Old Navy Buoys Gap In Second Quarter

August 22, 2014

Although same-store sales at Gap were flat in the second quarter, the company reported a better-than-expected quarterly profit, buoyed by strong sales at Old Navy, and raised its full-year profit forecast as a result.

Net profit rose to $332 million in the quarter from $303 million a year ago.

Revenue increased 3% to $3.98 billion.  Online net sales increased 11% to $515 million, on top of last year's 27% increase.  The company noted it continues to advance its successful omnichannel platform with the expansion of its reserve in store service to all U.S. Gap stores.  The company also launched its order-in-store pilot, with plans to roll out the service to select U.S. Gap, Banana Republic, Old Navy and Athleta stores later this year.

Gap also plans to expand its reach to India through 40 franchise-operated stores.  The retailer is partnering with Arvind Lifestyle Brand Limited, a subsidiary of Arvind Limited, which is one of India's largest textile companies.

"India is an emerging, vibrant market and an important next step in our global expansion strategy," said Steve Sunnucks, global president of Gap.

Source: Retailing Today

Another Loss For Sears Holdings

August 21, 2014

Describing second quarter earnings as "unacceptable," Sears Holdings chairman and CEO Edward Lampert added that his company's transformation is continuing and online sales are growing.

The company reported second quarter net loss of $573 million, compared with a loss of $194 million in the same quarter last year.  Revenues decreased $858 million to $8.0 billion for the quarter ended August 2, 2014.

"We are taking steps to address our performance on several levels," Lampert said.  "This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions."

The revenue decrease included the separation of the Lands' End business, which was completed in the first quarter of 2014 and accounted for $330 million of the decline.  The revenue decrease also included the effect of having fewer Kmart and Sears full-line stores in operation, which accounted for $256 million of the decline, as well as a decrease of $140 million at Sears Canada.

Sears also experienced a revenue decline in its Home Services business during the quarter, as well as a decline in delivery revenues.

Sears full-line stores experienced comparable-store sales growth of 0.1% for the quarter as compared with a decline of 0.8% in the second quarter of last year, despite the continuing impact of consumer electronics industry trends.

Kmart comparable-stores sales were down 1.7% for the quarter as compared with a 2.1% decline last year.

Sales to Shop Your Way members in Sears full-line and Kmart stores increased to 73% of eligible sales, up from 71% during the second quarter last year.  Online and multichannel sales grew 18% over the prior-year second quarter and 22% over the prior-year first half.

"We continue to evaluate our Sears Auto Center business, as well as our 51% interest in Sears Canada, including a potential sale of our interest of Sears Canada as a whole," the company said.

Source: Retailing Today

Staples Working To Stabilize Retail Business

August 20, 2014

Staples chairman and CEO Ron Sargent said that the company has more work to do to stabilize its retail business, following a 20% decline in net income to $81.88 million for the second quarter, from $102.53 million in the prior year.

Sargent added that the company will continue taking steps toward improving customer traffic, reduce expenses and close underperforming stores.

The company's results included $101 million of pre-tax restructuring and other related charges primarily associated with the closure of 80 stores, along with its previously announced plan to close approximately 40 stores in North America during the second half.

Sales declined 2% to $5.22 billion - above analysts' estimates.  Same-store sales at Staples North American stores decreased 5%.  E-commerce saw sales growth of 8%.

"We're accelerating growth in our delivery businesses as customers turn to Staples for more products beyond office supplies," said Sargent.

Staples forecast third-quarter adjusted earnings of 34 cents to 39 cents a share, excluding any potential impact on per-share earnings from restructuring and related activities.  The retailer plans to take a pretax charge of $40 million to $75 million in the third quarter stemming from restructuring.

Source: Retailing Today

Dillard's 'Disappointed' In Bottom-Line Performance

August 15, 2014

Despite an increase of 1% in comparable store sales, Dillard's CEO William T. Dillard II expressed disappointment in the company's bottom line performance.

The company's net sales for the 13 weeks ended August 2 were $1.475 billion, compared to net sales of $1.480 billion for the 13 weeks ended August 3, 2013.  Net sales include the operations of the company's construction business, CDI Contractors.

Total merchandise sales (which exclude CDI) for the quarter were $1.461 billion, compared to net sales of $1.459 billion for the comparable period last year.  Total merchandise sales remained unchanged on a percentage basis for the quarter.

Sales trends were strongest in juniors' and children's apparel followed by men's apparel and accessories.  Sales were weakest in the home and furniture category.  Sales trends were strongest in the Central region, followed by the Eastern and Western regions, respectively. "We are pleased with our inventory management during the quarter and with our ending inventory position," Dillard said.

Gross margin from retail operations (which excludes CDI) declined 33 basis points of sales for the quarter compared to the proir year second quarter.  The decline resulted primarily from increased markdowns.  Consolidated gross margin for the quarter declined 20 basis points of sales comapred to the prior year second quarter.  Inventory decreased 2% at August 2 compared to August 3, 2013.

As of August 2, the company operated 278 Dillard's locations and 18 clearance centers spanning 29 states and an e-commerce site.

Source: Retailing Today

Despite 2.6% Profit Decline, Dollar Tree Delivers In Second Quarter

August 21, 2014

Dollar Tree delivered its 26th consecutive quarter of positive comparable store sales growth in the second quarter, but profit declined 2.6% thanks to increased freight costs and investments in higher-value products.

Consolidated comparable store sales increased 4.5% on a constant currency basis.  Adjusted for the impact of Canadian currency fluctuations, the comparable store sales increase was 4.4%.  Consolidated net sales increased 9.5% to $2.03 billion from $1.85 billion in the prior year's second quarter.

Gross profit in the quarter increased 7% to $694.1 million from $648.7 million in the prior year's second quarter.

Net income, compared to the prior year's second quarter, including acquisition-related costs, decreased approximately $3.2 million to $121.5 million, and diluted earnings per share increased by 5.4% to $0.59.  Excluding acquisition-related costs, net income increased approximately $1.4 million to $126.1 million and diluted earnings per share increased 8.9% to $0.61.

"I am very pleased with our second quarter results," CEO Bob Sasser said.  "Expanded assortments of high-value product contributed to our strongest quarterly comparable store sales performance in two years.  Pet supplies, hardware, household products, food, electronics and party goods all performed well in the quarter.  Our 4.5% comp sales resulted from increases in both customer traffic and average ticket.  I am paticularly proud of our store associates.  Our store teams continue to execute at a high level as the company delivered its 26th consecutive quarter of positive comparable store sales growth.  In challenging macro environments, consumers are increasingly relying on Dollar Tree to be part of the solution in managing their family's budget.  Our stores are well-stocked with incredible values and we are prepared for the fall selling season."

The company opened 90 stores, expanded or relocated 20 stores and closed 4 stores during the quarter.  Retail selling square footage increased to 44.8 million sq. ft., a 6.8% increase compared to the prior year.

Looking ahead, the company estimates sales for the third quarter to range from $2.02 billion to $2.07 billion, based on low to mid-single digit positive comparable store sales.  Diluted earnings per share are estimated to range from $0.61 to $0.66, excluding acquisition-related costs.

Full-year 2014 sales are now estimated to range from $8.44 billion to $8.55 billion.  This estimate is based on a range of low to mid-single digit positive comparable store sales.  Diluted earnings per share, which includes $0.02 per share of second quarter acquisition-related costs, are expected to range from $2.94 to $3.06, excluding third and fourth quarter acquisition-related costs.

Dollar General bid $78.50 for Family Dollar Monday morning in a $9.7 billion deal that exceeds the $74.50 a share Dollar Tree offered for Family Dollar on July 28.  The deal would create a small format powerhouse with nearly 20,000 stores in 46 states and sales of more than $28 billion.  In a statement released this morning, Family Dollar's board of directors has unanimously rejected the non-binding proposal made by Dollar General on the basis of antitrust regulatory considerations.  The Family Dollar board also unanimously reaffirmed its recommendation in support of the merger agreement with Dollar Tree.

Source: Retailing Today 

Lowe's Recovers From Weather-Related Woes In Q2

August 20, 2014

A day after Home Depot reported strong second-quarter results, it was Lowe's turn to deliver strong quarterly earnings.

And the Mooresville, North Carolina-based retail giant did just that.  The company reported net earnings of $1.04 billion for the quarter ended August 1, marking a 10.4% increase over the second quarter last year.  Sales for the quarter were up 5.7% to $16.6 billion, as comparable-store sales were up 4.4%.

"We were able to recover most of the outdoor product sales missed in the first quarter due to unfavorable weather conditions," said Robert Niblock, president and CEO.

For Lowe's the expectation is that home improvement spending will continue to grow in concert with job and income growth.  The company's forecast for earnings per share remains unchanged, but Lowe's made a "modest reduction" to its sales outlook  for the year, based partly on year-to-date performance.  For the year, total sales are expected to increase about 4.5%, as comps are expected to increase about 3.5%.

The company operated 1,837 home improvement and hardware stores as of August 1, representing 200.8 million square feet of retail space.

Source: Retailing Today

Rebound For Real At JCP

August 14, 2014

Same store sales growth of 6% and e-commerce strength helped J.C. Penney dramatically reduce its second quarter operating loss and demonstrate growing momentum of its turnaround.

Sales at the operator of 1,060 stores increased to $2.8 billion from $2.66 billion and the 6% comp increase the company reported was against an easy prior year comparison when comps declined 11.5%.  Online sales through jcp.com were $249 million for the quarter, up 16.7% versus the same period last year.

The company reported an operating loss of $70 million that, while sizable, was dramatically less than a prior year loss of $395 million.  The company's net loss of $172 million, or 56 cents a share, was also markedly better than the prior year loss of $586 million, or $2.66 a share.

"Our turnaround initiatives continue to produce improved financial results.  In the second quarter, we gained additional market share while significantly increasing gross margin in a highly competitive promotional environment," said J.C. Penney CEO Mike Ullman.  "Our customers know they can count on J.C. Penney to deliver relevant stylish merchandise at a price that fits their budget.  With our unique assortment of powerful private brands, key national brands and exclusive attractions - all at prices customers can afford - we expect to continue driving profitable sales this back to school season.  As we approach the completion of our turnaround, we are focused on re-establishing J.C. Penney as the premier shopping destination for the moderate consumer."

The company singled out women's and men's apparel and accessories, home and fine jewelry as its top performing businesses during the quarter.  Sephora inside J.C. Penney also continued its strong performance, according to the company.

Looking ahead, J.C. Penney said it expects third quarter comps to grow in the mid single digit range.

Source: Retailing Today

No Surprises For Nordstrom In Second Quarter

August 14, 2014

Nordstrom's second quarter earnings were in line with its expectations.  The results come two weeks after the company said it was acquiring Trunk Club, a men's personalized clothing service, for $350 million.

Profit for the quarter remained flat compared to last year's second quarter at $183 million.  Net sales for the quarter were $3.3 billion, a 6.2% increase from $3.1 billion in the prior-year quarter.  Comparable sales increased 3.3%.

Nordstrom Rack net sales increased $114 million, or 18%, compared with the same period in fiscal 2013, reflecting incremental volume from existing stores and the impact of 25 store openings since the second quarter of fiscal 2013.  Nordstrom Rack comparable sales increased 4%.

The Nordstrom Rewards loyalty program continues to contribute to overall results, with members shopping more frequently and spending more on average than non-members.  The company opened nearly 370,000 new accounts in the second quarter, an increase of 18% compared with the same period last year.  With 4.1 million active members, sales from members in the second quarter increased 11% in the second quarter and represented 44% of sales, from 42% for the same period last year.

Nordstrom entered into an agreement to acquire Trunk Club July 31.  Founded in 2009, Trunk Club delivers a stylist service that combines the convenience of online with a high-touch, personalized shopping experience.  Trunk Club is a high-growth company and expects to achieve operational profitability and more than double its annual sales to more than $100 million.  The company believes this acquisition represents a natural extension of its core business, aligns with its strategic priorities around a relevant customer experience and accelerates entry into this fast-growing market.

Trunk Club will operate as an independent, wholly owned subsidiary and will be managed by its current leadership.  The transaction is expected to close in the third quarter, subject to closing conditions including customary regulatory and shareholder approvals.

Nordstrom plans to open three full-line stores (The Woodlands, Texas; Calgary, Canada and Jacksonville, Florida) later this year.  To date in fiscal 2014, the company opened 11 Nordstrom Rack stores and plans to open 16 additional stores during the remainder of the year.  In the second quarter of 2014, the company opened a Nordstrom Rack store in Manhasset, New York.

Source: Retailing Today

Customers Flock To Home Depot In 2Q

August 19, 2014

A 6.4% second quarter same store sales increase at U.S. stores enabled Home Depot to handily exceed analysts' profit estimates and prompted the company to increase its full year outlook.

The nation's largest home improvement retailer said its sales for the quarter ended August 3 increased 5.7% to $23.8 billion and net income grew 14.2% to $2.1 billion from slightly less than $1.8 billion the prior year.  Earnings per share increased 22.6% to $1.52, seven cents better than analysts forecast, from $1.24 the prior year.  Home Depot's profit performance was aided during the quarter by aggressive share repurchase activity which reduced the number of outstanding shares by 6.2%.  The company spent $3.5 billion during the first six months of the year buying its own shares.

"In the second quarter, our spring seasonal business rebounded, and we saw strong performance in the core of the store and across all of our geographies," said Frank Blake, Home Depot's chairman and CEO.

The company's overall same store sales growth, including locations in Canada and Mexico was 5.8%.  The growth was driven by a 4.2% increase in the number of transactions and a 1.8% increase in average transaction size which was $58.43 in the second quarter of 2014 compared to $57.39 in the second quarter the prior year.

Based on the strong second quarter performance, Home Depot confirmed its forecast for 2014 sales growth of 4.8% and increased its earnings per share target to $4.52.  The company also said it planned to spend another $3.5 billion during the back half of the year buying its own shares.

Source: Retailing Today

Wal-Mart Cuts Profit Outlook

Health Costs, Weak Store Traffic Hinder Wal-Mart

August, 14, 2014

The world's largest retailer is having a hard time returning to growth and doesn't expect sales to improve in the U.S. for much of the rest of the year.

Wal-Mart Stores Inc. (WMT -0.66%) cut its earnings guidance for the year after it posted its seventh straight quarterly decline in U.S. store traffic and said growth in online sales would slow.  It cited sluggish consumer spending and higher costs associated with building new smaller-format stores, increased health-care expenses, and greater investments in its e-commerce operations.

Sales excluding newly opened or closed stores in the U.S. were flat.  That was a mild improvement after five straight quarters of declines, but nevertheless underscored the challenges facing a division that made up 60% of the retail giant's $476 billion in revenue last year yet hasn't seen positive comparable-store sales since 2012.

"We wanted to see stronger comps in Wal-Mart U.S. and Sam's Club," Chief Executive Doug McMillon said.  "Stronger sales in the U.S. businesses would've also helped our profit performance."

A rough streak of results from retailers is raising concerns about the health of the consumer as the economy chugs through the second half of the year.  The bad news came not just from Wal-Mart, but also from Macy's Inc. (M -0.67%), Michael Kors Holdings Ltd. (KORS -0.41%) and Kate Spade & Co. (KATE +0.29%), companies that until recently had weathered the weak demand and heavy discounting that have plagued the industry.  The Commerce Department said Wednesday that spending at U.S. retailers was flat in July.

For the three months ended July 31, Wal-Mart posted a profit of $4.09 billion, up a hair from $4.07 billion a year earlier.  Revenue rose 2.8% to $120.1 billion.

Wal-Mart investors had low expectations going into Thursday's report.  The departure of U.S. chief Bill Simon earlier this month had stoked concerns that efforts to improve store merchandise and operations hadn't managed to materially boost sales.  Meanwhile, Wal-Mart's core low-income customers continue to struggle with depressed wages and cuts in government benefits.

"Our customers are still under pressure," Chief Financial Officer Charles Holley said.  "They are concerned with their cost of living and employment.

Shoppers like Jessica Manzanares, 28 years old, continue to pinch pennies.  "All the prices are going up on gas, food, school supplies," said the mother of three as she compared notebook prices at a Wal-Mart store in Denver.  "Notebooks used to be 97 cents, now the ones my boys want are $2.47."

This year Ms. Manzanares is comparing school-supply prices between the dollar store chain where she is an assistant manager and a nearby Wal-Mart.  "It's a little bit cheaper here, and a penny here and there adds up."

One expected headwind came from health care, where costs are rising quickly as more employees sign up for coverage.  The company said it now expects to shell out an additional $500 million in health-care expenses related to increased employee enrollment and higher costs, up from the $330 million in increases it originally expected.

"Health-care costs increased approximately $180 million versus last year and were well above our initial estimates," said Wal-Mart U.S. CEO Greg Foran, who stepped into the role this week following the departure of Mr. Simon.

The company said it now expects full-year earnings of $4.90 to $5.15 a share, down from its previous range of $5.10 to $5.45 a share.  U.S. comparable-store sales in the three months ending October 31 should be relatively flat, the company said.

Mr. Foran, who has never worked in the U.S., joined Wal-Mart in 2011 after being passed over for the top job at Woolworths Ltd. (WOW.AU +0.06%) in Australia.  He served as president of Wal-Mart China, where he presided over the company's expansion as it tangled with compliance issues and government regulation, and was appointed head of Wal-Mart Asia in April.

Wal-Mart said it continued to spend on compliance costs, including $43 million on costs related to a continuing investigation into alleged violations of the U.S. antibribery law and changes to its global compliance program.  It also added more labor hours for employees in the front end of the store, as well as overnight stockers and bakery workers, bumping up salaries and wages by $200 million from the year before.

Wal-Mart now expects to spend an additional 5 cents to 7 cents a share on e-commerce, including building a new distribution center this year in Indiana.  It previously said it expected to spend an additional 2 cents to 4 cents a share.

The company also cut its online sales growth projections for the year to "mid-20s" from 30%.  Its online sales, as well as its smaller-format grocery stores, have been among the few positive sales drivers for the company.  During the quarter ended July 31, global online sales grew by 24% and contributed 0.3 percentage point to Wal-Mart's U.S. sales, excluding newly opened or closed stores.  Wal-Mart brought in $10 billion in online sales last year.

"We grew faster than the market, but we didn't grow as fast as we wanted to," said Neil Ashe, who leads global e-commerce at Wal-Mart.

Source: The Wall Street Journal 

Kohl's Optimistic On BTS After Weak 2Q

August 14, 2014

Kohl's exceeded analysts' profit expectations in the second quarter, but it wasn't due to top line strength and now the company has a lot riding on the back-to-school season.

The company's sales for the second quarter ended August 2 declined to $4.242 billion from $4.289 billion and same-store sales fell 1.3% after a slight prior year comp increase of 0.9%.  Meanwhile, net income increased slightly to $232 million from $231 million, while earnings per share advanced 8.6% to $1.13 from $1.04, five cents better than analysts' forecasts.  The earnings beat was driven by expense control and increased share repurchase activity, which reduced the number of outstanding shares.

Undeterred by the sales decline and weak underlying profit performance, Kohl's chairman, president and CEO Kevin Mansell focused on improvements late in the quarter and the company's positioning for back-to-school.

"We are pleased with the improvement we saw in sales as the quarter progressed," Mansell said.  "The improvement was the most dramatic in the month of July where we achieved a positive comp.  As they consistently do, our teams did a great job of managing expenses throughout the quarter.  We enter the back-to-school season with fresh, new inventory and encouraging momentum."

Kohl's increased its store count by five units during the quarter to end the period with 1,160 stores in 49 states.  Four new Kohl's stores are expected to open this fall.

Source: Retailing Today

Gap Posts Positive Comps In July

August 8, 2014

Gap posted positive comps in July for the four-week period ended August 2, buoyed by sales at Banana Republic; but preliminary second quarter results show that comparable store sales were flat compared to the same period last year.

Net sales in July increased 5% to $1.17 billion compared with net sales of $1.12 billion for the four-week period ended August 3.  For the second quarter, Gap Inc.'s net sales increased 3% to $3.98 billion compared with $3.87 billion for the second quarter last year.

"We're pleased to close out the first half of the year with a positive comp in July and look forward to the new product and marketing campaigns our brands will launch this fall," chairman and CEO Glenn Murphy said.

Comparable sales for July were up 2% versus a 1% increase last year.  Broken down by global brand, comparable sales for Gap decreased 2%, compared to a 7% increase last year; comparable sales at Banana Republic increased 6%, compared to a 1% decrease last year; and comparable sales at Old Navy increased 3%, compared to a 5% decrease last year.

For the second quarter so far, comparable sales are flat versus a 5% increase last year.  Broken down by global brand, comparable sales for Gap decreased 5%, compared to a 6% increase last year; comparable sales at Banana Republic stayed flat versus a 1% decrease last year; and comparable sales at Old Navy increased 4%, compared to a 6% increase last year.

Gap will release its complete second quarter earnings results August 21 and August sales results September 4.

Source: Retailing Today

Fred's July Comps Turn Positive

August 7, 2014

Fred's returned to positive comparable-store sales in July, reflecting stronger trends in general merchandise sales and improved customer traffic.

But Fred's is also exercising some caution and has cut its second quarter outlook.  The company now expects to report a loss for the quarter in the range of $0.15 to $0.20 per share, citing the transitional costs associated with implementing its convenience center model, together with the vendor-related cost pressures on pharmacy.

Fred's total sales for the month increased 4% to $148 million from $142 million in July 2013.  Comparable store sales for the month increased 0.7% on top of a 2.5% increase in the same period last year.

General merchandise departments that reported better performance in July, according to the company, included health aids, housewares, flooring, stationery, toys, auto and hardware, and several consumable departments.

"With our new ad program and marketing strategy now in place, we expect these positive trends to continue in the back half of the year.  Complementing improving conditions with general merchandise, we also saw ongoing sales and script growth in the pharmacy department during July, with our best monthly comparable script growth of the year.  In July, we also rolled out a clearance and inventory right-sizing program in all of our stores to address unproductive inventory and exit or reduce product categories that do not align with our convenience center model - a key to improving our GMROI going forward," Efird said.

Fred's pharmacy department margins for July continued to be pressured by very significant vendor cost increases on both brand and generic drugs.  This cost pressure in the pharmacy for the quarter accounted for a drop of approximately 225 basis points in pharmacy prime vendor distribution agreement.  With this key strategic relationship, the company said that it has a new alliance that supports its rapid growth and addresses the issues experienced over the past year, while restoring Fred's pharmacy department margin and significantly improving the profitability of its specialty pharmacy business.

"The drivers of performance for the balance of the year will be the pharmacy department's new vendor agreement, store shipments returning to forecast, and the continuation of our new marketing programs.  We plan to outline these strategic changes and our expectations for future performance on August 28, when we announce second quarter results and provide updated guidance for the remainder of 2014," Efird added.

Fred's currently operates 704 discount general merchandise stores.

Source: Retailing Today

Costco Sales Get Boost In July

August 7, 2014

Costco saw a boost in net sales and same-store sales during the month of July.

Net sales totaled $8.55 billion for the four weeks ended August 3, an increase of 9% from $7.87 billion during the similar four-week period last year.

Same-store sales increased 5%, while U.S. same-store sales also increased 5% during the period.

For the 48 weeks ended August 3, net sales were $101.43 billion, an increase of 7%.  During the 48 weeks, same-store sales increased 4%.  In the United States, same-store sales rose 5%.  Costco currently operates 660 warehouses, including 466 in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 25 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, six in Australia and one in Spain.

The company plans to open up to an additional three new warehouses prior to the end of its fiscal year on August 31.

Source: Retailing Today

Synergy Savings Keep Climbing At Office Depot

August 5, 2014

Office Depot softened the blow of weak second quarter sales by bumping up the pace of 400 store closings to drive greater than expected operating profit growth and expense savings related to the merger with OfficeMax.

Office Depot merged with Office Max last November and shortly thereafter announced plans to close 400 stores by the end of 2016.  The total number of closings remains intact, but the company now expects to close 165 of the stores this year compared to an earlier forecast of 150 closings in 2014.  The estimate of expense savings related to the closures was increased to $100 million from a $75 million estimate share at the end of the first quarter.

In total, Office Depot estimates the optimization of its North American store portfolio combined with other savings will result in annual run-rate synergies totaling $700 million.  That figure is well above the $400 to $600 million range shared when the deal was announced last year, and the $675 million estimate shared at the end of the first quarter.

Because the expense savings are being realized faster than initially forecast, the company is growing adjusted operating income faster than planned in the absence of any top line growth.

During the second quarter, our team executed exceptionally well, which enabled us to deliver merger synergies more quickly than anticipated," said Roland Smith, chairman and CEO of Office Depot.  "We are very pleased with the integration of legacy Office Depot and OfficeMax as we create a culture focused on achieving our critical prioities in the near and long term.  As planned, we have completed our analysis of the North America retail store optimization strategy and have continued to make progress on the development of our unique selling proposition.  Based on accelerated synergies and improving execution, we have updated our full year 2014 outlook for adjusted operating income to be not less than $200 million, an increase from our prior outlook of not less than $160 million."

Despite progress on the expense front, sales remain challenging for the company's retail, commercial and international divisions.  On a consolidated basis, sales for the second quarter increased to $3.8 billion from $2.4 billion, reflecting the inclusion of OfficeMax results.  However, on a pro-forma basis, looking at results as if both companies existed on a stand-alone basis, sales declined from $3.9 million.

Sales at the company's North American Business Solutions division declined 1% to $1.5 billion, on a pro forma basis while the operating profits ticked up to $59 million from $53 million.  International sales were essentially flat on a pro forma basis with the division's loss declining to $2 million from $6 million.

Source: Retailing Today

CVS's Portfolio Of Enterprise Assets Drives 'Strong' Q2 Performance

August 5, 2014

As today's healthcare market continues to evolve, CVS Caremark's portfolio of enterprise assets is enabling the company to provide innovative solutions and products that are delivering results, as evidenced by its "strong" second quarter results released Tuesday morning.

"As the health care environment evolves we are uniquely positioned to address the quality, affordability and accessibility issues in the healthcare system today," president and CEO Larry Merlo told analysts during Tuesday morning's conference call.  "So, we are highly focused on the unique opportunities we see for growth and we will continue to take an active and growing role in shaping the future of healthcare."

Net income for the quarter increased 10.9% to $1.2 billion, compared with approximately $1.1 billion in the year-ago period.

Adjusted earnings per share for the three months ended June 30, 2014 and 2013, was $1.13 and 97 cents, respectively, an increase of 16.5%.  Adjusted EPS in the three months ended June 30, 2014 excludes $133 million and $124 million in 2014 and 2013, respectively, of intangible asset amortization related to acquisition activity, the company stated.

Net revenues for the quarter ended June 30 increased 10.7%, or approximately $3.4 billion, to $34.6 billion compared with the year-ago period.

Revenues in the Pharmacy Services Segment increased 16.2% to $21.8 billion during the quarter, driven by net new business growth in specialty pharmacy including the acquisition of Coram and the impact of its new Specialty Connect, drug inflatin and product mix, partially offset by an increase in generic dispensing.

Specialty Connect integrates the company's mail and retail capabilities, providing members with the choice to bring their specialty prescriptions to any CVS/pharmacy, all prescriptions are filled through the company's specialty mail order pharmacies, so all revenue from this specialty prescription services program is recorded within the Pharmacy Services Segment.  Members then can choose to pick up their medication at their local CVS/pharmacy or have it sent to their home through the mail.

The Specialty Connect offering has been well received by clients and patients, according to the company.  As of July, more than 60,000 specialty patients have transitioned to this model.

"The program is generating high satisfaction scores with patients.  It resonates with clients as a differentiated approach to simplifying the specialty process for members, and physicians appreciate the ease of use in getting patients started on therapy," Merlo told analysts.

In providing a PBM 2015 selling update, the company stated that gross wins for 2015 is currently $5.4 billion.  Net new business is $2.6 billion.  As for renewals, the company has completed nearly $26 billion in business up for renewal with a retention rate of nearly 97%.

"I think our selling season success reflects our track record of generating savings for our clients through our unique suite of capabilities.  Top of mind for clients this selling season is achieving better control of their specialty spend," said Merlo.

Revenues in the Retail Pharmacy Segment increased 4.5% to $16.9 billion.  Same-store sales increased 3.3%, with pharmacy same-store sales up 5% and front-end same-store sales down 0.4%.

Despite a positive impact of approximately 80 basis points from the shift of the Easter holiday, front-end same-store sales were negatively impacted by softer customer traffic, partially offset by an increase in basket size.  In addition, front-end same-store sales are beginning to be impacted by tobacco.  In February, the company announced that it will stop selling cigarettes and other tobacco products at its more than 7,600 CVS/pharmacy stores across the United States by October 1.

"As we plan for exiting the tobacco category this fall, we have begun to see a sales impact," Merlo told analysts, noting that front-end same-store sales would have been approximately 110 basis points higher if tobacco and the estimated associated basket sales were excluded.  "Now, adjusting for this tobacco impact and the Easter shift, front-store comps were roughly flat in the quarter, sequentially improving from Q1.  Front store traffic decreased as customers continued to aggregate their trips and, at the same time, our average basket size continued to increase, reflecting the strength of our Loyalty program and the personalization it enables us to offer."

Pharmacy same-store sales were negatively impacted by approximately 160 basis points from recent generic drug introductions and by approximately 130 basis points from the implementation of Specialty Connect.  The implementation of Specialty Connect had a greater effect on revenues than prescription volumes because of the higher dollar value of specialty products, the company stated.

Commenting on the acquisition of Hispanic-owned pharmacy retailer Navarro Discount Pharmacy, Merlo said the company expects to maintain the current product mix and will share its learnings of Hispanic marketing and merchandising with other CVS markets where it makes sense.

"The Navarro brand is one of the most recognizable in the Hispanic marketplace.  We plan to retain it.  As you recall, we adopted a similar strategy in maintaining the Longs Drug name for our acquired locations in Hawaii and that has been successful," Merlo said.

The Navarro transaction is expected to be completed later this year.

In light of its "strong performance" during the quarter, the company raised and narrowed its earnings guidance range for the full year 2014.  It now expects to deliver adjusted EPS of $4.43 to $4.51, up from $4.36 to $4.50.  GAAP diluted EPS from continuing operations was raised to $4.16 to $4.24, up from $4.09 to $4.23.  It continues to expect to deliver 2014 free cash flow of $5.5 billion to $5.8 billion, while the 2014 cash flow from operations range was raised to $7.2 billion to $7.5 billion, up from $7.0 to $7.3 billion.  The company expects to deliver adjusted EPS of $1.11 to $1.14 and GAAP diluted EPS from continuing operations of $1.04 to $1.07 in the third quarter of 2014.

Source: Retailing Today 

Whole Foods Keeps Growing, Just Not As Fast

July 30, 2014

Same-store sales continue to decelerate at Whole Foods as the nation's leading natural and organic grocer continues to face traffic and ticket pressures caused by upstart rivals and established competitors.

Whole Foods sales in the second quarter ended July 6 increased 10% to nearly $3.4 billion from $3 billion the prior year while same store sales increased 3.9%, including a 60 basis points positive impact related to the timing of Easter.  Profits during the quarter increased 6.3% to $151 million, 41 cents a share, compared to prior year profits of $142 million, or 38 cents a share.

"Our business model is producing industry-leading sales per gross square foot, healthy returns on invested capital and strong operating cash flow," said Walter Robb, co-CEO of Whole Foods Market.  "We are seeing signs of stability in our sales trends and believe our strategic initiatives will help generate further momentum and product increasing returns on invested capital over the long term."

The company noted its stores generate average weekly sales of more than $736,000, or more than $1,000 per sq. ft.  Despite the high level of productivity, increased competition and reduced pricing at Whole Foods has put pressure on the company's margins and top line growth.

Both factors were evident earlier this year when the company reported second quarter results on May 6 and lowered its full year expectations for sales and profit growth.  The diminished view caused shares, which had been trading above $50 for most of the year at that time, to decline sharply.  The release of third quarter results and affirmation of the company's previously lowered outlook only served to send shares lower when the company reported results after the market closed on Wednesday.

Source: Retailing Today

Target Issues Preliminary Q2 Update

August 5, 2014

Just a few days after naming a new CEO, Target issued a preliminary update on its second quarter expenses related, in part, to the December 2013 data breach.

The company's financial results are expected to include gross expenses of $148 million, partially offset by a $38 million insurance receivable, related to the breach.  These expenses include an increase to the accrual for estimated probable losses for what the company believes to be the vast majority of actual and potential breach-related claims, including claims by payment card networks.

"Since the data breach last December, we have been focused on providing clarity on the company's estimated financial exposure to breach-related claims," said John Mulligan, interim president and CEO, CFO.  "With the benefit of additional information, we believe that today is an appropriate time to provide greater clarity on this topic."

The environment in the U.S. and Canada continues to be challenging for Target.  Mulligan added that results aren't yet where they need to be, but was optimistic about the company's progress, particularly in its efforts to drive U.S. traffic and sales, improve its Canadian operations and advance its digital transformation.

"With last week's announcement that the board has chosen Brian Cornell as Target's next chairman and CEO, we are excited to welcome Brian to the team and committed to working together to accelerate Target's transformation and become a leading omnichannel retailer," Mulligan said.

The company now anticipates its second quarter 2014 adjusted earnings per share will be within a range around $0.78 compared with prior guidance of $0.85 to $1.00 per share, reflecting flat comparable sales in its U.S. segment, with lower-than-expected EBITDA margin driven by promotional markdowns, as guests continue to spend cautiously and focus on value in the current environment; as well as softer-than-expected sales in its Canadian segment, combined with the impact of continued investments to clear excess inventory.

The company will provide complete second quarter results August 20.

Source: Retailing Today

'Solid' Start In Fiscal 2015 For Supervalu

July 24, 2014

Supervalu posted $5.23 billion in net sales for the first quarter, a decrease of 0.1% from $5.24 billion last year; but president and CEO Sam Duncan expressed confidence in the company's performance, saying it is off to a solid start across business segments.

"Our first quarter results reflect the investments we are making this year to position the company for future success and I am pleased with our operating performance," said Duncan.

Save-A-Lot's net sales for the quarter were $1.35 billion, a 6.5% increase frm $1.27 billion last year, driven by a network identical store sales increase of 5.6%.  Identical store sales for corporate stores within the Save-A-Lot network were up 7.2%.

The company's Independent Business net sales for the quarter were $2.4 billion, a decrease of 2.6% from $2.46 billion last year, primarily due to lost accounts including lower sales to one New Albertson's banner that completed the transition to self-distribution and lower military sales, partially offset by net new business.

Retail Food net sales for the quarter remained flat compared to last year's $1.43 billion.  Identical store sales were up 0.6%.

On March 21, 2013, the company completed the sale of five retail grocery banners - Albertson's Acme, Jewel-Osco, Shaw's and Star Market.

Supervalu operates 3,320 stores, which include 1,805 independent stores serviced primarily by the company's food distribution business, 1,325 Save-A-Lot stores, of which 931 are operated by licensee owners; and 190 traditional retail grocery stores.

Source: Retailing Today

Family Dollar Stays Positive Following Q3 Results

July 20, 2014

Just a month after activist investor Carl Icahn became Family Dollar's largest shareholder prompting concerns of a hostile takeover, the company reported its third straight quarterly decline in same-store sales.

Same-store sales for the third quarter ended May 31 decreased 1.8% because of fewer customer transactions, partially offset by an increase in the average customer transaction value.  Sales in the third quarter of fiscal 2014 were strongest in the consumables category, driven primarily by strong growth in refrigerated/frozen food and tobacco.

Meanwhile, net sales increased 3.3% to $2.66 billion from $2.57 billion in the prior-year quarter.

"We are executing our previously announced restructuring initiatives to improve our performance," said chairman and CEO Howard R. Levine.  "Our recent investment to permanently lower prices is resonating with customers; we are seeing savings from our workforce optimization efforts; and we are on track to close approximately 370 underperforming stores by the end of the fiscal year.  We remain confident that these steps will position the company to improve our financial performance and deliver higher long-term shareholder returns."

Levine said that the company's results reflected not only economic challenges facing its core customers but also an intense competitive environment.  But he's remaining positive because although same-store sales did drop for the quarter, they actually improved in all four merchandise categories compared to its second-quarter results - a sign of improving trends.

Gross profit for the quarter was $910.9 million or 34.3% of net sales.  During the quarter, the company implemented a series of restructuring initiatives, including plans to close approximately 370 underperforming stores across the chain by the end of fiscal 2014.  As a result, the company incurred a $1.5 million inventory write-down in an effort to sell through merchandise at stores scheduled to close.

Excluding the inventory write-down, adjusted third quarter gross profit increased 2.2% to $912.3 million, or 34.3% of net sales, compared to $892.5 million, or 34.7% of net sales, in the third quarter of fiscal 2013.  As a percentage of sales, the impact on gross profit of stronger sales of lower-margin consumables, lower markups and higher markdowns was partially offset by lower inventory shrinkage.

During the quarter, the company opened 111 new stores, closed 3 stores and renovated, relocated or expanded 266 stores.

As part of its ongoing business review, the company lowered prices on nearly 1,000 basic items, investing more than $50 million, on an annualized basis, to deliver more compelling values to customers.  It has also made plans to slow new store growth beginning in fiscal 2015.  The company now expects to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014.

In an effort to drive more profitable growth, the company is also investing in longer-term initiatives, which include further expanding its cooler program beginning in fiscal 2015 and expanding traffic-driving categories with a multi-year rollout of beer and wine likewise beginning in fiscal 2015.

Looking ahead to the fourth quarter, the company expects that comparable store sales will be approximately flat and that earnings per diluted share will be between $0.75 and $0.85, excluding approximately $0.37 related to restructuring charges.  Including the restructuring charges, the company expects earnings per diluted share will be between $0.38 and $0.48.

Source: Retailing Today