Author: Chad Symens

The Conference Board Consumer Confidence Index, which had declined in June, improved slightly in July.  The Index now stands at 65.9 (1985=100), up from 62.7 in June.  The Expectations Index improved to 79.1 from 73.4.  The Present Situation Index, however, decreased slightly to 46.2 from 46.6 a month ago.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Despite this month’s improvement in confidence, the overall Index remains at historically low levels.  Consumers’ attitude regarding current conditions was little changed in July, but their short-term expectations, which had declined last month, bounced back.  However, while consumers expressed greater optimism about short-term business and employment prospects,they have grown more pessimistic about their earnings.  Given the current economic environment – in particular the weak labor market – consumer confidence is not likely to gain any significant momentum in the coming months.”

Consumers’ appraisal of current conditions eased in July.  Those claiming business conditions are “good” declined to 13.8 percent from 14.2 percent, while those saying business conditions are “bad” decreased to 34.2 percent from 35.9 percent.  Consumers’ assessment of the labor market was also mixed.  Those stating jobs are “hard to get” declined to 40.8 percent, while those claiming jobs are “plentiful” decreased to 7.8 percent from 8.3 percent.

On the other hand, consumers were generally more optimistic about the short-term outlook in July.  The percentage of consumers expecting business conditions to improve over the next six months rose to 18.9 percent from 16.0 percent, while those anticipating business conditions will worsen decreased to 14.6 percent from 15.8 percent.  Consumers’ outlook for the labor market was also more upeat in July.  Those expecting more jobs in the months ahead increased to 17.6 percent from 14.8 percent, while those anticipating fewer jobs edged down to 20.3 percent from 20.8 percent.  The proportion of consumers expecting an increase in their incomes, however, declined to 14.2 percent from 15.3 percent.

Source: The Conference Board

The National Retail Federation joined a coalition of manufacturers, shippers and transportation providers opposing new federal trucking regulations on drivers’ hours of service.

“The retail industry is at the crossroads of the supply chain, interconnecting manufacturers and suppliers with vendors and customers,” NRF president and CEO Matthew Shay said.  “It is the retail industry’s responsibility to get products to market and into consumers’ hands in a safe and timely manner.  It is a responsiblity that we hold dear.  Any new regulation that impedes that ability increases our transportation costs, increases consumer prices, and jeopardizes the fragile economic recovery.”

The joint brief challenges the Federal Motor Carrier Safety Administration’s new hours of service regulations.  The new rules require mandatory and specified truck driver work breaks, rest periods, and changes the existing 34 hour restart period to include consecutive nights off.  NRF had previously filed comments with the FMCSA during the rulemaking process to express the retail industry’s concerns.

“The Administration failed to take into account the serious economic ramifications faced by the broader supply chain community when drafting these rules,” Shay said.  “NRF believes that the new requirements will only drive up costs, make trucking less safe, increase congestion, and ultimately hurt job growth and the economy.  Any change in supply chain policy should be based solely on science and fact.”

Source: retailingtoday.com

Weak housing data notwithstanding, plenty of people spent money fixing up their homes this spring judging by the results of select retailers with exposure to the home improvement market.

Lumber Liquidators, operator of 277 specialty flooring stores, said its second-quarter sales increased nearly 20% to $210 million and same-store sales increased 12.4%. The company also saw a dramatic improvement in the profitability of those sales as gross margins expanded to 37.3% from 34% the prior year. Total profits more than doubled to $12.2 million, or 43 cents a share, compared with $5.3 million, or 19 cents a share the prior year.

Buoyed by a strong start to the first half of the year, the company increased its full year sales and profit forecast by a wide margin on the same day that the U.S. Commerce Department reported weaker-than-expected sales of new homes. Sales of new, single-family homes in June fell 8.4% to a seasonally adjusted 350,000 unit annual rate. That figure was below a Commerce Department estimate that put the May annual rate at 382,000. Government statistics also estimated there were 144,000 new homes for sale at the end of June, or nearly a five months supply of inventory at the current rate of sale.

The bleak news on the housing front didn’t deter Lumber Liquidators from increasing its full year sales target to a range of $750 million to $775 million, up from the previous range of $720 million to $750 million. The company also increased its full year profit forecast to a range of $1.30 to $1.42 compared to a prior range of $1.10 to $1.25.

“We believe Lumber Liquidators is successfully navigating through what remains a challenging and uncertain retail environment, particularly for large-ticket, discretionary purchases,” said Robert Lynch, president and CEO. “Our value proposition continues to resonate well with consumers, and as we look toward both the back half of the current year and into the next, we are confident in our ability to continue to drive traffic, improve our operations, expand our operating margin and grow our footprint.”

The company opened 14 new stores during the first half of the year and plans a total of 20 to 25 units for the full year.

Lumber Liquidators is benefitting from the repair and remodel trend as people stay in their homes and look to spruce up flooring. The same phenomenon is impacting the nations leading paint retailer, which reported stellar results last week. The Sherwin-Williams Company said sales during the quarter ended June 30 increased 14.6% to nearly $1.5 billion at the company’s 4,000 unit Paint Stores Group. Operating profit increased more than 29% to $267 million and same store sales increased 13.9% as the company was successful in raising prices to offset increased raw material costs.  “We are continuing to invest in our business. In the first six months, Paint Stores Group opened 20 net new locations. For the year, we expect our Paint Stores Group to open 60 to 65 new stores,” said Sherwin-Williams chairman and CEO Christopher Connor.

The strong results from Sherwin-Williams and Lumber Liquidators come as the National Association of the Remodeling Industry reports in its quarterly survey that remodelers expect to see stronger sales in the next three months. Part of their reason for optimism is due to pent up demand, but low interest rates are helping with financing as well. The remodelers surveyed by the trade group said they are seeing an increased number of inquiries, requests for bids and a higher conversion rate.

Source: retailingtoday.com

Despite a stagnant economy and drought conditions across large parts of the country, Brentwood, Tenn.-based Tractor Supply Co. reported sales and earnings growth.

The company posted second-quarter sales of $1.29 billion, up 9.6% from $1.18 billion in the same quarter last year.

The nation’s largest chain of farm and ranch specialty stores posted earnings of $106.6 million, up 8.3% from $91.2 million in the year-ago period.

“We are pleased with our ability to generate double-digit EPS growth during the second quarter, while operating in a stagnant economy and navigating weather shifts and unfavorable drought conditions,” said Jim Wright, chairman and CEO.

The company opened 18 new stores compared to 16 new store openings in the prior year’s second quarter. The company operates 1,135 stores in 45 states.

Same-store sales increased 3.2%, even as the early spring weather pulled sales out of the second quarter and into the first quarter, according to the company.

The impact of the drought across much of the middle of the country appears to have affected farmers much more than it has affected the farm and ranch retailer.

“Our team is actively managing the product assortment to meet customer needs in the affected markets as the drought continues to spread and intensify,” said Wright.

Source: retailingtoday.com

There is a lot to like when it comes to the growth trajectory at Family Dollar and its record of consistency. The company just reported its 17th consecutive quarter of double-digit earnings per share growth, and the foundation is in place for more of the same.

Total sales increased 9.6% to nearly $2.4 billion, and same-store sales increased 5% during the third quarter ended May 26. Profits during the period increased 12.1% to $124.5 million, and earnings per share increased 16.5% to $1.06 compared with 91 cents the prior year. The company ended the quarter with 7,216 stores and is on track to end its fiscal year in late August with the addition of 450 to 500 new stores.

The knock on Family Dollar during the most recent quarter related to a decline in gross margins, but that appears to be a case of the company incurring some short-term pain in the name of long-term gain. As Family Dollar has expanded its assortment of food and consumables, its rate of profitability has come down.

Gross margins declined to 35.8% during the third quarter compared with 36.2% the prior year. Of course the bright side of increased sales of lower margin frequently purchased products is they do wonders for customer traffic. During the third quarter, Family Dollar’s same-store sales increase was attributable to more people shopping its stores and buying more stuff per visit.

Another knock on Family Dollar is that it is not Dollar General. The company’s larger rival operates roughly 3,000 more stores than Family Dollar and recently surpassed 10,000 units with the opening of its first stores and a new distribution center in California. The two companies target the same customer base with similarly sized stores offering a comparable product assortment, except Dollar General produces superior financial returns.

For example, while Family Dollar’s gross margin rate declined in the third quarter, it offset the drop by reducing its expenses, but did so at a slower pace. Expenses as a percent of sales sank to 27.4% in the third quarter compared with 27.7% the prior year. As a result, the company’s operating margin rate declined to 8.4% compared with 8.6% the prior year.

By comparison, Dollar General’s lower expense structure allows it to produce a superior operating margin even though its gross margin rate is lower than Family Dollar’s. Dollar General’s expenses as a percent of sale were 21.7%, its gross margin was 31.8%, and its operating margin was slightly more than 10% during the company’s most recent fiscal year.

Family Dollar chairman and CEO Howard Levine knows that to close the gap the company must increase the productivity of its selling space.

“Delivering stronger shareholder returns begins with increasing sales per square foot, and this quarter, we began to implement a number of initiatives to broaden our consumable assortment and satisfy more of our customers’ shopping trips,” Levine said last month.

Among the initiatives to which he is referring are the addition of even more food and consumables to more stores, new brands such as Pepsi and expanded health and beauty offerings, the addition of tobacco products and Red Box movie rental kiosks.

“As planned, most of these initiatives began late in the quarter and had little impact on our third-quarter sales results. We are on schedule, and I am very pleased with the progress our teams have made in such a short period of time,” Levine said. “As we complete most of these initiatives in the fourth quarter, we will have a fully competitive assortment and will be well-positioned to accelerate sales productivity further.”

Source: retailingtoday.com

Ahead of its investor and analyst conference, Home Depot has provided an update on its strategic priorities and long-term financial targets.

Home Depot’s strategic goals include creating a stronger connection with customers and simplifying its business, improving merchandise assortment and value, improving shareholder value,and developing a competitive platform across all commerce channels.

“The Home Depot has a strong foundation of customer service, product authority and value creation. We will continue to build on our strategic priorities as we look to 2015 and beyond,” said Frank Blake, chairman and CEO.

Home Depot said it still expects sales to be up approximately 4.6% for the year and diluted earnings per share to be up approximately 17% to $2.90 for the year. In addition, the company updated its fiscal year 2012 share repurchase guidance and now expects share repurchases of approximately $4 billion. This is an increase of $500 million from the guidance provided in May 2012, but given the timing of the share repurchases, the increase will not have a material impact to diluted earnings per share for fiscal 2012. 

In June of 2009, the company announced a long term operating target of a 10% operating profit and 15% return on invested capital. The company anticipates achieving this target by fiscal year end and has now set out a new long term, fiscal 2015, operating target of a 12% operting margin and 24% return on invested capital.

Source: retailingtoday.com

U.S. retail sales declined during the month of June, the Census Bureau reported Tuesday.

U.S. retail and food services sales for the month, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $401.5 billion, a decrease of 0.5% from the previous month but 3.8% above the year-ago period. Retail trade sales were down 0.5% from last month but 3.5% above last year.

Looking across retail categories, adjusted sales at grocery stores during the month of April increased about 0.1% to roughly $47.06 billion. Health and personal care stores saw a slight decline to nearly $22.8 billion. Retail sales for drug stores and pharmacies were not recorded; however, sales experienced a slight drop from April to May (about $19.14 billion). General merchandise stores’ sales decreased 0.2% seasonally-adjusted month-to-month and remained flat unadjusted year-over-year.

Commenting on the results, the National Retail Federation said there is “no doubt about it that consumers cooled off on discretionary spending this spring.”

“While the retail industry remains confident in an incremental recovery, today’s statistics should concern every policy-maker in Washington, and compel them to revisit burdensome regulations and job-killing tax increases set to take effect early next year,” NRF president and CEO Matthew Shay said.

Added NRF chief economist Jack Kleinhenz, “Weak economic numbers over the past few weeks have increased anxiety about the future direction of the economy. Today’s data is discouraging but not demoralizing. If you look at the first half of the year overall, retail sales actually increased 4.6% year-over-year, indicating that the economy is improving, but maybe not quick enough to impact consumer spending and job growth.”

Source: retailingtoday.com

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $401.5 billion, a decrease of 0.5 percent (±0.5%) from the previous month, but 3.8 percent (±0.7%) above June 2011. Total sales for the April through June 2012 period were up 4.7 percent (±0.5%) from the same period a year ago. The April to May 2012 percent change was unrevised from -0.2 percent (±0.2%).

Retail trade sales were down 0.5 percent (±0.5%) from May 2012, but 3.5 percent (±0.7%) above last year. Nonstore retailers sales were up 10.9 percent (±3.1%) from June 2011 and furniture and home furnishings stores were up 7.8 percent (±2.8%) from last year.

Source: census.gov

Analysts expected 18 top retail chains to report modest gains in June, as high unemployment and falling consumer confidence have taken a toll on spending.

Among the department store retailers reporting June same-store results so far, the results were largely mixed. Macy’s was among the retailers reporting sales that fell short of estimates. Same-store sales rose 1.2% in June, missing Wall Street’s projected 1.9% gain.

“June sales were below expectations,” said Terry Lundgren, chairman, president and CEO. “In part, this was a function of a macroeconomic environment that is stagnant at best, and lower spending by tourists in cities such as New York. Additionally, the unprecedented renovation at Macy’s Herald Square in New York City, the world’s largest store, is well under way but created more short-term business disruption than anticipated in the June sales period.”

Macy’s and Bloomingdale’s generated total revenue in June of $2.41 billion, representing a slight 0.8% gain.

Kohl’s Corp. was also challenged in June, reporting a same-store sales decline of 4.2%, after Wall Street had forecasted just a 3.2% drop. Total sales for the month decreased 2.6%.

“Though June sales were again lower than expectations, we are encouraged by improved sales in the latter weeks of the month as we continued to build inventory levels,” said Kevin Mansell, president and CEO.

Among other department store retailers reporting so far, Nordstrom same-store sales rose 8.1% in June, solidly beating Wall Street’s expected 4.7% gain, Saks rose 6%, surpassing the forecasted 4.7% rise and Bon-Ton Stores same-store sales dipped .8% in June.

Source: retailingtoday.com

While consumer confidence may be slightly down, retailers that cater to lower-income and higher-income consumers should be pleased with the most recent Consumer Reports Index, as those two groups showed the greatest improvement in consumer sentiment.

The Consumer Reports Index, an overall measure of Americans’ personal financial health, saw a sharp improvement in its consumer sentiment measure, which jumped to its highest level since October 2008.

The rise in sentiment (53.1 from 47.5 the previous month) was broad-based, with significant gains among those Americans in households earning less than $50,000 (+5.5 pts) as well as more affluent households earning $100,000 or more (+7.7 pts).

“With more than half the country earning less than 50,000, any improvement among that group may have a significant impact on the economy. They still have some distance to climb, but these are positive signs,” said Ed Farrell, director of consumer insight at the Consumer Reports National Research Center.

The improvement in consumers’ mood was supported by a decline in financial difficulties, which reached the lowest level since first measured in April 2009. The Consumer Reports Index’s Trouble Tracker, a gauge of financial difficulties faced by Americans in the past 30 days, dropped to 41.8, down from 46.5 last month.

After a five-month slide, the index’s past 30-day retail measure moved upward this month to 9.9 from 8.9 a month earlier, but is virtually unchanged from a year ago (10.2). Planned purchasing over the next 30 days (8.6), reflecting intent to buy in July, was also up versus last month (7.0), but lags last year at this time (7.7).

“This positive start to the summer, with all measures moving in a favorable direction, indicates a better economic picture overall. Over the past four years, we have seen that gains can prove to be fragile. Holding and building on these improvements will depend most on continued job growth to ensure a durable gain in the consumer outlook,” Farrell said.

Source: retailingtoday.com