Author: Chad Symens

March 18, 2014

Nationwide housing starts were virtually unchanged in February, inching down 0.2 percent to a seasonally adjusted annual rate of 907,000 units, according to newly released data from the U.S. Department of Housing and Urban Development and U.S. Census Bureau.

“Continuing the January trend and in line with our recent surveys, builders are in a holding pattern.  Poor weather is keeping many from getting into the field and they continue to face challenges related to a shortage of lots and labor,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.

“While housing construction is in a recent lull due to unusual weather conditions, we expect to see an improvement as the winter weather pattern subsides and builders prepare for the spring selling season,” said NAHB Chief Economist David Crowe.  “Competitive mortgage rates, affordable home prices and an improving economy all point to a continuing, gradual strengthening of housing activity through the rest of the year.  Moreover, building permits, which are less dependent on weather and are a harbinger of future building activity, rose above 1 million units in February.”

Single-family housing construction rose 0.3 percent in February to a seasonally adjusted annual rate of 583,000 units while multifamily starts edged 2.5 percent lower to a 312,000-unit pace.

Regionally, combined housing starts activity was mixed in the month, posting gains of 34.5 percent in the Midwest and 7.3 percent in the South and declines of 37.5 percent in the Northeast and 5.5 percent in the West.

Issuance of new building permits rose 7.7 percent to a seasonally adjusted annual rate of 1.02 million units in February.  Single-family permits edged down 1.8 percent to 588,000 units and multifamily permits rose 27.6 percent to 407,000 units.  Regionally, overall permits rose 6.3 percent in the Northeast, 9.9 percent in the South and 17.9 percent in the West but declined 11.8 percent in the Midwest.

Source: National Association of Home Builders

March 7, 2014

The economy generated a gain of 175,000 jobs in February.  Whether that is enough to dissipate uncertainty about where the economy is headed this year remains the big question.  Even though the number of workers unable to report to work due to inclement weather increased strongly, and average weekly hours declined, the number of construction jobs continued to increase at a moderate rate.  Going forward we see things improving as many of the underlying fundamentals of the economy have continued to improve.  The Conference Board Leading Economic Index and the latest reading from the survey of purchasing managers point to strengthening conditions over the next few months.  Catch up from weather-delayed plans could push job gains over 200,000 per month.  And more jobs mean more paychecks, lifting consumer confidence and sending consumers out shopping once the weather improves.  If demand is improving, business will respond by investing so as to supply the goods and services in demand.  In sum, we look for a spring thaw to warm up the economic readings, including most notable employment and housing indicators.

Source: The Conference Board

March 17, 2014

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

“The March HMI mirrors last month’s sentiment, as builders continued to be affected by poor weather and difficulties in finding lots and labor,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“A number of factors are raising builder concerns over meeting demand for the spring buying season,” said NAHB Chief Economist David Crowe.  “These include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

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 March.  The component gauging current sales conditions rose one point to 52 and the component measuring buyer traffic increased two points to 33.  The component gauging sales expectations in the next six months fell one point to 53.

The three-month moving averages for regional HMI scores all fell in March.  The Northeast dropped three points to 35, the Midwest fell three points to 53, the South posted a four-point decline to 49 and the West registered a two-point drop to 61.

Source: National Association of Home Builders

March 10, 2014

The Conference Board Employment Trends Index (ETI) increased in February.  The Index now stands at 116.39, up from 115.99 (a downward revision) in January.  This represents a 4.4 percent gain in the ETI compared to a year ago.

“February’s job report and the ongoing improvement in the Employment Trends Index should provide some relief for those concerned about weakness in the U.S. economy and labor market,” said Gad Levanon, Director of Macoreconomic Research at The Conference Board.  “The majority of the ETI’s components have been steadily rising in recent months, suggesting solid job growth will continue in the coming months.”

February’s increase in the ETI was driven by positive contributions from six of its eight components.  In order from the largest positive contributor to the smallest, these were:  Number of Temporary Employees, Job Openings, Real Manufacturing and Trade Sales, Industrial Production, Consumer Confidence Survey Percentage of Respondents Who Say They Find Jobs “Hard to Get,” and Ratio of Involuntarily Part-time to All Part-time Workers.

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area.  Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

The eight labor-market indicators aggregated into the Employment Trends Index include:

• Percentage of Respondents Who Say They Find “Jobs Hard to Get” (The Conference Board Consumer Confidence Survey)
• Initial Claims for Unemployment Insurance (U.S. Department of Labor)
• Percentage of Firms With Positions Not Able to Fill Right Now (National Federation of Independent Business Research Foundation)
• Number of Employees Hired by the Temporary-Help Industry (U.S. Bureau of Labor Statistics)
• Ratio of Involuntarily Part-time to All Part-time Workers Job Openings (BLS)
• Job Openings (BLS)
• Industrial Production (Federal Reserve Board)
• Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Source: The Conference Board

March 13, 2014

Many retailers have pointed to a persistent and severe winter for weak holiday and fourth-quarter sales.  But according to the National Retail Federation (NRF), retail sales rebounded in February.

The NRF said that February retail sales, excluding automobiles, gas stations and restaurants, increased 0.2% adjusted month-to-month and 2.3% year-over-year.

“Today’s positive retail sales report indicates that the economy is primed for growth,” said president and CEO Matthew Shay.  “Retailers and consumers endured the harsh winter and they’re hoping both the natural and man-made obstacles to growth will leave with the snow.”

Shay went on to say that retailers are facing “serious” headwinds placed on them by policymakers in Washington who are pushing for new overtime mandates and a higher minimum wage.  According to Shay, for the economy to fully recover, the administration and Congress neet to “quit politicking and focus on growth and job creation.”

“Despite a long and cold winter, consumers continued to persevere and spend in February,” added chief economist Jack Kleinhenz.  “This month’s retail sales data is encouraging and above expectations.  However neither the jobs nor retail data reflect the fundamental health of the economy.  While the weather continues to play tricks on economic forecasts and figures, we expect much-needed clarity come spring as consumers release pent-up demand.”

Additional NRF findings from the February retail sales report include the following:

• Building material and garden equipment and supplies dealers stores sales increased 0.3% seasonally-adjusted month-to-month and 3.2% year-over year.
• Clothing and clothing accessories stores sales increased 0.4% seasonally-adjusted month-to-month and 2.4% unadjusted year-over-year.
• Electronics and appliance stores sales decreased 0.2% seasonally-adjusted month-to-month and 2.3% unadjusted year-over-year.
• Furniture and home furnishing stores sales increased 0.4% seasonally-adjusted month-to-month and remained unchanged unadjusted year-over-year.
• General merchandise stores sales decreased 0.3% seasonally-adjusted month-to-month and 0.9% unadjusted year-over-year.
• Health and personal care stores sales increased 1.2% seasonally-adjusted month-to-month and 5.6% unadjusted year-over-year.
• Nonstore retailers sales increased 1.2% seasonally-adjusted month-to-month and 6.8% unadjusted year-over-year.
• Sporting goods, hobby, book and music stores sales increased 2.5% seasonally-adjusted month-to-month yet decreased 5.3% year-over-year.

Source: Retailing Today

March 13, 2014

An unrelenting Dollar General continues to push forward with plans to open 700 stores this year despite reporting weak financial results and a 1.3% same-store sales increase for the fourth quarter.

Sales during Dollar General’s fourth quarter ended December 31, increased 6.8% to nearly $4.5 billion and were driven mainly by the addition of new locations as same-store sales increased just 1.3%.  The comp increase was due to growth in customer traffic and average transaction amount with tobacco and perishables singled out as key contributors, according to the company.  However, growth in those categories negatively affected the company’s gross margins as did an increase in the shrink rate, which caused gross margins to decline to 31.9% from 32.5%.  Expenses were essentially flat with the prior year at 20% of sales.

Profits in the fourth quarter increased 1.6% to $322 million or $1.01 a share, compared to a profit of $317 million, or 97 cents a share, in the fourth quarter the prior year.

“Sales in the fourth quarter were impacted by severe winter weather, including many days with significant store closures, an aggressive competitive retail landscape and our customers’ uncertainty about spending in the current economic environment,” Dollar General chairman and CEO Rick Dreiling said.  “In spite of these headwinds, both customer traffic and average ticket increased in our same-stores in the fourth quarter.  In addition, we controlled our expenses well and successfully managed the business to deliver a gross margin rate that was better than we anticipated.  Although some of the severe weather impact has continued into the first quarter, we are pleased with our sales performance on days when weather is more normalized.”

The impact of weather can be seen in Dollar General’s expectation for a first quarter same-store sales increase in the range of 2% to 3%, compared to a 2.6% comp increase in the first quarter of 2013.  For the full year, the company expects sales to increase in the range of 8% to 9% and same store sales to rise between 3% and 4%, which implies an acceleration of comp growth later in the year.  Earnings per share are expected to range from $3.45 a share to $3.55.

The key contributor to those results will be the company’s breakneck pace of expansion which calls for 700 new stores as part of a $450 million to $500 million capital expenditure program.  The new store construction program, the most ambitious in the retail industry, follows a record year of square footage expansion in 2013.

“Among our other many accomplishments for the year, we successfully opened 650 new stores, ending the year with 11,132 stores serving customers in 40 states,” Dreiling said.  “Dollar General is a strong and growing business with high return store growth opportunities that we intend to capture.  While we remain cautious on the current operating environment and the many challenges our customer is facing in 2014, we have a business model that generates significant cash flow, putting us in a position to invest in these growth opportunities, while continuing to return cash to shareholders through share repurchases.”

Dollar General will come close to surpassing $20 billion in annual sales this year if its same-store sales and expansion goals are realized.  Last year, the company’s sales increased 9.2% to $17.5 billion from $16 billion and full-year same-store sales increased 3.3%.  As in the fourth quarter, those results were driven by an increase in customer traffic and average transaction size and strength in categories such as tobacco, perishables, candy and snacks.

Source: Retailing Today

March 6, 2014

Albertsons plans to acquire Safeway for $32 a share in a deal valued at roughly $9 billion that will create a supermarket chain with roughly 2,400 locations to rival market leader Kroger.

The deal announced late Thursday ended longrunning speculation regarding the potential acquisition of Safeway.

“This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country,” said Albertson’s CEO Bob Miller.  “It also brings together two great organizations with talented management teams.  Safeway CEO Robert Edwards and his team have done an outstanding job in positioning Safeway’s core business for success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value.  Working together will enable us to create cost savings that translate into price reductions for our customers.  Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before.”

Source: Retailing Today

March 10, 2014

For meteorologists, scientists, weathermen and millions of others, this winter has been absolutely dreadful.  And, although spring is on the horizon, much of the country is still covered in snow.  In fact, the nation’s 21st winter storm just wrapped up this past weekend.

When it comes to the impact weather has on businesses, most industries, including retail, manufacturing, construction and auto, recognize the ebb and flow of weather as a significant part of their plans.  For retailers, weather forecasting models can impact everything from merchandising decisions to shipping and receiving, and even sales and staffing.

Looking back on the past few months, it’s evident the 2013-2014 winter season has been a serious thorn in the side for the nation’s largest industries.  In the Federal Reserve’s recently released “Beige Book,” a summary of commentary on current economic conditions, “weather” was mentioned 119 separate times to describe November and December alone.

Just how severe was this winter?

• Ohio had used almost a million tons of salt for its roadways as of late February, compared with 630,000 tons used on average each winter
• Erie, Pennsylvania became America’s snowiest city with a population over 100,000, recording a whopping 123.9 inches of snow
• According to the National Oceanic and Atmospheric Administration, December and January averaged over the contiguous 48 states were the third-coldest months in the last 30 years
• As of January 31, there were 1,073 different snowfall records set across the country at various times
• The meteorological winter, beginning December 1 and ending March 1, marked Chicago’s coldest winter in 30 years

As for the latest results from retail, industry sales in January fell 0.4 percent from December 2013, according to the Department of Commerce, led by a drop in auto sales and in categories like clothing, furniture stores and restaurants, sectors largely depending on foot traffic.  Seasonal hiring in February showed retailers took a more cautious approach to staffing their stores during the brutally cold month.

But for some retailers it hasn’t been bad news:

• Ace Hardware has reported it is having its best winter in more than a decade thanks to increased sales of snowblowers and shovels
• Maine-based retailer L.L. Bean has sold out of its famous waterproof boots
• Sales for company Delivery.com are up 30 percent compared with last year as more people looked for ways to get their laundry, dry cleaning and grocery shopping done without leaving home
• Carmex, maker of their namesake cult-favorite lip balm, says its sales are up 9 percent over the past eight to ten weeks
• Pawz Dog Boots, which makes fun, colorful booties for dogs that protect them from salt and snow, says sales have more than doubled

Looking ahead, it’s too soon to say if NRF’s outlook for 2014 needs to be adjusted based on recent sales reports; the impact from the severe weather could have just been a blip on the radar, so to speak.  When the ground finally thaws and consumers can start enjoying spring-like weather, we will re-evaluate consumer spending.  Until then, we can only hope that winter is done having its fun with us.

Source: National Retail Federation

March 11, 2014

Following disappointing fourth-quarter sales, the Bon-Ton Stores president and CEO Brendan L. Hoffman has notified the company’s board of directors that he will not renew his employment agreement with the company when it expires February 7, 2015.  Hoffman also plans to resign as a director of the company.

“I am extremely proud of the Bon-Ton team and what we have accomplished since I joined in 2012.  I truly enjoyed working for the company these past two years.  However, I have made the difficult decision to end my tenure with the company for strictly personal reasons.  I remain committed to continuing to execute the strategic initiatives we put forward as the company searches for a new chief executive officer,” said Hoffman.

The board of directors will undertake a national search to find a CEO to succeed Hoffman.

Comparable-store sales for the fourth quarter decreased 7.3%.  The company reported net income for the quarter of $61.3 million, or $3.04 per diluted share, compared with net income of $74.4 million, or $3.71 per diluted share, for the prior-year quarter.

Hoffman was optimistic and said that despite the disappointing results the company is making progress on several strategic initiatives that he believes will drive improved performance.  Multiple snowstorms and the polar vortex during the December and January periods resulted in a sharp decline in traffic and ultimately hurt comparable-store sales in the quarter.

“In spite of these top line pressures, we were able to achieve a gross margin rate slightly better than prior year and reduce expenses,” Hoffman said.  “In addition, we effectively managed our inventory such that we ended the year with inventory levels approximately 5% below that of the prior year, including a significant reduction in carryover merchandise, leaving us well positioned for the spring season.”

Hoffman was equally optimistic about the company’s burgeoning e-commerce business.

“We are excited about our new e-commerce fulfillment center, which will permit significant expansion of our shipping capacity with improved operational efficiency.  We will continue strengthening our foundation to deliver profitable sales growth in the coming years,” he added.

Looking ahead, the company expects comparable store sales to increase in a range of 1% to 3%.

Source: Retailing Today

March 11, 2014

Smaller format stores are all the rage these days.  Dollar General, which already operates nearly 12,000 stores, plans to open 700 more  this year.  Walmart recently announced plans to accelerate growth of its smaller format stores by opening between 270 and 300 small stores, more than double the 120 to 150 store range it projected last fall.  Even Target has gotten in on the action with plans to open its first Target Express store near downtown Minneapolis this summer.

Source: Retailing Today