percent year-over-year.

Source: Retailing Today

August 14, 2014

Kohl’s exceeded analysts’ profit expectations in the second quarter, but it wasn’t due to top line strength and now the company has a lot riding on the back-to-school season.

The company’s sales for the second quarter ended August 2 declined to $4.242 billion from $4.289 billion and same-store sales fell 1.3% after a slight prior year comp increase of 0.9%.  Meanwhile, net income increased slightly to $232 million from $231 million, while earnings per share advanced 8.6% to $1.13 from $1.04, five cents better than analysts’ forecasts.  The earnings beat was driven by expense control and increased share repurchase activity, which reduced the number of outstanding shares.

Undeterred by the sales decline and weak underlying profit performance, Kohl’s chairman, president and CEO Kevin Mansell focused on improvements late in the quarter and the company’s positioning for back-to-school.

“We are pleased with the improvement we saw in sales as the quarter progressed,” Mansell said.  “The improvement was the most dramatic in the month of July where we achieved a positive comp.  As they consistently do, our teams did a great job of managing expenses throughout the quarter.  We enter the back-to-school season with fresh, new inventory and encouraging momentum.”

Kohl’s increased its store count by five units during the quarter to end the period with 1,160 stores in 49 states.  Four new Kohl’s stores are expected to open this fall.

Source: Retailing Today

August 14, 2014

Nationwide housing affordability dipped in the second quarter of 2014 as several markets saw a firming of home prices, according to the National Association of Home Builders/Wells Fargo Housing Opportunity (HOI), released today.

In all, 62.6 percent of new and existing homes sold between the beginning of April and the end of June were affordable to families earning the U.S. median income of $63,900.  This is down from the 65.5 percent of homes sold that were affordable to median-income earners in the first quarter.

The national median home price increased from $195,000 in the first quarter to $214,000 in the second quarter.  Meanwhile, average mortgage interest rates decreased from 4.57 to 4.44 percent in the same period.

“With interest rates near historically low levels and strengthening job growth, now continues to be a great opportunity to buy a home,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“The second quarter HOI reflects the slow but steady march toward the historic levels of price appreciation and interest rates that result in affordability levels we experienced before the mid-2000s boom,” said NAHB Chief Economist David Crowe.  “While we are seeing a slight decrease in affordability, it is still fairly high by historical standards.”

Youngstown-Warren-Boardman, Ohio-Pennsylvania claimed the title of the nation’s most affordable major housing market, as 90.4 percent of all new and existing homes sold in this year’s second quarter were affordable to families earning the area’s median income of $52,700.  Meanwhile, Cumberland, Maryland-West Virginia was the most affordable smaller market, with 97.2 percent of homes sold in the second quarter being affordable to those earning the median income of $54,100.

Other major U.S. housing markets at the top of the affordability chart in the second quarter included Indianapolis-Carmel, Indiana; Syracuse, New York; Harrisburg-Carlisle, Pennsylvania; and Scranton-Wilkes-Barre, Pennsylvania; in descending order.

Meanwhile, smaller markets joining Cumberland at the top of the affordability chart included Kokomo, Indiana; Davenport-Moline-Rock Island, Iowa-Illinois; Battle Creek, Michigan; and Lima, Ohio; in descending order.

For a seventh consecutive quarter, San Francisco-San Mateo-Redwood City, California was the nation’s least affordable major housing market.  There, just 11.1 percent of homes sold in the second quarter were affordable to families earning the area’s median income of $100,400.

Other major metros at the bottom of the affordabililty chart were Santa Ana-Anaheim-Irvine, California; Los Angeles-Long Beach-Glendale, 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 Santa Cruz-Watsonville, where 16.6 percent of all new and existing homes sold were affordable to families earning the area’s median income of $77,900.  Other small markets included Napa, Salinas, Santa Rosa-Petaluma, and San Luis Obispo-Paso Robles; in descending order.

Source: National Association of Home Builders 

August 11, 2014

Import volume at major U.S. container ports is expected to hit an all-time record in August as retailers concerned about the lack of a West Coast longshoremen’s contract rush to bring holiday season merchandise into the country, according to the monthly Global Port Tracker report released today by the National Retail Federation.

“The negotiations appear to be going well but each week that goes by makes the situation more critical as the holiday season approaches,” NRF VP for supply chain and customs policy Jonathan Gold said.  “Retailers are making sure they are stocked up so shoppers won’t be affected regardless of what happens at the ports.”

Import volume at U.S. ports covered by the Global Port Tracker report is expected to total 1.54 million containers this month.  That’s the highest monthly volume since NRF began tracking import volume in 2000, topping a previous record of 1.53 million set in July and unusually high numbers seen this spring as retailers began importing merchandise early in anticipation of this summer’s contract talks.

The contract between the Pacific Maritime Association and the International Longshore and Warehouse Union expired on July 1.  Dockworkers remain on the job as both sides continue to negotiate a new agreement.  Both sides have reported that talks have been “productive,” and NRF has urged both labor and management to avoid any disruptions that could affect the flow of back-to-school or holiday merchandise.

U.S. ports followed by the report handled 1.48 million 20 ft. equivalent units in June, the latest month for which after-the-fact numbers are available.  That was down 0.38% from May but up 9.1% from June 2013.  One TEU is one 20 foot cargo container or its equivalent.

July was estimated at 1.53 million TEU, up 5.8% from the same month last year, and August is forecast at 1.54 million TEU, up 3.6% from last year.  September is forecast at 1.48 million TEU, up 2.8% from last year; October also at 1.48 million TEU, up 3.3%; November at 1.37 million TEU, up 2%; and December at 1.34 million TEU, up 2.1%.

Those numbers would bring 2014 to a total of 17.1 million TEU, an increase of 5.2% over 2013’s 16.2 million.  Imports in 2012 totaled 15.8 million.  The first half of 2014 totaled 8.3 million TEU, up 6.9% over last year.

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

The increases in volume reflect both improvements in the economy and retailers importing merchandise early because of the contract negotiations.

U.S. GDP has increased in 11 out of the last 12 quarters, confirming that we are in a sustained period of expansion.  A significant portion of the strong upswing in imports has been due to the labor negotiations, with importers moving up shipments just in case.

Global Port Tracker covers the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Hampton Roads, Charleston, Savannah, Port Everglades and Miami on the East Coast, and Houston on the Gulf Coast.

Source: Retailing Today

August 8, 2014

Gap posted positive comps in July for the four-week period ended August 2, buoyed by sales at Banana Republic; but preliminary second quarter results show that comparable store sales were flat compared to the same period last year.

Net sales in July increased 5% to $1.17 billion compared with net sales of $1.12 billion for the four-week period ended August 3.  For the second quarter, Gap Inc.’s net sales increased 3% to $3.98 billion compared with $3.87 billion for the second quarter last year.

“We’re pleased to close out the first half of the year with a positive comp in July and look forward to the new product and marketing campaigns our brands will launch this fall,” chairman and CEO Glenn Murphy said.

Comparable sales for July were up 2% versus a 1% increase last year.  Broken down by global brand, comparable sales for Gap decreased 2%, compared to a 7% increase last year; comparable sales at Banana Republic increased 6%, compared to a 1% decrease last year; and comparable sales at Old Navy increased 3%, compared to a 5% decrease last year.

For the second quarter so far, comparable sales are flat versus a 5% increase last year.  Broken down by global brand, comparable sales for Gap decreased 5%, compared to a 6% increase last year; comparable sales at Banana Republic stayed flat versus a 1% decrease last year; and comparable sales at Old Navy increased 4%, compared to a 6% increase last year.

Gap will release its complete second quarter earnings results August 21 and August sales results September 4.

Source: Retailing Today

August 7, 2014

Fred’s returned to positive comparable-store sales in July, reflecting stronger trends in general merchandise sales and improved customer traffic.

But Fred’s is also exercising some caution and has cut its second quarter outlook.  The company now expects to report a loss for the quarter in the range of $0.15 to $0.20 per share, citing the transitional costs associated with implementing its convenience center model, together with the vendor-related cost pressures on pharmacy.

Fred’s total sales for the month increased 4% to $148 million from $142 million in July 2013.  Comparable store sales for the month increased 0.7% on top of a 2.5% increase in the same period last year.

General merchandise departments that reported better performance in July, according to the company, included health aids, housewares, flooring, stationery, toys, auto and hardware, and several consumable departments.

“With our new ad program and marketing strategy now in place, we expect these positive trends to continue in the back half of the year.  Complementing improving conditions with general merchandise, we also saw ongoing sales and script growth in the pharmacy department during July, with our best monthly comparable script growth of the year.  In July, we also rolled out a clearance and inventory right-sizing program in all of our stores to address unproductive inventory and exit or reduce product categories that do not align with our convenience center model – a key to improving our GMROI going forward,” Efird said.

Fred’s pharmacy department margins for July continued to be pressured by very significant vendor cost increases on both brand and generic drugs.  This cost pressure in the pharmacy for the quarter accounted for a drop of approximately 225 basis points in pharmacy prime vendor distribution agreement.  With this key strategic relationship, the company said that it has a new alliance that supports its rapid growth and addresses the issues experienced over the past year, while restoring Fred’s pharmacy department margin and significantly improving the profitability of its specialty pharmacy business.

“The drivers of performance for the balance of the year will be the pharmacy department’s new vendor agreement, store shipments returning to forecast, and the continuation of our new marketing programs.  We plan to outline these strategic changes and our expectations for future performance on August 28, when we announce second quarter results and provide updated guidance for the remainder of 2014,” Efird added.

Fred’s currently operates 704 discount general merchandise stores.

Source: Retailing Today

August 7, 2014

Costco saw a boost in net sales and same-store sales during the month of July.

Net sales totaled $8.55 billion for the four weeks ended August 3, an increase of 9% from $7.87 billion during the similar four-week period last year.

Same-store sales increased 5%, while U.S. same-store sales also increased 5% during the period.

For the 48 weeks ended August 3, net sales were $101.43 billion, an increase of 7%.  During the 48 weeks, same-store sales increased 4%.  In the United States, same-store sales rose 5%.  Costco currently operates 660 warehouses, including 466 in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 25 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, six in Australia and one in Spain.

The company plans to open up to an additional three new warehouses prior to the end of its fiscal year on August 31.

Source: Retailing Today

August 7, 2014

Builder confidence in the single-family 55+ housing market for the second 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 second quarter of 2013, the single-family index increased three points to a level of 56, which is the highest second quarter reading since the inception of the index in 2008 and the 11th consecutive quarter of year over year improvements.

“We have seen steady improvement in the 55+ housing sector as buyers and renters are attracted to new homes that offer many of the luxuries and conveniences they desire,” said Steve Bomberger, chairman of NAHB’s 50+ Housing Council and president of Benchmark Builders Inc. in Wilmington, Delaware.  “55+ buyers are very selective and have high expectations, and new construction can meet their needs and discerning tastes.”

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.

Two of the components of the 55+ single-family HMI posted increases from a year ago: present sales climbed seven points to 61 and expected sales for the next six months rose one point to 61.  Meanwhile, traffic of prospective buyers dropped six points to 42.

Although the 55+ multifamily condo HMI dipped five points to 38, it is still the second highest reading for the second quarter since the inception of the index.  All three components of the index decreased for the second quarter: present sales dropped five points to 39, expected sales for the next six months fell four points to 42 and traffic of prospective buyers dropped three points to 35.

The indices tracking production and demand of 55+ multifamily rentals moved in different directions in the second quarter.  Present production rose three points to 53, expected future production increased one point to 53, while current demand for existing units dropped three points to 59 and future demand fell two points to 61.

“One of the factors contributing to the positive signs in the 55+ housing market is the slow but steady increase in existing home sales in the last three months,” said NAHB Chief Economist David Crowe.  “The 55+ market is strongly driven by consumers being able to sell their existing homes at a favorable price in order to buy or rent in a 55+ community.

Source: National Association of Home Builders