Author: Chad Symens

April 23, 2014

Things are looking good for Supervalu, which reported fourth quarter fiscal 2014 net sales of $4 billion, up 1.4%, and net earnings of $26 million, or $0.10 per diluted share.

“Fiscal 2014 was an important transition year for Supervalu as we stabilized the organization and set the foundation for our future,” stated Sam Duncan, Supervalu president and CEO.  “I am pleased with the direction of our business segments and look forward to the new fiscal year where we can focus our attention on driving sales growth across the organization.”

Identical store sales in the retail food segment were positive 0.2%.  Identical store sales in the Save-A-Lot network were positive 2.1%.  Identical store sales for corporate stores within the Save-A-Lot network were positive 3.5%.

Total sales within the independent business segment decreased 0.6% primarily due to the continued impact of losing two large customers and lower military sales partially offset by net new business.

Source: Retailing Today

April 23, 2014

Sales of newly built, single-family homes fell 14.5 percent to a seasonally adjusted annual rate of 384,000 units in March, according to data released today by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

“We keep hearing from our members that tight credit conditions are preventing many first time buyers and younger families from being able to buy a home,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  “Congress must outline a clear policy on housing finance so that qualified buyers can get home loans.  Otherwise, this continued uncertainty could threaten the housing recovery and overall economy.”

“Overly stringent underwriting standards for mortgages have had a detrimental effect on modest priced markets and have hit first time home buyers particularly hard,” said NAHB Chief Economist David Crowe.  “As a result, most of the sales are coming from a smaller pool of buyers who have a more established credit history, are more likely to finance with higher cash downpayments and are purchasing higher priced homes.”

Regionally, sales in March fell 21.5 percent in the Midwest, 14.4 percent in the South and 16.7 percent in the West.  The Northeast was the exception to the rule, with a 12.5 percent increase.

The inventory of new homes for sale edged up to 193,000 units in March, which is a six month supply at the current sales pace.

Source: National Association of Home Builders

April 18, 2014

Those looking to understand how the retail industry will perform in the second quarter and beyond can gain an interesting perspective from the outlook shared by one of the world’s largest diversified packaging companies.

First quarter sales in the display and packaging division at Sonoco increased 6% to $153 million and operating profits grew 53% to $5.4 million, while sales in the consumer packaging segment were essentially flat at $465 million but operating profits grew 14% to more than $48 million.  The performance of both divisions helped the company generate earnings per share of 52 cents that exceeded analysts’ estimates by a penny during the period ended March 30.

The numbers are noteworthy because Sonoco’s performance and second quarter outlook offers an early indication of upcoming retail promotional activity, considering demand for its consumer packaging and display and packaging services are fueled by retail and CPG companies.  This is especially true in the case of the display and packaging group which designs, manufactures, assembles, packs and distributes all manner of temporary, semi-permanent and permanent point-of-purchase displays.  Also included in the performance of the division are supply chain management services such as contract packing, fulfillment centers and retail packaging.

This exposure to the retail industry, coupled with the short lag between the end of Sonoco’s quarter (March 30) and when it reports results (April 16) offers a near real time look at industry demand.

“Much of the negative impact from severe winter weather occurred in January and February.  As weather improved in March, we saw a strong rebound in customer orders across most of our businesses and a sharp improvement in operating performance,” said Sonoco president and CEO Jack Sanders.  “Enterng April, customer orders appear to be running at more normal levels, in line with volume expectations and our second-quarter earnings guidance, which anticipates continued improvement in operations.”

Source: Retailing Today

April 21, 2014

The Conference Board Leading Economic Index for the U.S. increased 0.8 percent in March to 100.9, following a 0.5 percent increase in February, and a 0.2 percent increase in January.

“The LEI rose sharply again, the third consecutive month increase,” said Ataman Ozyildrim, Economist at The Conference Board.  “After a winter pause, the leading indicators are gaining momentum and economic growth is gaining traction.  While the improvements were broad-based, labor market indicators and the interest rate spread largely drove the March increase, offsetting the negative contribution from building permits.  And, for the first time in many months, the consumer outlook is much less negative.”

“The March increase in the LEI suggests accelerated growth for the remainder of the spring and the summer,” said Ken Goldstein, Economist at The Conference Board.  “The economy is rebounding from widespread inclement weather and the strengthening in the labor market is beginning to have a positive impact on growth.  Overall, this is an optimistic report, but the focus will continue to be on whether improvements in the labor market can be sustained, fueling stronger economic performance over the next few months.”

The Conference Board Coincident Economic Index for the U.S. increased 0.2 percent in March to 108.3, following a 0.4 percent increase in February, and a 0.1 percent decline in January.

The Conference Board Lagging Economic Index for the U.S. increased 0.6 percent in March to 123.0, following a 0.3 percent increase in February, and a 0.6 percent increase in January.

Source: The Conference Board

April 21, 2014

Last Week: With winter weather in the rearview mirror, the big question now is how much bounce will demand get – with shoppers finally able to get out and about.  Weather may be the big reason why the economy underperformed in the first quarter.  Good weather may be the reason why the economy overperforms this spring.

The Conference Board Leading Economic Index For The U.S., March

The Coincident Economic Index, which tells us where the economy is right now, continued to rise moderately through February.  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 imminent, evidence of better conditions might begin to show in the housing, labor, and retail markets.

Orders For Durable Goods, March (Bureau of the Census)

This is the key economic report of the week.  Relatively weak ordering has been persistent, as both consumer and business demand show something of a wait and see attitude.

Source: The Conference Board

April 17, 2014

Solid growth is expected in the home remodeling market this year but momentum should begin to moderate in the fourth quarter, according to the Leading Indicator of Remodeling Activity (LIRA), released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.  Sluggishness in the housing market and specifically in home sales may result in a deceleration of home improvement spending from double-digit annual growth through the third quarter to a year-over-year gain in the high single digits by the end of the year.

“The housing recovery has at least temporarily lost some of its momentum,” says Eric S. Belsky, managing director of the Joint Center.  “And as a result, remodeling spending is expected to follow suit and see slower growth beginning later this year.”

“Home improvement spending has already recovered a significant share of its losses from the downturn,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center.  “As spending moves into the next phase, we expect to see recent double-digit growth tail off to its longer-term average in the mid-single-digit range.”

The Leading Indicator of Remodeling Activity (LIRA) is designed to estimate national homeowner spending on improvements for the current quarter and subsequent three quarters.  The indicator, measured as an annual rate-of-change of its components, provides a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of the home improvement industry.

Note: An important change was made to the LIRA estimation model this quarter.  With the upheaval in financial markets in recent years, the traditional relationship between interest rates and home improvement spending has significantly deteriorated.  As a result, long-term interest rates have been removed from the LIRA estimation model.

Source:  Joint Center for Housing Studios of Harvard University

April 15, 2014

Builder confidence in the market for newly built, single-family homes rose one point to 47 in April from a downwardly revised March reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

“Builder confidence has been in a holding pattern the past three months,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “Looking ahead, as the spring home buying season gets into full swing and demand increases, builders are expecting sales prospects to improve in the months ahead.”

“Job growth is proceeding at a solid pace, mortgage interest rates remain historically low and home prices are affordable,” said NAHB Chief Economist David Crowe.  “While these factors point to a gradual improvement in housing demand, headwinds that are holding up a more robust recovery include ongoing tight credit conditions for home buyers and the fact that builders in many markets are facing a limited availability of lots and labor.”

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 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.

The HMI index gauging current sales conditions in April held steady at 51 while the component gauging traffic of prospective buyers was also unchanged at 32.  The component measuring expectations for future sales rose four points to 57.

The HMI three month moving average was down in all four regions.  The West fell nine points to 51 and the Midwest posted a four point decline to 49 while the Northeast and South each dropped two points to 33 and 47, respectively.

Source: National Association of Home Builders

April 16, 2014

Led by a 6 percent rise in single-family starts, nationwide housing production rose 2.8 percent above an upwardly revised February rate of 920,000 to a seasonally adjusted annual rate of 946,000 units in March, according to newly released figures from HUD and the U.S. Census Bureau.

“We see improving signs of new-home construction as we move into the spring buying season,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  “The strongest recovery is in the Northeast and Midwest, where builders were hampered by severe winter weather earlier this year.”

“Today’s report is in line with our forecast of a gradual strenghtening in the housing sector in 2014,” said NAHB Chief Economist David Crowe.  “However, several uncertainties including tight credit conditions for home buyers and erratic job growth are making builders cautious about getting ahead of demand.”

Single-family housing starts rose 6 percent to a seasonally adjusted annual rate of 635,000 units in March, while multifamily starts fell 6.1 percent to 292,000 units.

Regionally in March, combined single and multi-family housing production rose strongly in the Northeast and Midwest with gains of 30.7 percent and 65.5 percent, respectively, but fell 9.1 percent and 4.5 percent in the South and West, respectively.

Overall permit issuance fell 2.4 percent to 990,000 units in March.  The Northeast and Midwest posted gains of 33.3 percent and 26 percent, respectively, while the West was unchanged and the South posted a 17.1 percent decline.

Source: National Association of Home Builders

April 14, 2014

Last week: During a quiet week with relatively little news, the drop in stock prices garnered headlines, even as corporate profit reporting gets underway.  There seems to be a little more retail activity in early spring, as the wet, cold winter fades into memory.  And forecasts continue to reflect optimism that the economy is picking up momentum.  Still, it is hard to shake the memory of prolonged weak growth.  And new reports about softness in the housing market (another dip in mortgage applications) do not help.  So, some cautious optimism seems to pervade, except on stock exchanges.

Retail Sales, March (Bureau of the Census)

Vehicle sales (at a 16.4 million pace in March) reflect some catch up from widespread inclement weather at the start of the year.  Nonauto retail spending will appear stronger than it really is for the same reason.  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 plans.

Consumer Price Indexes, March (Bureau of Labor Statistics)

Globally, inflation is slowing.  Domestically, it is simply holding steady, albeit 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.  There is little reason to expect anything different.  Energy prices are running below year-ago comparisons (not including natural gas and electricity, driven higher by the bad weather).  Food prices are relatively quiet, although meat prices could be driven lower as more steak hits the markets due to herd culling out west, another weather impact.  Prices will rise as demand exceeds supply.  “Core” prices, however, are unlikely to start rising much even if the economy turns a corner.  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, March (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 must be met by increased construction.  Weather has delayed some home building, but it hasn’t stopped the industry from staffing up, in anticipation of putting up more units (single family or apartment).  The most likely path forward is continued slow improvement.  Alternatively, a faster pace is far more likely than a slowdown.

Industrial Production, March (Federal Reserve Board)

The ordering rate remains soft and the inventory overhang weighs on production schedules.  So even if retail buying is poised for a pickup, it remains too soon to expect industrial production to start posting anything close to robust gains.  That may develop later this spring.  For now, flat industrial production is more likely.

Source: The Conference Board

April 14, 2014

To help customers save water and grow its sales in the process, Home Depot will execute a massive customer education initiative later this month.

Home Depot regularly holds in store clinics to arm customers with knowledge to tackle home improvement projects, and its newest initiative applies that thought process to a less familiar merchandise classification.  On Saturday, April 26, every one of Home Depot’s 1,977 U.S. stores will host an hour and a half long “Water Conservation Workshop,” in which 10 home improvement projects will be covered.

The emphasis will be on those things that help customers save the most water such as converting to a dual-flush toilet, switching to EPA WaterSense labeled showerheads and faucets, and installing drip irrigation and rotary nozzle or dual spray sprinklers.  Home Depot estimates its customers saved 42.5 billion gallons of water through the purchase of WaterSense labeled products.

“At The Home Depot, we’re committed to helping our customers solve everyday home improvement challenges, and for many, water conservation is one of those challenges,” said Joe McFarland, president of the retailer’s western division where drought conditions have been extreme.  “We have the products and our associates have the know-how to help our customers identify water-saving solutions and implement them at home.  These workshops help us to share that knowledge with our communities and inspire residents to take action.”

In addition to hosting workshops, Home Depot said it adjusted its in-store environment for hundreds of stores in the West, creating unique signage and shifting inventory and displays to help make customers more aware of the various actions they can take to conserve water.

“Conserving water is one of the most important things we can do for our communities, for our environment, and for our economy,” said Nancy Stoner, EPA acting assistant administrator for water.  “WaterSense labeled products provide efficiency without sacrificing performance and their use will help communities throughout the country preserve their water resources.”

Source: Retailing Today