Author: Chad Symens

July 17, 2014

Nationwide housing production fell 9.3 percent to a seasonally adjusted annual rate of 893,000 units in June, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  The drop was due primarily to a nearly 30 percent decline in the South.  All other regions posted monthly gains.

“A modest 2.6 percent increase in single-family permits falls in line with the general optimism that we are hearing from our builders,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.

Single-family housing starts were down 9 percent to a seasonally adjusted annual rate of 575,000 units in June, while multifamily production fell 9.9 prcent to 318,000 units.

Regionally in June, combined single and multifamily housing production rose in the Northeast, the Midwest and the West, with respective gains of 14.1 percent, 28.1 percent and 2.6 percent.  Total production fell by 29.6 percent in the South, the nation’s largest region.

“Take away the South and the nationwide housing starts would have been in positive territory this month,” said NAHB Chief Economist David Crowe.  “This sharp regional decline could be due in part to lots and labor shortages, which are particularly acute in that part of the country.  However, the general direction of housing production is trending upward, and we expect 2014 to be a positive year.”

Issuance of building permits registered a 4.2 percent decline to a seasonally adjusted annual rate of 963,000 units in June.  Multifamily permits dropped 14.9 percent to 332,000 units while single-family permits increased 2.6 percent to 631,000 units.

The Northeast, South and West registered overall permit losses of 15.5 percent, 6.3 percent and 1.8 percent, respectively, while the Midwest posted a 6.6 percent gain.

Source: National Association of Home Builders 

July 17, 2014

Driven by increased demand for electronic items and parent’s need to restock their children’s school supplies from last year, families this summer will spend slightly more on back-to-school items than last year.  According to NRF’s 2014 Back-to-School Survey, the average family with children in grades K-12 will spend $669.28 on apparel, shoes, supplies and electronics, up 5 percent from $634.78 last year.  Total spending on back to school will drop slightly to $26.5 billion as the survey found there are slightly fewer students in households this summer.

Combined spending for back to school and college is expected to reach $74.9 billion.

“Slow improvements in the economy may have contributed to the growth in confidence among back-to-school shoppers, and while we are encouraged by the overall tone of the results and expect to see continued improvement in consumer spending through the year, we know Americans are still grappling with their purchase decisions every day,” said NRF President and CEO Matthew Shay.  “Throughout the history of this survey, spending has fluctuated based on family needs each year, and this summer, we expect parents to continue to use caution, but also make smart decisions for their family budget that is a good balance between what their children ‘want’ and what they actually need.”

NRF this year broke out spending by grade, and according to the survey, families with high school students will spend the most.  The survey found the average family shopping for high school students will spend $682.99, while spending on middle school/junior high comes in a close second at $682.13.  Parents with elementary school-age children will spend an average of $580.94.

Source: National Retail Federation 

July 14, 2014

It is one of the smaller acquisitions CVS Caremark has done, but the purchase of the 33-unit Miami-based Navarro Discount Pharmacy could have big implications.

CVS Caremark late Monday said it reached an agreement with Navarro, the largest Hispanic owned drugstore chain in the U.S., to acquire 33 stores and Navarro Health Services, a specialty pharmacy serving patients with complex or chronic diseases.  CVS Caremark operates more than 7,600 stores, but said it will continue operating the acquired units under the Navarro banner.

“The acquisition of Navarro wil strengthen CVS pharmacy’s position in the Hispanic marketplace, the fastest growing demographic in the U.S., and we are excited to be adding the Navarro Discount Pharmacy brand to the CVS pharmacy family,” said Helena Foulkes, president of CVS/pharmacy.

“Like CVS pharmacy, Navarro is committed to improving patient health and providing individualized attention,” said Juan Ortiz, Navarro’s CEO.  “The combination of our stores will continue our tradition of excellent pharmacy care and high quality products.”

Navarro caters to South Florida’s heavily Hispanic and ethnic marketplaces and further differentiates itself by offering many products and services that are less prevalent in traditional drugstores such as wireless phones and designer fragrances.

Source: Retailing Today

July 16, 2014

Builder confidence in the market for newly built single-family homes reached an important milestone in July, rising four points to a reading of 53 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.  Any reading over 50 indicates that more builders view sales conditions as good than poor.

“This is the first time that builder confidence has been above 50 since January and an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“An improving job market ges hand-in-hand with a rise in builder confidence,” said NAHB Chief Economist David Crowe.  “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.”

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 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 July.  The index gauging current sales conditions increased four points to 57, while the index measuring expectations for future sales rose six points to 64 and the index gauging traffic of prospective buyers increased three points to 39.

The HMI three month moving average was up in all four regions, with the Northeast and Midwest posting a one-point and two-point gain to 35 and 48, respectively.  The West registered a five-point gain to 52 while the South rose two points to 51.

Source: National Association of Home Builders

July 20, 2014

Just a month after activist investor Carl Icahn became Family Dollar’s largest shareholder prompting concerns of a hostile takeover, the company reported its third straight quarterly decline in same-store sales.

Same-store sales for the third quarter ended May 31 decreased 1.8% because of fewer customer transactions, partially offset by an increase in the average customer transaction value.  Sales in the third quarter of fiscal 2014 were strongest in the consumables category, driven primarily by strong growth in refrigerated/frozen food and tobacco.

Meanwhile, net sales increased 3.3% to $2.66 billion from $2.57 billion in the prior-year quarter.

“We are executing our previously announced restructuring initiatives to improve our performance,” said chairman and CEO Howard R. Levine.  “Our recent investment to permanently lower prices is resonating with customers; we are seeing savings from our workforce optimization efforts; and we are on track to close approximately 370 underperforming stores by the end of the fiscal year.  We remain confident that these steps will position the company to improve our financial performance and deliver higher long-term shareholder returns.”

Levine said that the company’s results reflected not only economic challenges facing its core customers but also an intense competitive environment.  But he’s remaining positive because although same-store sales did drop for the quarter, they actually improved in all four merchandise categories compared to its second-quarter results – a sign of improving trends.

Gross profit for the quarter was $910.9 million or 34.3% of net sales.  During the quarter, the company implemented a series of restructuring initiatives, including plans to close approximately 370 underperforming stores across the chain by the end of fiscal 2014.  As a result, the company incurred a $1.5 million inventory write-down in an effort to sell through merchandise at stores scheduled to close.

Excluding the inventory write-down, adjusted third quarter gross profit increased 2.2% to $912.3 million, or 34.3% of net sales, compared to $892.5 million, or 34.7% of net sales, in the third quarter of fiscal 2013.  As a percentage of sales, the impact on gross profit of stronger sales of lower-margin consumables, lower markups and higher markdowns was partially offset by lower inventory shrinkage.

During the quarter, the company opened 111 new stores, closed 3 stores and renovated, relocated or expanded 266 stores.

As part of its ongoing business review, the company lowered prices on nearly 1,000 basic items, investing more than $50 million, on an annualized basis, to deliver more compelling values to customers.  It has also made plans to slow new store growth beginning in fiscal 2015.  The company now expects to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014.

In an effort to drive more profitable growth, the company is also investing in longer-term initiatives, which include further expanding its cooler program beginning in fiscal 2015 and expanding traffic-driving categories with a multi-year rollout of beer and wine likewise beginning in fiscal 2015.

Looking ahead to the fourth quarter, the company expects that comparable store sales will be approximately flat and that earnings per diluted share will be between $0.75 and $0.85, excluding approximately $0.37 related to restructuring charges.  Including the restructuring charges, the company expects earnings per diluted share will be between $0.38 and $0.48.

Source: Retailing Today 

July 14, 2014

Solid June spending growth was reported for May 31, 2014 through June 30, 2014, compared to June 1, 2013 through July 1, 2013.

A slowly improving economy and growing job market have helped drive consumer spending.  Spending growth in June slowed slightly from May but remained positive on a year-over-year basis with a growth of 3%.

While spending in travel and hotel slowed from the previous month, growth was still strong in these sectors, with a year-over-year increase of 4.9% and 7.1%, respectively.  Food and beverage stores spending was up 4.7% versus May’s 4.2% growth, a trend reflecting an increase in food costs.

Retail spending growth retreated slightly in June compared to May but remained positive with 1.2% growth.  5.7% growth in building and gardening materials and 1.5% growth in furniture and home furnishings reflect continued improvement in the housing market.  However, a slowly declining unemployment rate caused consumers to remain hesitant and kept overall retail spending growth moderate.

Average ticket growth also decreased slightly from May but remained positive at 0.9% growth on a year-over-year basis, reflecting increased food and gas prices.  Food and drinking places and food and beverage stores saw a growth of 2.5% and 1.5% respectively, as rising food costs impacted the average ticket in these categories for consumers.

Finally, credit spending continued to be the preferred spending method this month with a 5.3% increase in transaction growth and a 3.9% dollar volume growth.  The increase in transaction volume was supported by year-over-year growth in categories such as hotel and travel, where consumers tend to utilize this payment method most.

Source: Retailing Today

July 1, 2014

Economic activity in the manufacturing sector expanded in June for the 13th consecutive month, and the overall economy grew for the 61st consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.  “The June PMI registered 55.3 percent, a decrease of 0.1 percentage point from May’s reading of 55.4 percent, indicating expansion in manufacturing for the 13th consecutive month.  The New Orders Index registered 58.9 percent, an increase of 2 percentage points form the 56.9 percent reading in May, indicating growth in new orders for the 13th consecutive month.  The Production Index registered 60 percent, 1 percentage point below the May reading of 61 percent.  Employment grew for the 12th consecutive month, registering 52.8 percent, the same level of growth as reported in May.  Inventories of raw materials remained at 53 percent, the same reading as reported in both May and April.  The price of raw materials grew at a slower rate in June, registering 58 percent, down 2 percentage points from May.”

Manufacturing expanded in June as the PMI registered 55.3 percent, a slight decrease of 0.1 percentage point when compared to May’s reading of 55.4 percent.  A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. 

A PMI in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy.  Therefore, the June PMI indicates growth for the 61st consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 13th consecutive month.  Holcomb stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (54.0 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP) on an annualized basis.  In addition, if the PMI for June (55.3 percent) is annualized, it corresponds to a 4.0 percent increase in real GDP annually.”

Of the 18 manufacturing industries, 15 are reporting growth in June.

Source: Institute For Supply Management

July 10, 2014

Labor markets improved overall across the advanced economies, according to unemployment rates and employment growth data compiled and standardized by The Conference Board International Labor Comparisons (ILC) program for May 2014.

Unemployment rates in May fell in four of the nine countries compared, and were unchanged in the remaining five.  Sweden saw the greatest improvement, with joblessness falling 0.3 points to 7.7 percent.  Unemployment fell 0.2 points in the Netherlands (to 7.0 percent) and 0.1 points each in Japan (to 3.1 percent) and Germany (to 5.1 percent).

“In May, despite a continued high unemployment rate for the European Union as a whole, employment picked up in several European economies, including France, Italy, and the Netherlands,” said Elizabeth Crofoot, Senior Economist with the International Labor Comparisons program at The Conference Board.  “Yet Germany’s slight dip in employment, the first in over two years, underscores the continued fragility of Europe’s labor market recovery going forward.”

Employment in May increased in all economies compared except Germany and Australia.  Japan and Sweden saw the largest increases, rising 0.5 points to 99.6 and 105.5, respectively.  Despite an improvement of 0.3 points, Italy continues to have the lowest employment index (96.9), while Australia retains the highest (112.6) despite May’s 0.1-point decline.  With a gain of 0.1 points to 99.9, the U.S. inched even closer to reaching the employment index level of 2007 (=100) for the first time since the recession.

Source: The Conference Board

July 10, 2014

Retail sales generally improved in June, helped by good weather and big discounts as retailers look to clear inventory for the back-to-school season.

Costco Wholesale Corp. reported a 6% increase in June same-store sales, helped by higher fuel prices.  Its results topped Wall Street estimates.

Excluding the impact of foreign exchange rates and gasoline prices, Costco’s same-store sales increased 6% for the five-week period ended July 6.  The metric rose 5% in the United States and 7% overseas.

Net sales rose 10% to $10.89 billion.

While the retailers that still report same-store sales were in line or slightly better than had been expected, there were exceptions.  L Brands reported a 2% increase in June same-store sales, below estimates for a 3.1% increase.  Growth was led by a 3% increase in sales for the company’s Victoria’s Secret brand.

In other June results:

• Zumiez reported a 3.1% rise in same-store sales.  Net sales for June rose 11.1% to $65.3 million, from $58.8 million in the year-ago period.
• Stein Mart’s same-store sales increased 2.6%.  Total revenue for the five weeks ended July 5 rose 4% to $113.2 million.
• The Buckle posted a 0.7% increase in same-store sales.  Net sales for the period increased 2.8% to $84.8 million, from $82.5 million last year.
• Fred’s same-store sales fell 0.6%.  Total sales for the month increased 2% to $191.2 million, from $187.3 million last year.

Source: Retailing Today

July 3, 2014

The labor market remains surprisingly and resiliently strong as evidenced by the gain of 288,000 new jobs created in June.  This is not just catch up after a bad winter.  It also reflects some gathering strength in the economy.  More consumer demand could drive more investment in capital (to give workers the tools to get the job done) and more investment in human capital.  One big question is whether there will be enough upside to continue to drive up wage gains.  Business, faced with a lack of pricing power and weak productivity growth, are in a difficult bind.  Separately, sustained and possibly rising job growth could result in a pickup in the participation rate as more discouraged workers restart a job search.  While that could hold back upward pressures on wages and salaries, it is still a marker for how much potential improvement there is in economic conditions and prospects.

Source: The Conference Board