Author: Chad Symens

May 15, 2014

Walmart continues to envision flat same store sales at its U.S. stores after reporting weaker than expected profits on weak U.S. sales results that were negatively affected by a winter that wouldn’t end.

Net income declined 5% to $3.6 billion and earnings per share of $1.10 were five cents below analysts’ expectations and below the company’s prior year first quarter profit of $1.14.  Even excluding the effects of the severe winter, estimated by Walmart to be three cents a share, the company’s profit figure would have been below the prior year amount, although with the guidance range of $1.10 to $1.20.

Sales at Walmart’s U.S. stores increased 2% to $67.9 billion although same store sales declined 0.1% after declining 1.4% during the first quarter the prior year.  Sales at Sam’s Club including fuel were essentially flat at 13.9 billion, but increased 0.5% if fuel sales are excluded.  Same store sales declined 0.5%, excluding fuel, after a prior year drop of 0.2%.

“Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected,” said Doug McMillon, Wal-Mart Stores, Inc. president and CEO.  “Walmart’s underlying business is solid, and I’m confident in our long-term strategies.  We’ll continue to invest in price and enhance our service to improve sales.  We remain focused on growth across the enterprise, especially in small formats like Neighborhood Market in the U.S.”

The company highlighted what it called significant investments in e-commerce initiatives, including its global technology platform, and said sales worldwide rose approximately 27% and noted that e-commerce had a 0.3% favorable impact on same store sales.

“We have the opportunity to create transformative growth through stronger e-commerce capabilities,” McMillon said.  “Our investments are focused on improving customer experience and fulfillment capacity.  We’re working to deliver a relevant personalized and seamless customer experience across all channels to further grow sales.”

Total company sales for the quarter ended April 30 increased 0.8% to $114.2 billion, but would have grown 2.1% if a $1.6 billion negative impact of currency exchange rates were excluded from the calculation.

Walmart had set a low bar for itself heading into the quarter which began in early February as severe winter weather was hitting the nation at the time the company provided guidance calling for flat same store sales at U.S. stores and clubs.  Although weather conditions have improved nationwide, the retailer continues to forecast relatively flat comps while touting strong fundamentals of its business.

“A number of severe winter storms negatively impacted us during the quarter.  A solid start to spring and a strong Easter drove positive comps in the back half of the quarter,” said Bill Simon, Walmart U.S. president and CEO.  “Neighborhood Markets continued to deliver strong results.  Comp sales increased approximately 5% for the quarter, and net sales have nearly doubled versus two years ago.  We saw strength across food and health and wellness, and we’re particularly pleased with our overall traffic trend.  April marked the 46th consecutive month of positive comps for Neighborhood Market.”

Like McMillon, Simon touted Walmart’s solid fundamentals and said, “our recently launched initiatives, including the Walmart 2 Walmart money transfer service and the video game trade-in program, along with continued price investment, will resonate with the customer.”

As for Sam’s Club, president and CEO Rosalind Brewer, highlighted several noteworthy developments such as 10.9% growth in membership income driven by a fee increase.

“We expect that the combination of the national rollout of Sam’s Club Cash Rewards and the launch of our new industry cash back credit card will enhance member value to drive stronger membership growth,” Brewer said.  “These programs, along with our improvements in merchandise, are expected to drive better comp sales in the future.”

Source: Retailing Today

May 15, 2014

Things took a wacky turn in the retail world this week as JCPenney reported a 6.2% same store sales increase and a huge gross margin expansion while Macy’s, Kohl’s and Walmart stumbled.

JCPenney still lost money, lots of it, during the quarter ended May 3, but total sales increased 6% to $2.8 billion.  The 6.2% same store sales increase the company reported was the result of sequential improvement throughout the quarter and broad-based strength across categories.  The comp increase would have been even stronger had the company employed a new method of calculating results that exclude temporary impacts it plans to use going forward.  For example, certain items such as sales return estimates and liquidation sales will now be excluded from same store sales calculation.  Had this methodology been applied during the first quarter, JCPenney would have reported a 7.4% comp increase rather than a 6.2% gain.

In addition to a same store sales surprise, gross margins expanded by 230 basis points to 33.1% of sales from 30.8% last year despite the negative effects of clearance activity.

“We are very pleased to report that JCPenney delivered its second consecutive quarter of comparable store sales growth, as well as continued gross margin improvement.  It is clear that our efforts to re-merchandise many areas of the store and revamp our messaging to the customer are taking hold,” said JCPenney CEO Myron Ullman.  “Despite a difficult retail environment, our strong performance during the Easter holiday period and other key promotional events enabled us to deliver better than anticipated sales results.  We expect to carry this momentum into the second quarter as we continue to position the company for long-term profitable growth.”

Women’s and men’s apparel, home, and fine jewelry were the company’s top performing merchandise divisions in the quarter and Sephora inside JCPenney also continued its strong performance, according to the company.  Geographically, all regions delivered sales gains over the same period last year with the best performance in the western and central regions of the country.

Lest anyone get carried away with the company’s performance, it is worth noting JCPenney was cycling against a prior year comp decline of 16.6% and it continues to report sizable losses.  The operating loss during the first quarter was $247 million, which was roughly half the prior year loss of $486 million.  A net loss of $352 million was worse than the prior year net loss of $348 million.

The other noteworthy development announced in conjunction with the release of first quarter results involved a new $2.35 billion credit facility to replace an existing $1.85 billion line of credit.

“With a solid plan in place to complete the turnaround, we are pleased with the support of our banking partners and their confidence in our ability to succeed,” Ullman said.

Looking ahead, JCPenney expects a second quarter comp increase in the mid-single digits at its 1,100 stores and significant full year gross margin improvement.

Source: Retailing Today

May 14, 2014

Sears Holdings plans to hire an investment banking firm to explore strategic alternatives regarding its 51% ownership stake in Sears Canada.

The strategic alternatives are said to include the potential sale of Sears Holdings’ interest or Sears Canada as a whole, according to a statement by the Hoffman Estates, Illinois-based company.  In a separate statement, Sears Canada said its board of directors intended to cooperate fully with Sears Holdings in the strategic alternatives exploration process to achieve full value for all shareholders.

Sears Canada is a separate publicly held company that operates 176 Sears stores, 233 hometown deal stores, seven Sears home services showrooms and approximately 1,400 catalog and online merchandise pick-up locations in Canada.

Sears Canada sales during the 13 week fourth quarter ended February 1, 2014 declined 9.6% to $1.18 billion compared to $1.3 billion during the 14 week period the prior year.  Same store sales also declined 6.4% due in large measure to extensive store closures related to severe winter weather.  Full year sales for the 52 week period declined 8.2% to nearly $4 billion from $4.3 billion during the 53 week prior year fiscal period.  Same store sales for the year fell 2.7%.

Source: Retailing Today

May 16, 2014

Soaring production of multifamily apartments pushed nationwide housing starts above the million-unit mark in April, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  Total housing production rose 13.2 percent for the month to a seasonally adjusted annual rate of 1.07 million units, due entirely to a 39.6 percent increase on the multifamily side, while single-family production held steady.

“The flat single-family data confirm our latest surveys, which show that single-family builders remain concerned that tight credit availability and uncertain conditions are keeping potential buyers on the sidelines,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  “However, demand for apartment construction still remains high.”

Single-family housing starts rose 0.8 percent to a seasonally adjusted annual rate of 649,000 units in April.  Meanwhile, multifamily production jumped 39.6 percent to a seasonally adjusted annual rate of 423,000 units – their fastest pace since January 2006.

“The growth in multifamily production is a very positive development as it shows an expected increase in household formations from young people renting apartments and taking the first step into the housing market,” said NAHB Chief Economist David Crowe.  “These young households will form the demand for ownership in the future.”

All four regions posted gains in combined single and multifamily housing production in April, with the Northeast posting a 28.7 percent gain, the Midwest registering a 42.1 percent increase, the West posting an 11.1 percent increase and the South noting a 1.5 percent gain.

Issuance of building permits, which can be an indicator of future building activity, rose 8 percent to a seasonally adjusted annual rate of 1.08 million units in April.  This was due entirely to an increase in the multifamily sector, where permits registered a 21.8 percent gain to 453,000 units.  Single-family permits registered a marginal 0.3 percent gain to 602,000 units.

Source: National Association of Home Builders

May 14, 2014

The nation’s leading department store retailer overcame weak first quarter sales to muster a 3.2% profit improvement and expressed confidence in its performance the remainder of the year.

The company’s first quarter earnings per share of 60 cents was a penny better than analysts forecast and a 9% improvement from prior year earnings of 55 cents.  However, sales declined 1.7% to nearly $6.3 billion while same store sales, excluding sales from departments licensed to third parties, fell 1.6%

“Overall, business trends were soft in January through March, with the exception of the Valentine’s Day shopping period,” said Macy’s chairman and CEO Terry Lundgren.  “The trend improved in April when the weather began to turn in northern climate zones.  We see this as a good sign moving forward into the second quarter.”

In addition to weather, Lundgren said first quarter comparisons were negatively impacted by a calendar shift for the company’s “Friends & Family” promotional event and comparisons against a strong performance during the first quarter the prior year.

Undeterred by the top line weakness, the company affirmed earlier guidance calling for full year same store sales growth in the range of 2.5% to 3% and earnings per share of $4.40 to $4.50.  The company also rewarded shareholders by increasing the quarterly dividend payout 25% to 31.25 cents and increasing the stock buyback program by $1.5 billion.

“The fundamentals of our business and our ongoing strategies remain strong,” Lundgren said.  “This, combined with the momentum we have built over the past five years, leads us to feel confident about the company’s prospects.  Our board shares this confidence and increased our dividend and share repurchase authorization to provide an even greater return for our shareholders.”

Macy’s ended the quarter with roughly 840 stores.

Source: Retailing Today

May 15, 2014

Reports Record First Quarter Earnings per Share of $2.56 versus $2.50

Dillard’s, Inc. (DDS-NYSE) announced operating results for the thirteen weeks ended May 3, 2014. 

Summary of the Company’s First Quarter Performance

• A 2% increase in comparable store sales
• Diluted earnings per share of $2.56 versus $2.50
• Cash flow from operations of $161.9 million versus $136.9 million
• Share repurchase of $65.9 million (0.7 million shares) of Class A Common Stock

Dillard’s Chief Executive Officer, William Dillard, II, stated, “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.”

First Quarter Results

Dillard’s reported net income for the prior year 13-week period ended May 4, 2013 of $111.7 million ($2.56 per share) compared to net income of $117.2 million ($2.50 per share) for the 13 weeks ended May 4, 2013.

Included in net income for the prior year 13-week period ended May 4, 2013 is a net after-tax credit totaling $4.4 million ($0.99 per share ) comprised of the following three items:

• A $7.6 million after tax gain ($0.16 per share) related to the sale of an investment
• A $1.0 million after tax credit ($0.02 per share) related to a pension adjustment
• After-tax asset impairment and store closing charges of $4.2 million ($0.09 per share)

Net Sales – 13 Weeks

Total merchandise sales for the 13-week period ended May 3, 2014 were $1.539 billion and $1.530 billion for the 13-week period ended May 4, 2013.  Total merchandise sales increased 1%, and sales in comparable stores increased 2% for the first quarter.

Sales trends for the first quarter were strongest in the men’s apparel and accessories category and the juniors’ and children’s apparel category followed by ladies’ accessories and lingerie.  Sales were weakest in home and furniture.  Sales trends were strongest in the Central region, followed by the Eastern and Western regions, respectively.

Net sales (which include the operations of the Company’s construction business, CDI Contractors, LLC) for the 13 weeks ended May 3, 2014 were $1.551 billion and $1.549 billion for the 13 weeks ended May 4, 2013.

Gross Margin/Inventory

Gross margin from retail operations (which excludes CDI) decreased 14 basis points of sales for the 13 weeks ended May 3, 2014 compared to the 13 weeks ended May 4, 2013.  The decline resulted primarily from increased markdowns compared to the prior year first quarter.  Inventory increased 1% at May 3, 2014 compared to May 4, 2013.

Consolidated gross margin remained unchanged as a percentage of sales at 39.5% for the 13 weeks ended May 3, 2014 and May 4, 2013.

Selling, General & Administrative Expenses

Selling, general and administrative expenses (“operating expenses”) were $393.7 million and $390.2 million for the 13 weeks ended May 3, 2014 and May 4, 2013, respectively, increasing 19 basis points of sales.  Increased selling payroll was partially offset by decreased advertising expense during the quarter.  Included in operating expenses for the prior year first quarter is a $1.5 million pretax credit ($1.0 million after tax of $0.02 per share) related to a pension adjustment.

Share Repurchase

During the quarter ended May 3, 2014, the Company repurchased $65.9 million (0.7 million shares) of Class A Common Stock at an average price of $89.34 per share under the Company’s share repurchase plans.  Remaining authorization under the share repurchase program at May 3, 2014 was $224.5 million.

Total shares outstanding (Class A and Class B Common Stock) at May 4, 2013 were 43.2 million and 46.3 million, respectively.

Store Information

At May 3, 2014, the Company operated 278 Dillard’s locations and 18 clearance centers spanning 29 states and an Internet store at www.dillards.com.  Total square footage at May 3, 2014 was 50.5 million.

Source:  Dillard’s, Inc. Investor Relations

May 15, 2014

Builder confidence in the market for newly built, single-family homes in May fell one point to 45 from a downwardly revised April reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

“After four months in which the HMI has shown little signs of fluctuation, it is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “However, builders expressed some optimism that sales will pick up in the coming months.”

“Builders are waiting for consumers to feel more secure about their financial situation,” said NAHB Chief Economist David Crowe.  “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

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 for 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.

The index’s components were mixed in May.  The component gauging sales expectationsin the next six months rose one point to 57 and the component measuring buyer traffic increased two points to 33.  The component gauging current sales conditions fell two points to 48.

Looking at the three-month moving averages for regional HMI scores, the South rose one point to 48 while the Midwest fell a single point to 47 and the West posted a four-point drop to 47.  The Northeast held steady at 33.

Source: National Association of Home Builders 

May 13, 2014

Retail sales rose ever so slightly in April, putting a damper on hopes of a sharp uptick in economic growth in the second quarter.  According to the U.S. Commerce Department, retail sales, which include categories such as automobiles, gasoline stations and restaurants, rose 0.1% in April, following a revised 1.5% increase in March that ranked as the biggest since March 2010.

According to the National Retail Federation (NRF), April sales, which exclude automobiles, gas stations and restaurants, were unchanged seasonally-adjusted month-to-month, yet increased 4.7% unadjusted year-over-year.

“Even though retail sales were weaker than anticipated, the fundamentals of the economy, including improving job growth and income gains, remain positive,” said chief economist Jack Kleinhenz.  “While the shift in Easter played into the seasonal figures, NRF remains optimistic that retail sales will keep their positive trajectory, albeit in fits-and-starts, in the second quarter.”

Additional findings from NRF’s retail sales analysis include:

• Building material and garden equipment and supplies dealers stores’ sales increased 0.4% seasonally-adjusted month-to-month and 2.7% unadjusted year-over-year.
• Clothing and clothing accessories stores’ sales increased 1.2% seasonally-adjusted month-to-month and 5.2% unadjusted year-over-year.
• Electronics and appliance stores’ sales decreased 2.3% seasonally-adjusted month-to-month and 1.8% unadjusted year-over-year.
• Furniture and home furnishing stores’ sales decreased 0.6% seasonally-adjusted month-to-month yet increased 3.6% unadjusted year-over-year.
• General merchandise stores’ sales increased 0.2% seasonally-adjusted month-to-month and 5.3% unadjusted year-over-year.
• Health and personal care stores’ sales increased 0.6% seasonally-adjusted month-to-month and 6.6% unadjusted year-over-year.
• Nonstore retailers’ sales decreased 0.9% seasonally-adjusted month-to-month yet increased 5.8% unadjusted year-over-year.
• Sporting goods, hobby, book and music stores’ sales increased 0.7% seasonally-adjusted month-to-month yet decreased 0.6% unadjusted year-over-year.

“The shift in Easter to April did not provide enough bounce to retailers as retail sales struggled to keep their strong spring pace,” NRF president and CEO Matthew Shay said.  “With consumer spending accounting for roughly 70% of total economic activity, NRF remains hopeful that the uninspiring April retail sales figures are just a temporary seasonal fluctuation.”

Source: Retailing Today

May 12, 2014

Last week:  Some improvement in trade, domestically and globally, was the big news this week.  The forward indicators have been pointing to some improvement in global industrial conditions, which may be developing, as evidenced by the trade data.  The other big story is financial, in terms of the Federal Reserve continuing to unwind quantitative easing.  This is leading to renewed speculation about the timing of a return to a more normal yield curve in interest rates.  And the irony is that the domestic economy is beginning to pick up enough steam to contemplate raising interest rates, which would mean higher mortgage rates, which would possibly slow the improvement in home building and buying.  How much, and over what time frame, is a story that will unfold perhaps over the next year and a half.

Retail Sales, April (Bureau of the Census)

Vehicle sales (at a 16 million pace in March) reflect some catch up from widespread inclement weather at the start of the year.  Non-auto retail spending will reflect the same trend.  Going forward, the retail pace will be dictated by the pace of hiring and any pickup in wages.  Retailers, still stuck with piled-up inventory, are hoping continued good news on the labor front allows consumers to put into action some long delayed buying plans, which in turn will bring the inventory-to-sales ratio back down to something closer to normal.

Producer Price Indexes, April (Bureau of Labor Statistics)

Energy prices remain relatively stable.  Food prices are stable now but could start to move a little higher.  “Core” prices (which exclude food and energy) remain very low, rising by no more than 0.2 percent per month.  The big worry is that they might start rising even more slowly, as non-energy commodity prices stop rising at all.  In a soft economic environment, there is little reason to think these raw commodity prices will start rising faster this summer.

Consumer Price Indexes, April (Bureau of Labor Statistics)

Globally, inflation is slow.  Domestically, it is simply holding steady, but at a very slow pace.  “Core” prices (which exclude food and energy) have been rising by no more than 0.2 percent per month for more than a year.  Even with the economy starting to grow faster, faster price increases are probably not going to develop this spring or summer.  Energy prices are running below year-ago comparisons.  Food prices, however, are responding to low crop output, the result of a severe and prolonged California drought.  Medical-care inflation has slowed while the cost of housing remains steady.  Without much change in either of those two components, retail inflation will not change significantly.

Housing Starts and Building Permits, April (Bureau of the Census)

Home building has been running close to a million starts (annualized).  Demand has held up, even with mortgage rates moving a little higher.  And with foreclosure activity winding down, more demand has to be met by increased construction.  The home-owner end of this market could be impacted if mortgage rates rise faster.  Apartment building, however, is the stronger segment of this market, and even with higher mortgage rates, this won’t change.  In fact, with 200,000 new jobs a month and higher mortgage rates, demand for apartments could intensify.

Fact of the Week

The national unemployment rate is now down to 6.3 percent.  But among those 24 years of age or younger, it is over 9 percent.  Moreover, a new report, In Ths Together: The Hidden Cost of Young Adult Unemployment, notes that governments (federal and states) lose almost $9 million in taxes not collected from pay not earned.  Add in the number not working and not in school (and since they are not looking for a job, they are not counted in the labor force) and the cost skyrockets to $25 billion.

What is the cost to individuals?  Starting their careers with bouts of unemployment, delaying their earnings experience and not developing their skill set could result in a collective loss of $20 billion in money not earned over thier working lives.

Nor is this strictly an American problem.  Youth unemployment is higher in several other countries, much higher in a few countries like Spain.  In fact, across the globe there is an army of unemployed and unengaged youth.  There are approximately 75 NEETS (Not in Employment, Education, or Training) across the globe.  What’s more, the slower the global economy grows, the faster the number of NEETS will grow.  And by extension, the call on public resources and the limit on those resources increases, precisely because they are not engaged in economic activity.

Source: The Conference Board

May 13, 2014

U.S. retail sales barely rose in April and a gauge of consumer spending slipped, which could temper hopes of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Tuesday retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars and online retailers.

Retail sales, which account for a third of consumer spending, rose by a revised 1.5 percent in March.  That was the largest increase since March 2010.

Economists polled by Reuters had forecast sales advancing 0.4 percent last month after a previously reported 1.2 percent surge in March.

Data such as employment, as well as manufacturing and services industries surveys had suggested the economy regained strength early in the second quarter after being weighed down by bad weather and a slow pace of restocking by businesses in the first three months of the year.

But the retail sales report cast a shadow on that upbeat outlook.  So-called core sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product, fell 0.1 percent in April.

That followed a revised 1.3 percent advance in March.

Core retail sales had previously been reported to have risen 0.8 percent in March.

Last month, retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores.  Sales at furniture stores fell 0.6 percent, while receipts at food services and drinking places dropped 0.9 percent.

Sales at non-store retailers, which include online sales, fell 0.9 percent.

However, receipts at building materials and garden equipment stores rose 0.4 percent.  Sales at auto dealerships increased 0.6 percent.  There were also increases in sales at gasoline stations, reflecting higher pump prices.

Excluding gasoline and autos, retail sales fell 0.1 percent.

Receipts at clothing stores rose 1.2 percent.  There were also gains in receipts at sporting goods shops.

Source: Fox Business