Author: Chad Symens

March 10, 2014

Today, the National Association of Home Builders (NAHB) released the results of a new study, What Home Buyers Really Want: Ethnic Preferences.  The latest release from NAHB’s publishing arm, BuilderBooks is a further analysis of the 2013 study, What Home Buyers Really Want, which presented preferences of all home buyers combined.  This new study compares and contrasts how housing preferences are affected by the racial or ethnic background of a home buyer, after controlling for factors such as age and income.

“The new data reveals some interesting findings about home buying preferences broken down by race and ethnicity,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “It contains invaluable information for builders by providing a window into the preferences of potential home buyers, and allowing them to tailor things to better meet the needs of their customers.”

The survey data confirmed that there are some significant differences across the various ethnic groupd of buyers such as:

• Minority home buyers are typically younger than White non-Hispanic buyers.  The median African-American buyer is 39, the Hispanic buyer is 37, and the Asian buyer is about 36, while the median White buyer is 43 years old.
• Fifty percent or more of buyers in all racial/ethnic groups are married couples: 80 percent of White buyers, 50 percent of African-Americans, 74 percent of Hispanics, and 79 percent of Asians.  Most also have children living at home.
• Asian home buyers have the highest median household income of all four groups, $72,797, compared with $67,747 for Whites, $50,221 for Hispanics, and $43,774 for African-Americans.  Asians also expect to pay the most for their home: $283,469, compared with $205,775 among Whites, $181,444 among Hispanics, and $176,397 among African-Americans.

 Source: National Association of Home Builders

March 7, 2014

Severe weather that persisted during the year’s shortest month affected Gap’s February sales results.

The company reported net sales for the four-week period ended March 1 of $929 million, compared with net sales of $966 million for the four-week period ended March 2, 2013.  Comparable-store sales for the month declined 7%, versus last year’s 3% increase.

“While February was clearly a difficult month, we remain focused on executing our global priorities,” said chairman and CEO Glenn Murphy.

Comparable sales by global brand for the month were as follows:

• Gap: down 10% versus last year’s 2% increase
• Banana Republic: down 7% versus last year’s 5% decrease
• Old Navy: down 6% versus last year’s 6% increase

The company said that more than 450 stores had to close during February due to weather.

In line with its strategic priorities, the company is preparing to open its first Gap store in Taiwan.  The brand expects to end fiscal year 2014 with more than 100 Gap stores across the Greater China region.

Gap will report March sales April 10.

Source: Retailing Today

March 7, 2014

The Bon-Ton Stores is investing in its growing e-commerce business.  The company has signed a lease with Duke Realty Corp for a 743,000 sq. ft., automated, direct-to-consumer fulfillment center in West Jefferson, Ohio.

The company expects the facility to be fully operational and ship its first orders in spring of 2015.

The new facility will consolidate the e-commerce fulfillment that is currently being performed at Bon-Ton’s four distribution centers.  When fully operational, the fulfillment center will employ approximately 139 new Ohio associates, with additional seasonal jobs expected to be created during the peak holiday shopping season.

“In response to the rapid growth in our e-commerce business, we are taking this step to ensure extraordinary service to our customers,” said president and CEO Brendan Hoffman.  “This new fulfillment center will permit significant expansion of our shipping capacity with improved operational efficiency.”

The consolidation will impact associates involved in the direct-to-consumer fulfillment at the company’s four distribution centers.  Affected associates will be offered the opportunity to interview for available positions at the new West Jefferson facility or receive career transition benefits, including severance, according to established practices and state employment service support.  Bon-Ton does not expect that the combined severance and other expenses associated with the consolidation, which it expects to incur during the next 16 months, will be material.

Source: Retailing Today

March 7, 2014

National Retail Federation president and CEO Matthew Shay and chief economist Jack Kleinhenz issued a response to the organization’s February jobs report.

“While there are signs of modest momentum in the economy, now is not the time to play partisan politics with the recovery by forcing federal mandates on retailers and small business owners like an increase in the minimum wage,” Shay said.  “Such policy decisions could hamper economic growth and actually drive up the unemployment rate.”

NRF calculated retail employment down 6,700 in February, yet up 205,500 year-over-year.  The biggest job losses were seen in electronics and appliance stores, and sporting goods, hobby, book and music stores.  December and January retail employment figures were also revised downward.

“Retailers continued to rearrange and maximize their payrolls and inventories following the holiday shopping season,” added Kleinhenz.  “This decline should be temporary in nature and viewed as a speed bump.  We really need to lift the snow screen to adequately measure the economy and jobs situation.”

Kleinhenz went on to express optimism for continued ecoomic and employment gains this year and says the NRF is encouraged by growth in construction jobs and building material employment last month, which suggests a forthcoming improvement in residential and nonresidential spending along with household and business confidence.

Shay and Kleinhenz also added that the Bureau of Labor Statistics Employment Situation Summary showed that February total nonfarm payroll employment rose by 175,000 with the unemployment rate at 6.7% and the labor force participation rate at 63%.

Source: Retailing Today

March 3, 2014

Ascena Retail Group, the operator of Lane Bryant, Justice and Dress Barn stores, cited increased spending on growth initiatives and a challenging sales climate for a second quarter profit decline and its second full year earnings guidance reduction in two months.

Sales for the company’s second quarter ended January 26 increased 2% to $1.3 billion, while consolidated same-store sales were essentially flat.  A 3% comp decline at physical stores was offset by 28% e-commerce growth to achieve the overall flat comp increase.  Net income fell to $31.9 million, or 19 cents a share, from $47 million, or 29 cents a share last year.

The decrease was due primarily to profit declines at Justice stores and increased operating expenses from growth-related investments in new stores, merchandising and design resources and e-commerce capabilities, according to the company.

“Second quarter net income was slightly above our revised expectations, despite softer than expected sales in January driven primarily by challenging weather that continued to negatively impact sales into early March,” said Ascena president and CEO David Jaffe.  “However, in warmer regions sales have been in line with expectations.  We are implementing promotional strategies and receipt flow adjustments to bring inventory balances back to targeted levels.”

Jaffe remained optimistic about the company outlook, citing very good progress on long range strategic priorities related to synergy initiatives and recently completed construction of a new national retail distribution center and a new e-commerce fulfillment center that becomes operational in the spring.

Ascena’s profits were expected to be under pressure following a January 13 announcement regarding holiday sales during November and December.  At the time, Jaffe noted that “a challenging holiday selling season resulted in increased promotional activity.  We successfully cleared excess inventory and have taken the necessary markdowns in the second quarter to transition cleanly into the spring season.”

As a result, the company shaved as much as 20 cents of its full year profit forecast, reducing the range of earnings possibilities to $1.10 to $1.15 from earlier guidance of $1.25 to $1.30 for its fiscal year ending in July.  However, late Monday, the company further reduced its full year estimate to a range of $1 to $1.05.

The soft holiday sales and expense pressure followed a respectable showing in the company’s first quarter ended October 26 in which each of its formats posted positive same store sales growth.

Source: Retailing Today

March 6, 2014

Walmart didn’t mention competitive issues as a source of sales weakness during its fourth quarter, but reports this week from Kroger and Costco indicate they were at least a contributing factor.

This was especially true in the case of Costco.  Recall that Sam’s reported a same store sales decline of 0.1% during the fourth quarter ended January 31, after a 1.8% gain the prior year.  Operating income fell 15.3% to $425 million.  At the time, Sam’s president and CEO Rosalind Brewer said the underlying health of the Sam’s Club business was sound and that restructering efforts, including the elimination of 2,300 positions from club operations were allowing Sam’s to be more agile and focused on growth opportunities.

“The stragegies we have in place will deliver value for our members, helping to grow the business and drive strong financial performance in fiscal year 2015,” Brewer said.

Sam’s expects its same store sales for the first quarter ending May 2 to be relatively flat following a 0.2% gain last year.

Conversely, Costco grew its U.S. same store sales, excluding fuel by 5% during its second quarter ended February 16.  Sam’s fourth quarter and Costco’s second quarter don’t totally match up, but both companies’ reporting periods included the holiday season.  It was evident from Costco’s results and comments from CFO Richard Galanti that Costco went hard after price at the expense of profitability during the shortened and weather impacted holiday season.

For example, despite the 5% domestic comp increase, Costco’s net income declined to $463 million, or $1.05 a share, compared to $547 million, or $1.24 a share, during the second quarter the prior year.  Comparisons to the prior year were made more difficult because the period included a 14 cent a share one time tax benefit related to a portion of a special cash dividend the company paid in December 2012 to 401k plan participants.

“Even with that distinction, however, the year-over-year comparison was unfavorable,” Galanti said.

Contributing to profit pressures at Costco were weaker sales and gross margin results in certain non-foods merchandise categories, particularly during the four-week holiday selling season, weaker gross margins in the fresh foods business and lower reported international profits resulting from the significant weakening of foreign exchange rates, according to Galanti.

“The first four-week period of the quarter represented the majority of earnings underperformance in the quarter,” Galanti said.  Costco’s second quarter began on November 25, 2013 and encompassed the Thanksgiving weekend which fell late last year and compressed the holiday season.

While Costco was outcomping Sam’s, Kroger was doing the same to Walmart and made no mention of bad weather or food stamp reductions in its earnings release.  Kroger reported a 4.3% increase in identical store sales, excluding fuel, and said it expects first quarter comps to rise between 2.5% and 3.5% against a backdrop of minimal inflation.

Walmart reported a 0.4% decline in same store sales at U.S. stores following a 0.3% increase last year.  Looking forward, Walmart’s forecast for first quarter same store sales is flat compared to a prior year decline of 1.4%.

Source: Retailing Today

March 6, 2014

In the sales versus margins battle at Costco, sales got the upper hand during the holiday season and the company’s second quarter, ended February 16.

Costco managed to grow sales by 5.8% to $25.76 billion and same-store sales, excluding fuel, at U.S. clubs rose a healthy 5%.  However, in a shortened and intensely priced competitive holiday season impacted by severe winter weather, Costco sacrificed margin to maintain member satisfaction, which was evident in membership free income that grew 4.2% to $550 million.  The tradeoff between sales and margins was evident in the company’s bottom line as net income declined to $463 million, or $1.05 a share, compared to $547 million, or $1.24 a share, during the second quarter the prior year.  Comparisons to the prior year were made more difficult because the period included a 14-cents-a-share one time tax benefit related to a portion of a special cash dividend the company paid in December 2012 to 401k plan participants.

“Even with that distinction, however, the year-over-year comparison was unfavorable,” said Costco CFO Richard Galanti.  “Despite satisfactory sales results during the second fiscal quarter, several other factors led to lower earnings.  The first four-week period of the fourth quarter represented the majority of earnings underperformance in the quarter,” Galanti said.

Costco’s second quarter began November 25, 2013 and encompassed the Thanksgiving weekend, which fell late last year and compressed the holiday season.

Total company same-store sales during the quarter, excluding fuel and the effects of foreign currency, increased 5% and consisted of a 7% gain internationally and a 5% domestic increase.

Costco ended the period with 649 stores, consisting of 462 locations in the U.S. and Puerto Rico, 87 in Canada, 33 in Mexico, 25 in the United Kingdom, 18 in Japan, 10 in Taiwan, 9 in Korea and 5 in Australia.  The company plans to open as many as 14 new stores before the end of its fiscal year August 31, 2014.

Source: Retailing Today

March 6, 2014

Ongoing weakness at Staples’ North American retail division has resulted in the planned closure of 225 units as part of a larger expense savings program and increased emphasis on digital initiatives.

The store closure announcement, part of a larger plan expected to save $500 million by the end of 2015, was announced in conjunction with the release of fourth-quarter results and new insights regarding the company’s online business.

Profits during the 13-week fourth quarter ended February 1 increased to $212 million, or  33 cents a share, compared to the prior year’s 14-week fourth quarter, which saw profits of $78 million, or 12 cents a share.  Despite the profit improvement, the sales picture at Staples remained challenging during the fourth quarter.  During the period, total sales declined 3.8% to nearly $5.9 billion while sales at the North American Retail division declined 5.7% to $2.9 billion, excluding an extra week from the prior year reporting period.  Same-store sales declined 7% and operating profits for the division fell to $176 billion from $317 million.

According to the company, sales declines in business machines and technology accessories, office supplies and computers, were partially offset by growth in facilities and breakroom supplies, paper and copy and print.

The newly announced closures follow a net store count reduction of 34 units last year which left Staples with a total of 1,846 stores in the U.S. and Canada at year end.  Even with the elimination of 225 stores this year, Staples will continue to have a sizable retail footprint it can leverage to offer shoppers an omnichannel experience.

“A year ago, we announced a plan to fundamentally reinvent our company,” said Ron Sargent, Staples’ chairman and CEO. “With nearly half of our sales generated online today, we’re meeting the changing needs of business customers and taking aggressive action to reduce costs and improve efficiency.”

Sales at Staples.com increased by 10% during the fourth quarter as the retailer offered a dramatically expanded online assortment which increased to 500,000 products at the end of 2013 compared to 100,000 at the beginning of the year.

Sargent’s assertion that half the company’s total sales are generated online, while technically accurate, tends to overstate the situation with its physical stores.  That’s because the company’s digital penetration rate is skewed by the dynamics of its nearly $2 billion North American commercial division, which focuses on large corporate clients whose interactions with the company are virtually all online.

In addition to saving related to store closures, Staples said additional savings would come from unspecified initiatives in the areas of supply chain, labor optimization, non-product related costs, IT hardware and services, marketing, sales force and customer service.

Source: Retailing Today

March 5, 2014

Severe winter weather was unable to put a damper on Walgreen’s February sales and overall second-quarter results for the period ended February 28. 

The company reported February sales of $6.1 billion, an increase of 5% compared to the same month in fiscal 2013.  Total sales for the quarter were $19.6 billion, up 5.2%.

February pharmacy sales increased by 6.7%, while comparable store pharmacy sales increased 6.1%.  Comparable store pharmacy sales were negatively impacted by 1.4 percentage points due to generic drug introductions in the last 12 months, and were positively impacted by 0.1 percentage point due to more flu shots in February versus last year.  The lower incidence of flu negatively impacted pharmacy sales by 0.7 percentage point.  Pharmacy sales accounted for 62.9% of total sales for the month.

Prescriptions filled at comparable stores increased by 2.2% in February.  Prescriptions filled at comparable stores were positively impacted by 0.1 percentage point due to more flu shots in the month versus last year but were negatively impacted by 1 percentage point due to the lower incidence of flu in February 2014.  Flu shots administered at pharmacies and clinics season to date were 7.7 million versus nearly 7 million last year.

Total front-end sales increased 3% compared with the same month in fiscal 2013, while comparable store front-end sales increased 2%.  Customer traffic in comparable stores decreased 0.7% while basket size increased 2.7%.

Sales in comparable stores increased by 4.5% in February.  Generic drug introductions in the last 12 months negatively impacted total comparable sales by 0.9 percentage point, while the lower incidence of flu negatively impacted total comparable sales by 0.4 percentage point.

Comparable store sales for the second quarter of fiscal 2014 increased 4.5%, while front-end comparable store sales for the quarter increased 2%.  Prescriptions filled at comparable stores increased 2.4% in the second quarter and comparable pharmacy sales increased 6.1%.

Severe winter weahter is estimated to have negatively impacted second quarter comparable store front-end sales by 0.6 percentage point and negatively impacted the quarter’s prescriptions filled comparable stores by 0.8 percentage point.  Additionally, the company incurred incremental selling, general and administrative expenses throughout the quarter from the severe weather.

Walgreens opened eight stores during February, including five relocatons.

On February 28, Walgreens operated 8,681 locations in all 50 states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands.  That includes 8,209 drugstores, 138 more than a year ago, including 60 net stores acquired over the last 12 months.

Source: Retailing Today

March 6, 2014

Walmart’s tepid sales performance in the fourth quarter is water under the bridge, so when Walmart U.S. CEO Bill Simon spoke this week at an investor conference he quickly focused on the growth of smaller stores, which are being expanded at a more rapid pace.

Simon spoke Tuesday at the Raymond James Institutional Investor Conference and he wasted no time displaying his enthusiasm for smaller stores that are outperforming competitors and delivering industry leading sales per square foot.  In the fourth quarter, Walmart’s Neighborhood Market stores produced a 5% increase in same store sales and for the year the comp was 4%.  Also of note is the fact that each of the stores in the fleet of more than 300 units produced a positive comp even though some locations are more than 10 years old.

According to Simon, Neighborhood Market gives Walmart the opportunity to capture the incremental sales it misses out on when customers forego one of the company’s 3,200 supercenters in favor of a more convenient alternative.  The format gives Walmart the opportunity to capture a different type of trip and new customers.

Source: Retailing Today