Author: Chad Symens

May 21, 2014

Despite the massive data breach that hurt Target’s fourth quarter, people are not staying away from the retailer.  According to a Reuter’s report, the company saw a dramatic improvement in traffic in the first quarter compared to its late fourth quarter trends.

The company’s first quarter financial performance in its U.S. and Canadian segments was in line with expectations, and according to interim president and CEO John Mulligan, reflects not only its continued recovery from the data breach but also early signs of improvement in its Canadian operations.

“While we are pleased with this momentum, we need to move more quickly,” said a cautiously optimistic Mulligan, who is also the company’s CFO and is temporarily filling in as chief executive while the company seeks a replacement for the ousted Gregg Steinhafel.  “As a result, we have made changes to our management team and are investing additional resources to drive U.S. traffic and sales, improve our Canadian operations and advance our ongoing digital transformation.  We have updated our 2014 earnings expectations to reflect the impact of these investments and believe that they position Target for accelerated profitable growth as a leading omnichannel retailer.”

U.S. sales for the quarter increased 0.2% to $16.7 billion last year, reflecting the contribution from new stores partially offset by a 0.3% decrease in comparable sales.  First quarter gross margin rate was 29.5% compared with 30.7% in 2013, driven primarily by additional promotional markdowns this year.

The company’s Canadian segment generated sales of $393 million, compared with $86 million in first quarter 2013 when Target opened its first 24 Canadian stores.  The first quarter 2014 gross margin rate of 18.7% reflects the continued impact of efforts to clear excess inventory, including long lead-time receipts.  This compares to first quarter 2013 gross margin rate of 38.4%, which benefitted from a lack of clearance markdowns due to the short time stores had been open.

Heading Canadian operations now is company veteran Mark Schindele.  He replaces Tony Fisher, whom the company terminated this week.

Target incurred $18 million of net expense in first quarter 2014 thanks to the data breach – during which an intruder gained unauthorized access to its network and stole payment card and other customer information – reflecting $26 million of total expenses partially offset by the recognition of an $8 million insurance receivable.

The expense does not include any accrual for the potential claims by the payment card networks for counterfeit fraud losses, the company said, adding that the amount accrued to date for probable losses on potential payment card network claims consists solely of operating expense reimbursement obligations.  Target also added that at this time, it is unable to reasonably estimate a range of possible losses on the payment card networks’ potential claims in excess of the amount accrued.

Source: Retailing Today 

May 21, 2014

Bad weather for retail dampened sales at Lowe’s, but earnings surged well into the double digits for the first quarter, the company announced Wednesday morning.

Lowe’s sales increased 2.4% in the first quarter, rising to $13.4 billion.  Comparable-store sales increased 0.9%.

The Mooresville, North Carolina-based retail giant reported a net earnings surge of 15.6% to $624 million for the quarter ended May 2.

Lowe’s quarterly earnings report followed by one day the report from Home Depot, which outperformed Lowe’s in terms of sales.  Lowe’s showed the higher percentage gain in net earnings – 15.6%, compared with Depot’s 12.5%.

Both retail giants pointed to the challenges of operating through a season hampered by a late start to spring.

“We executed well during the quarter, despite an unexpectedly prolonged winter in many areas of the country,” commented Robert A. Niblock, Lowe’s chairman, president and CEO.  “While poor weather dampened traffic and negatively impacted performance of exterior categories, results for indoor categories were solid.  We effectively aligned inventory, staffing and marketing resources by climatic zone to best serve customers’ needs.”

As of May 2, 2014, Lowe’s operated 1,836 home improvement and hardware stores in the United States, Canada and Mexico, representing 200.7 million sq. ft. of retail selling space.

For the full fiscal year, Lowe’s said total sales are expected to increase approximately 5%, while comp-store sales are expected to increase about 4%.

Early second-quarter performance suggests Lowe’s is on the right path, Niblock said.

“Performance has improved in May, which – together with our strengthening execution – gives us the confidence to reaffirm our sales and operating profit outlook for the year,” he said.

In other news, Lowe’s has a new SVP in Michael Tummillo, who is taking over the Building and Maintenance division as SVP and general merchandising manager.  He replaces Michael McDermott, who will now serve as CMO and direct supervisor to Tummillo.

“Mike has a deep understanding of the business and the challenges our professional and DIY customers face every day,” said McDermott.  “During his time at Lowe’s, Mike has demonstrated the kind of strategic thinking and leadership across functions which will position him for success as he takes on responsibility for the broader building and maintenance merchandising team.  I have great confidence that Mike will deliver our strategic goals in this important segment of the business.”

Tummillo was most recently serving as merchandising VP, rough plumbing and electrical.  He joined Lowe’s in 2004 as VP credit services, soon after acquiring additional responsibilities in credit, project and event sales.  His resume also includes stints at GE card services and GE financial assurance.

Source: Retailing Today

May 22, 2104

The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.4 percent in April to 101.4, following a 1.0 percent increase in March, and a 0.5 percent increase in February.

“The LEI rose for the third consecutive month, driven largely by improving housing and financial market conditions,” said Ataman Ozyildrim, Economist at The Conference Board.  “This latest report suggests the economy will continue to expand, and may even pick up steam through the second half of the year.”

“Despite a brutal winter which brought the economy to a halt, the overall trend in the leading economic index has remained positive,” said Ken Goldstein, Economist at The Conference Board.  “If consumers continue to spend, and businesses pick up the pace of investment, the industrial core of the economy will benefit and GDP growth could move closer towards the 3 percent range.”

The Conference Board Coincident Economic Index for the U.S. increased 0.1 percent in April to 108.5, following a 0.3 percent increase in March, and a 0.3 percent increase in February.

The Conference Board Lagging Economic Index for the U.S. increased 0.2 percent in April to 123.3, following a 0.7 percent increase in March and a 0.2 percent increase in February.

Source: The Conference Board

May 20, 2014

Store closures and weak demand for traditional office supplies and computers hurt Staples in the first quarter of fiscal 2014.

The company attributed a 44% drop in net earnings during the quarter to lower sales caused by store closures and a rise in the value of the dollar.  But according to reports, the office products company and second largest internet retailer in the United States is facing stiff competition from big box retailers such as Walmart and e-commerce giants such as Amazon.

Net earnings were $96 million for the quarter.  Net saes dropped 3% to $5.65 billion from $5.81 billion.

For the second quarter, the company anticipates further decreases in sales, which caused shares to drop 10%.

“We’re making progress meeting the changing needs of our customers as we reinvent Staples,” said chairman and CEO Ron Sargent.  “Despite a slow start to the first quarter, our results were in line with our expectations and we expect to build mementum throughout 2014.”

Source: Retailing Today

May 13, 2014

Slightly lower median home prices along with steady mortgage rates contributed to higher housing affordability in the first quarter, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), released today.

In all, 65.5 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $63,900.  This is slightly higher from the 64.7 percent of homes sold that were affordable to median-income earners in the fourth quarter.

Meanwhile, the national median home price dipped from $205,000 in the fourth quarter to $195,000 in the first quarter while average mortgage interest rates were virtually unchanged, moving from 4.54 percent to 4.57 percent in the same period.

“Housing affordability remains strong and this is an encouraging sign as the spring home building season moves into high gear,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“As home prices and mortgage interest rates are unlikely to go down, the first quarter HOI is another indicator that this is an opportune time to buy,” said NAHB Chief Economist David Crowe.

Syracuse, New York was the nation’s most affordable major housing market, as 93.7 percent of all new and existing homes sold in this year’s first quarter were affordable to families earning the area’s median income of $67,700.  Meanwhile, Cumberland, Maryland-West Virginia claimed the title of most affordable smaller market, with 96.3 percent of homes sold in the first 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 first quarter included Buffalo-Niagara Falls, New York; Youngstown-Warren-Boardman, Ohio-Pennsylvania; Harrisburg-Carlisle, Pennsylvania; and Dayton, Ohio; in descending order.

Smaller markets joining Cumberland at the top of the affordability chart included Springfield, Ohio; Kokomo, Indiana; Mansfield, Ohio; and Lima, Ohio.

For a sixth consecutive quarter, San Francisco-San Mateo-Redwood City, California held the lowest spot among major markets on the affordability chart.  There, just 13.3 percent of homes sold in the first quarter were affordable to families earning the area’s median income of $100,400.

Other major metros at the bottom of the affordability chart included Santa Ana-Anaheim-Irvine, California; Los Angeles-Long Beach-Glendale, California; New York-White Plains-Wayne, New York-New Jersey; and San Jose-Sunnyvale-Santa Clara, California; in descending order.

All of the five least affordable small housing markets were in California.  At the very bottom of the affordability chart was Santa Cruz-Watsonville, where 21.1 percent of all new and existing homes sold were affordable to families earning the area’s median income of $77,900.  Other small markets at the lowest end of the affordability scale included Napa, Salinas, San Luis Obispo-Paso Robles, and Santa-Petaluma, respectively.

Source: National Association of Home Builders 

May 20, 2014

Despite getting a slow start to the year, The Home Depot rallied in the first quarter thanks to solid results in non-weather-impacted markets.

The home improvement retailer reported first quarter sales of $19.7 billion, up 2.9% from last year’s first quarter.  Comparable store sales were up 2.6%.  Comp-store sales for U.S. stores were positive 3.3%.

The company also reported double-digit growth in net earnings – up 12.5% to $1.38 billion.

“The first quarter was impacted by a slow start to the spring selling season,” said Frank Blake, chairman and CEO.  “But we had solid results in non-weather-impacted markets and expect our sales for the year to grow in line with guidance we previously provided.”

That guidance calls for 2014 sales to increase about 4.8% from the previous year.

At the end of the first quarter, Home Depot operated a total of 2,263 stores.

Source: Retailing Today

May 19, 2014

Last week:  In a data heavy week, it’s hard to imagine that the big news of the week came from the financial markets.  And, it was driven not by domestic considerations but what is happening overseas.  The backdrop is the continuing tapering by the Federal Reserve.  Where it once bought $85 billion in bonds per month, it has tapered down to $45 billion and will be even lower over the next few months.  Faced with slow growth in the Euro-zone (or no growth in France, Italy, and the Neatherlands), and very low inflation (which could go still lower), the European Central Bank is thought to be considering its own quantitavie easing program.  If the ECB is going to buy bonds, increasing the demand without an increase in supply could well bid up the price (thereby lowering the yield).  In anticipation, markets this week lowered yields on sovereign debt, even in France, Italy and the Netherlands.  Will the ECB act?  Will it more than offset Fed tapering?  More importantly, will Euro growth perk up and inflation gradually move up to the ECB’s target of 2 percent?  The only thing that is clear right now is that financial markets will be paying very close attention to this story this summer.

The Conference Board Leading Economic Index for the U.S.

The Coincident Economic Index, which tells us where the economy is right now, continued to rise moderately through March.  The Leading Economic Index for the United States has been consistently much stronger, suggesting there could be more punch going forward.  With the end of inclement winter weather, and some fundamental strengthening in the economy, the growth path going forward looks encouraging.  Was that still the signal in the data in April?

Fact of the Week

As the Federal Reserve continues to taper on bond buying, we are also moving closer to the day when interest rates are no longer artificially low.  The Federal Government debt totals about $17 trillion.  Every inch up on borrowing rates therefore implies higher borrowing costs, possibly resulting in changes elsewhere in the nation’s budget to afford paying the debt service.

Meanwhile, American households are in debt to the tune of about $11 trillion, the lion’s share of which is mortgage debt.  But to the extent that this amount is tied to fixed rate mortgages, hikes in interest rates will have less impact on households now, though possibly more impact on those trying to take out a mortgage going forward.  Either way, with that much debt to carry, small changes in interest rates can have big consequences – even bigger consequences if the economy were to quickly slide back to a 2 percent growth path.  Luckily, the forecast is for something closer to 2.5 percent.  And that difference in growth could make the difference in how much negative impact there is coming from higher interest rates, down the road.

Source: The Conference Board

May 16, 2014

While other retailers saw sales affected by a winter that overstayed its welcome, Dillard’s marked its 15th consecutive quarter of positive sales.

Despite weak sales in home and furniture, Dillard’s said sales trends in the first quarter were strongest in the men’s apparel and accessories category and the junior’s and children’s apparel category, followed by ladies’ accessories and lingerie.

The retailer reported total merchandise sales for the quarter of $1.539 billion, a 1% increase from $1.530 billion for the prior-year period.  Comparable-store sales increased 2%.

Sales trends were strongest in the Central region, followed by the Eastern and Western regions, respectively.

“We reported record earnings per share of $2.56 compared to $2.50.  Our 2% comparable store sales increase marks our 15th consecutive quarter of positive sales.  Additionally, we executed $65.9 million of share buyback as a result of our strong cash flow,” said CEO William Dillard II.

Gross margin from retail operations decreased 14 basis points of sales for the quarter compared to the first quarter last year.  The decline resulted primarily from increased markdowns compared to the prior-year first quarter.

At May 3, the company operated 278 Dillard’s locations and 18 clearance centers spanning 29 states, as well as its e-commerce site.

Source: Retailing Today 

May 16, 2014

Nordstrom’s full line stores saw first quarter same store sales decline but the department store operator’s off price Rack division is doing just fine.

Total sales increased 6.8% to $2.8 billion with top-performing categories including accessories, women’s shoes, and cosmetics.  A 3.9% overall same store sales increase was comprised of a 1.9% decline at full line stores and a 6.4% comp increase at the rapidly expanding Nordstrom Rack stores.  Nordstrom’s direct (e-commerce) sales grew by 33% in the quarter on top of a 25% prior year increase and the company launched its Nordstromrack.com Web site.

Nordstrom said its profits declined to $140 million, or 72 cents a share, from $145 million, or 73 cents a share, due in large part to heavy investments in technology and supply chain to support omnichannel initiatives and entry into Canada.  Despite the decline, the company’s earnings of 72 cents were four cents better than analysts expected and above the company’s guidance range of 60 cents to 70 cents.

Nordstrom ended the quarter with 117 full line stores, the same as the prior year, while the number of Rack outlets increased to 150 locations from 128.  During the remainder of the year, three new full line stores are expected to open along with 17 Rack stores.

Source: Retailing Today

May 15, 2014

Kohl’s joins a growing list of retailers whose first quarter results took a hit from a severe and extended winter.  Despite missing estimates, the company is staying firm on its guidance for the full fiscal year.

The company reported net sales for the quarter of $4.07 billion, a 3.1% decrease from $4.2 billion for the prior-year quarter.  Comparable store sales decreased 3.4% in the quarter compared to a 1.9% decrease in the prior-year quarter.  Net income was $125 million for the quarter, a drop of 15% from $147 million in the prior-year quarter.  Diluted earnings per share fell 9% to $0.60 from $0.66 in the prior-year quarter.

“We did not achieve our first quarter sales goals, but we were encouraged by the improvement in sales as the quarter progressed,” said chairman, president and CEO Kevin Mansell.  “Our teams managed our inventory levels appropriately and expenses were controlled throughout the organization during the quarter.”

The company still anticipates diluted earnings per share of $4.05 to $4.45 for fiscal 2014, which is consistent with its previous guidance.

Kohl’s ended the quarter with 1,160 stores in 49 states, compared with 1,155 stores at the same time last year.  The company opened four new store locations, relocated one existing store and permanently closed two stores during the quarter.

Source: Retailing Today