Hudson's Bay Company's Saks Acquisition Pays Off In First Quarter

June 3, 2014

Hudson's Bay Company more than doubled sales in the first quarter driven primarily by its acquisition of Saks last year.

Retail sales were $1.9 billion, an increase of $971 million from $884 million for the prior year.  Consolidated same-store sales increased by 2.8%, with increases of 2.5% at DSG, 2.6% at Saks Fifth Avenue and 15.1% at Off 5th.  Digital commerce sales totaled $207 million, reflecting both the inclusion of Hudson's Bay and Lord & Taylor (which together are referred to as "Department Store Group" or DSG) and Saks.

Sales growth at DSG was driven by menswear and beauty.  Sales growth at Saks Fifth Avenue was driven by menswear and accessories.  Sales growth at Off 5th was strong across all categories.

Two Off 5th stores opened in Palm Beach, Florida, and Milwaukee, Wisconsin, and two Saks Fifth Avenue locations closed in Orlando, Florida, and Stamford, Connecticut.

HBC also completed the sale and leaseback of its Queen Street flagship store and Simpson Tower office complex in Toronto for a purchase price of $650 million.

"Overall first quarter performance was in the range of our expectations," said governor and CEO Richard Baker.  "We are encouraged by the business trends witnessed through the quarter, which bode well for the balance of this year.  Furthermore, we are pleased by the progress of our integration of Saks, which is on-track to achieve approximately $50 million in HBC synergies targeted for this year.  As a result, we ar reaffirming our outlook for fiscal 2014 as provided in April."

Baker said that his confidence in HBC's future is based upon its core sales growth strategies: driving digital sales across all its banners, growing Off 5th through a modified and more productive format as well as new stores in the U.S. and Canada, bringing Saks Fifth Avenue to Canada and driving outsized growth at the top doors of each of its banners.

Hudson's Bay will also have a new financial chief step into that role June 9.  Paul Beesley most recently served in a number of executive roles with Empire Company Limited, a corporation with annual sales in excess of $19 billion and operations in retailing and related real estate, from 2000 to 2014, including as chief corporate development officer of it Sobeys unit and as CFO of Empire.  While at Empire, Beesley developed strategies resulting in the acquisitions of Canada Safeway and the remaining stake in Sobeys, led the creation of an Empire-related REIT and facilitated numerous financing transactions.

Source: Retailing Today

Big Lots First Quarter Same Store Sales Increase

May 30, 2014

Exiting Canada may have taken a bite out of Big Lots' profits in the first quarter, but the company still saw net and comparable store sales increase.

Net sales for the quarter increased 1.1% to $1.28 billion, compared to net sales from continuing U.S. operations of $1.26 billion for the same period last year.  Comparable-store sales for stores open at least 15 months increased 0.9% for the quarter.

Net loss from discontinued Canadian operations for the quarter totaled $25.2 million, or $0.44 per diluted share, compared to the company's guidance of a net loss of $37 to $41 million, or $0.64 to $0.71 per diluted share.  The lower-than-expected loss resulted from incremental deferred tax benefits and favorable settlements on lease terminations associated with store and distribution center operating leases.

Looking ahead to the second quarter, the company estimates that income from continuing operations will be in the range of $0.24 to $0.30 per diluted share, compared to adjusted income from continuing U.S. operations of $0.37 per diluted share the second quarter last year.  This guidance is based on an estimated comparable-store sales increase of between 1% and 3%.

Big Lots operates 1,496 Big Lots stores in 48 states.

Source: Retailing Today 

Leading Markets Index Shows 56 Metros At Or Above Normal Levels

June 5, 2014

Of the approximately 350 metro markets nationwide, 56 returned to or exceeded their last normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released today.  This represents a net gain of nine metros year over year.

The index's nationwide score of .88 held steady from the previous month.  This means that based on current permit, price and employment data, the nationwide average is running at 88 percent of normal economic and housing activity.  Meanwhile, 30 percent of metro areas saw their score rise this month and 83 percent have shown an improvement over the past year.

"Markets are gradually returning to normal levels of housing and economic activity," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  "When we see more sustainable levels of job growth, this will unleash pent-up demand and bring more buyers into the marketplace."

Baton Rouge, Louisiana, continues to top the list of major metros on the LMI, with a score of 1.4 - or 40 percent better than its last normal market level.  Other major metros at the top of the list include Honolulu; Oklahoma City; Austin, Texas and Houston.  Rounding out the top 10 are Los Angeles; San Jose, California; Harrisburg, Pennsylvania; Pittsburgh and Salt Lake City - all of whose LMI scores indicate that their market activity now equals or exceeds previous norms.

"Of the three components in the LMI, the one lagging is single-family housing permits, which is only 43 percent of the way back to normal while home prices are 26 percent above their last normal level and employment is at 95 percent of its previous norm," said NAHB Chief Economist David Crowe.  "In the 22 metros where permits are at or above normal, the overall index indicates that these markets have fully recovered."

"Well over one-third of all markets are operating at a level of at least 90 percent of previous norms, and this bodes well for a continuing housing recovery in the year ahead," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0 or better, meaning their markets are now at double their strength prior to the recession.  Also at the top of the list of smaller metros are Bismarck, North Dakota; Casper, Wyoming; and Grand Forks, North Dakota, respectively.

The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of economic and housing activity.  More than 350 metro areas are scored by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth.  For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison.  The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics.  An index value above one indicates that a market has advanced beyond its previous normal of economic activity.

Source: National Association of Home Builders

Economic Highlights For The Week Ahead

June 11, 2014

Last week:  The U.S. economy generated almost 200,000 new jobs in May, continuing a trend that is now more than a year old.  Indeed, consistently generating that many new jobs is slowly beginning to encourage some discouraged workers to start looking again.  As these developments continue, there will be less slack in the labor market and more instances of tightness in certain fields.  And that, in turn, would put upward pressure on wage growth.  How much and how soon will be big questions later in the second half of this year and into 2015.  Meanwhile, consumers, now a little more confident, will pick up the pace in spending.  And the economy, with a much better second quarter (after a weather-induced decline in the first quarter), will do even better this summer, as the third quarter begins.

Retail Sales, May (Bureau of the Census)

Vehicle sales (at a 16.5 million pace in May) reflect some continued catch up, as consumers continue to replace old vehicles for newer and more fuel efficient models.  Nonauto retail spending has been quite uneven - with a significant gain in March but a very slow April.  It would not be a surprise if May's data is more similar to March than April.  Retailers, still stuck with piled up inventory, are hoping that continued good news on the labor front enables consumers to put into action some long delayed plans, which in turn will bring the inventory-to-sales ratio back down to something closer to normal.  In fact, they have yet to resort to discounting in order to stimulate more in-store or web traffic.  If sales disappoint again, that could well be the next step in late spring.

Producer Price Indexes, May (Bureau of Labor Statistics)

Energy prices remain relatively stable.  Food prices are stable now, but could start to move a little higher.  "Core prices (which exclude food and energy) remain very low, rising by no more than 0.2 percent per month.  The concern has been more about prices slowing.  But if the economy is starting to gain some momentum, it could result in a little price acceleration, not in May but perhaps later this summer.

Source: The Conference Board

Consumers Spending Outlook Brightens In May

June 11, 2014

Consumer spending in May increased 4.2%, with the retail sector enjoying new vigor.  The spending increase of 4.2% compared to 4.1% in April.

Retail spending growth of 1.7% marked a slight uptick compared to April's growth of 1.3% as warmer weather across most regions, with the exception of the Northeast, supported retail foot traffic.  Although the 1.7% increase lagged the total spending figure, May marked the strongest growth in seven months, primarily driven by spending at building material and supply dealers (6.7% in May vs. 3.6% in April) and furniture and home furnishings merchants (1.4% in May vs. -0.7% in April).  Average ticket growth of 1.2% in May gained steam against April's 0.5% growth, driven by higher year-over-year gas prices, higher food prices and an increase in some leisure-related categories.

A number of factors, including normalized weather, pent-up demand, falling unemployment and rising home prices supported consumers' willingness to spend in May.  Credit card spending growth continued to be strong and led all other payment types.  The surge in spending growth at hotel and travel merchants, building material and home furnishing merchants, where credit is the primary payment tool, was a major driver supported by easing lending standards and payroll growth.

Other areas of growth included hotel spending growth of 9.3%, a 12 month high, compared to April's 7%.  Gas station spending growth of 3.6% was higher compared to April's growth of 3.3% and was another key supporting factor in overall growth as gas prices remained elevated versus last year.

Source: Retailing Today

The Conference Board Employment Trends Index Increased In May

June 9, 2014

The Conference Board Employment Trends Index (ETI) increased in May.  The index now stands at 118.58, up from 117.32 (a downward revision) in April.  This represents a 5.4 percent gain in the ETI compared to a year ago.

"The Employment Trends Index continues to signal solid job growth with an improvement in each of its eight components in the first five months of 2014," said Gad Levanon, Director of Macroeconomic Research at The Conference Board.  "The need for employers to rapidly expand their payroll in light of strengthening economic activity is a major factor in the rapid decline in the unemployment rate."

May's increase in the ETI was driven by positive contributions from seven of its eight components.  In order from the largest positive contributor to the smallest, these were: Industrial Production, Initial Claims for Unemployment Insurance, Real Manufacturing and Trade Sales, Ratio of Involuntarily Part-time Workers, Number of Temporary Employees, Job Openings, and Percentage of Respondents Who Say They Find "Jobs Hard to Get."

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 (BLS)
• Job Openings (BLS)
• Industrial Production (Federal Reserve Board)
• Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Source:  The Conference Board

Dad's Get Even Less Love This Year

June 3, 2014

Father's Day is already the smallest of gift-giving holidays and this year Americans are expected to spend even less, according to the National Retail Federation's (NRF) 2014 Father's Day Spending Survey.

The survey found that the average person will spend $113.80 on neckties, tools, electronics and other special gifts for dad, slightly down from $119.84 last year.  Total spending for the holiday is expected to reach $12.5 billion.

"Knowing both cost and sentiment are important to their shoppers, retailers this Father's Day will make sure to offer promotions on a variety of gift options, including home improvement items, tools and even apparel," said NRF president and CEO Matthew Shay.  "As more people look for 'experience gifts' with tickets to baseball games or a day on the golf course, retailers will also make sure to promote their gift cards for families hoping to create the perfect gift package."

While most people (64.1%) will simply say thank you to dad with a greeting card, four in 10 (41.6%) will treat dad to new apparel items such as neckties and sweaters, spending a total of $1.8 billion, while another 42.6% will celebrate with special outings such as dinner or a ticket to a sporting event, spending a total of $2.5 billion.  The survey also found that those celebrating Father's Day will spend $1.6 billion on electronic gifts like smartphones and tablets, and $1.8 billion on gift cards, letting dad pick his own special gift.

Consumers will also spend on tools or appliances ($663 million), sporting goods or leisure items ($662 million), home improvement items ($645 million), personal care items ($641 million), books or CDs ($555 million) and automotive accessories ($520 million).

Dad's loved ones will look for gifts at a variety of locations, including discount stores (28.1%), online (28.4%) and specialty stores (24.2%); 16.6% say they plan to support their communities and shop at a local or small business to find gift items for dad.  Most shoppers, however, will head to dad's favorite department store (35.8%).

"As we saw with Valentine's Day and Mother's Day this year, consumers are keeping to a strict budget," said Prosper Insights Director Pam Goodfellow.  "Whether they spend $10 or $100, millions of Americans will find creative, affordable ways to show dad how much they care."

On-the-go shoppers will use their smartphones and tablets to research and purchase gifts for dad this year.  Nearly one-quarter of smartphone owners (23.4%) will research products and compare prices on gifts using their smartphone, and three in 10 tablet owners (30.6%) will do the same.  Nearly one in five (18.2%) will purchase products with their tablet for Father's Day.

More than half of survey respondents plan to shop for their father or stepfather (52.3%) and 27.6% will look for ways to show their appreciation for their husband.

Source: Retailing Today, National Retail Federation 

Dollar General Doesn't Blink

June 3, 2014

Undeterred by bad weather and competitive pressures that took a toll on its first quarter performance, Dollar General is pressing ahead with plans for 700 new stores, recently opened its 12th distribution center and believes its full year profit forecast is attainable.

The company said sales during its 13 week quarter ended May 2 increased 6.8% to $4.52 billion, while same store sales increased 1.5%.  Although the comp figure was below the company's expectations for an increase in the range of 2% to 3%, customer traffic and average transaction size still grew, according to the company.  Driving the gain were consumable category sales which were said to have significantly outpaced non-consumable categories.  Tobacco products, perishables and candy and snacks were top performers, according to the company.

"Dollar General's first quarter same-store sales improvement of 1.5% was driven by growth in our consumables business and, overall, reflected the challenges of unfavorable winter weather, heightened competition and the current economic environment," said Rick Dreiling, Dollar General's chairman and CEO.  "Even as these factors weighed on our sales results, we saw trends improve as we moved through the quarter and we delivered (earnings per share) 72 cents, which was in line with our guidance."

The company aided its EPS cause through aggressive share repurchase activity which made it possible to hit the low end of its targeted profit range of 72 cents to 74 cents.  Analysts had expected the company to report earnings per share of 73 cents.  Dollar General said it spent $800 million during the first quarter to repurchase 14.1 million shares, an amount that is roughly one third of the total 44.5 million shares repurchased for $2.3 billion since the program was authorized in December 2011.  The big reduction in shares helped boost earnings per share by two cents.  First quarter net income of $222 was essentially flat with the prior year profit of $220 million.

While Dollar General was able to hit its profit target, the lack of top line growth caused gross margin and expense leverage challenges.  Gross margins declined 57 basis points to 30% of sales which the company said was attributable to lower margin consumables comprising a larger portion of sales and higher markdowns related to promotional activity.  Meanwhile, expenses increased to 21.6% of sales from 21.3% of sales as moderate comp store growth caused the company to lose leverage while it also faced increased rent and utility costs.

Despite these challenges, Dollar General maintained its breakneck pace of growth during the quarter, opening 214 stores and a 930,000 sq. ft. distribution center in Bethel, Pennsylvania.  The company also confirmed its full year profit forecast and plans to open 700 new stores and remodel 500 others.  The company ended the first quarter with 11,338 stores throughout the U.S.

"We continue to grow both our customer traffic and average transaction amount as our merchandising initiatives reinforce our affordability and value messaging," Drelling said.  "Sales trends began to improve in April and have continued to gain momentum.  We are pleased to see that our merchandising strategies are gaining traction with a strengthening of sales in both consumables and non-consumables in our second quarter to date."

Dollar General, like many other retailers, is beginning 2014 in somewhat of a hole after reporting weaker than expected sales and profits aided by share-repurchase activity.  Going forward, the company is going to need a heightened level of spending among its cash-strapped core customers to achieve a full year profit target which was left intact.

Total sales this year are expected to rise between 8% and 9% with same store sales expected to grow between 3% and 4%, according to the company.  Full year profits are expected to range from $3.45 to $3.55 which is the same forecast the company shared when it reported fourth quarter results earlier this year.

Source: Retailing Today

Green Homes Show Growth In A Recovering Market

June 5, 2014

Residential construction is a key engine behind growth in the United States.  According to McGraw Hill Construction's Dodge Construction Market Forecast, single and multifamily housing projects account for about 45% of the value of all construction projects started in the United States in 2014.  With that market forecasted to grow rapidly in coming years, the green activity and drivers in the market are critical.  The SmartMarket Report of the single and multifamily builder and remodeler community released today contains this new intelligence.

The report, "Green Multifamily & Single Family Homes: Growth in a Recovering Market," surveys builder and remodeler members of the National Association of Home Builders and reveals the evolution of green building for single family homes from boom to bust to recovery through comparisons with previous studies from 2006 to 2011, and includes new data on multifamily housing to provide a comprehensive review of the sector.

According to the latest study:

• 62% of firms building new single family homes report that they are doing more than 15% of their projects green.  By 2018, 84% of them expect this level of green activity.
• 54% of firms building new multifamily projects report that they are doing more than 15% of their projects green.  There is also growth expected - with 79% reporting the same level of activity anticipated by 2018.
• In the single family market, the most striking shift is in those firms dedicated to green building (doing more than 90% of their projects green).  That percentage is already at 19%, and by 2018, it is expected to double to 38%.

The study finds that builders and remodelers in both the single family and multifamily sectors report that the market is recognizing the value of green: 73% of single family builders (up from 61% since the last report) and 68% of multifamily builders say consumers will pay more for green homes.

"Greater consumer interest in green homes has contributed to the ongoing growth, leading us to anticipate that by 2016, the green single family housing market alone will represent approximately 26% to 33% of the market, translating to an $80 billion to $101 billion opportunity based on current forecasts.  The findings also suggest that lenders and appraisers may be starting to recognize the value of green homes, making it a factor that could help encourage the market to grow if there is more widespread awareness across the U.S.," said Harvey Bernstein, vice president, Industry Insights and Alliances for McGraw Hill Construction.

The study also examines the triggers for green building activity.  "This new study demonstrates phenomenal growth in green building, with more builders engaging in sustainable building practices than ever before," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  "While growth in green in the single family market is driven more by high utility incentives, as well as enhancing their competitive position and corporate image.  All are compelling reasons for the industry to engage with this continuously growing market."

The SmartMarket Report also reveals a vigorous and growing renewables market in the residential sector.  65% of the respondents - both single family and multifamily - currently use renewables on at least some of their projects, and the percentage that incorporate them in all of their projects is expected to grow from 8% in 2013 to 20% by 2016.

"Green Multifamily & Single Family Homes: Growth in a Recovering Market" was produced by McGraw Hill Construction in partnership with the National Association of Home Builders, with the support of Waste Management and Menck Windows.

Source: National Association of Home Builders

Costco Beats Expectations In May

June 5, 2014

Warmer weather in May meant an uptick in store traffic for a few retailers, including Costco.  But the wholesale retailer's same-store sales for the month - which increased 6%, with a 6% rise in U.S. sales and a 4% increase in international sales -  were better than analysts had expected and bolstered by higher fuel prices.

The company reported net sales of $8.78 billion for the month, an increase of 8% from $8.13 billion during the similar four-week period last year.

In the United States, same-store sales increased 6%.  Total company same-store sales also increased 6%.

For the 39 weeks ended June 1, the company reported net sales of $81.99 billion, an increase of 6% from $77.13 billion during the similar period last year.

Source: Retailing Today

Strong And Steady Job Growth

June 6, 2014

The economy generated a gain of 217,000 jobs in May, compared with an average of nearly 200,000 per month over the past year.  Job growth may strengthen even further over the second half of the year as the economy picks up in pace.  Improving final demand is forcing business to add workers.  The underlying hiring trend, especially in professional services, is encouraging, with more good news expected through the summer and into the autumn months.  More jobs means more pay checks, lifting sentiment and resulting in still more consumer buying.  It will also induce businesses to invest more in equipment and human capital so that new workers can get the job done.  In sum, the strong trend is continuing for now, but could even speed up a little over the next few months.

Source: The Conference Board

Weather Trends: June 2014

June 4, 2014

WTI expects June 2014 to trend similar to last year and above normal for the U.S. as a whole.  Cooler and more normal temperatures can be expected from the Western Plains to the Rocky Mountain states.  Temperatures will be cooler than last year along the West Coast, but still above normal with slightly weaker demand for summer categories.  In the Northeast, temperatures will trend similar to last year while precipitation trends drier than a very wet June 2013, which will benefit store traffic and increase demand for outdoor categories.  Meanwhile, rainfall will be greater in the Central Plains compared to last year.  Warm and humid weather across the South will help drive incremental gains in swimwear, pool chemicals, beverages, air conditioners and summer apparel.  Sales will be flat to down slightly in the Northeast.  A cold front will sweep through the East late in the final week of June which will usher in a cooler and drier air mass for the Fourth of July weekend.  June 1 signaled the official start of the Atlantic Hurricane Season.  This season overall is forecast to be below average in terms of tropical activity, but should a storm develop in June, the highest risk area will be southern portions of the Gulf of Mexico and Caribbean.

Source: Retailing Today, Weather Trends International

Economic Highlights For The Week Ahead

June 2, 2014

Last week:  For the second week in a row, the bond market made the biggest headlines.  The Federal Reserve is tapering down its quantitative easing (buying fewer bonds) and the economy is catching up from a bad winter.  With sentiment up, strong job growth and some renewed strength in the ordering rate, one might think artificially low borrowing rates would be moving back toward normalcy (something reflecting a 2 percent inflation rate, and maybe a 2 percent risk factor).  Instead of moving up to about a 3 percent yield on a 10-year Treasury bond (on its way higher, assuming sustained economic growth), yields fell from above 2.7 percent to 2.45 percent this week.

Moreover, it's not like stock prices are falling or volatility in stocks is sending money into the bond market.  Rather, the bond market is making a bet that the economy is more likely to lose steam and gain momentum.  The economic data point to gathering strength.  And that's the view of professional economists (as much as 4 percent GDP growth this quarter, annualized), and that's on track with a slow build in consumer sentiment as well.

Who is right?  Maybe the better question is what is the proper way to view all this.  German bond yields are almost a full point lower than U.S. bonds right now.  And Japanese bonds are even lower.  So one could argue that money is flowing away from other markets to chase the higher yield, sending prices of U.S. bonds up, which sends yields lower.  If one takes that view, it would follow that money flowing away from bonds elsewhere is also decreasing money there, keeping the euro much above its purchasing parity level.  This is not an argument justifying lowering yields but it does suggest lower yields are more reflective of what is not happening elsewhere around the globe than what is happening domestically.

Employment Situation, May (Bureau of Labor Statistics)

The economy opened up more than 250,000 new jobs in April.  The figure for May might come back to about 200,000, or about the trend growth of the past 12 months.  Still, this would be a reflection of an ecoonomy gaining strength.  And the paychecks from these new jobs, along with slowly rising sentiment, could fuel replacement buying.  That includes consumers replacing old worn furniture and appliances along with continued vehicle replacement.  And with final demand finally picking up, there very well could be more business investment - giving these workers the necessary tools to get the work done.  Money for investment is not the issue.  Indeed, neither is sentiment as surveys of attitudes of business executives through the first quarter reflect an uptick in optimism. 

An uptick in consumer spending and business investment is a recipe for continued job growth of more than 200,000 per month for at least the next few months.  In other words, the economic cycle could well start spinning a little faster, just as The Conference Board Leading Economic Index has been signaling.  Look for more construction jobs, service sector jobs, perhaps even some manufacturing jobs.

Regionally, hiring has been the weakest in the service-dominated big population centers in the Northeast and Midwest.  If the labor market is turning more robust, it is likely that service-sector employment in these markets is starting to pick up.

Source: The Conference Board

May 2014 Manufacturing ISM Report On Business - PMI At 55.4%

The May PMI registered 55.4 percent, an increase of 0.5 percentage point from April's reading of 54.9 percent, indicating expansion in manufacturing for the 12th consecutive month.  The New Orders Index registered 56.9 percent, an increase of 1.8 percentage points from the 55.1 percent reading in April, indicating growth in new orders for the 12th consecutive month.  The Production Index registered 61.0 percent, 5.3 percentage points above the April reading of 55.7 percent.  Employment grew for the 11th consecutive month, registering 52.8 percent, a decrease of 1.9 percentage points below April's reading of 54.7 percent.  The Supplier Deliveries Index registered 53.2 percent, 2.7 percentage points below the April reading of 55.9 percent.  Comments from the panel reflect generally steady growth, but note some areas of concern regarding raw materials pricing and supply tightness and shortages.

Source: Institute for Supply Management 

Fred's New Convenience Strategy Shuns Digital

May 29, 2014

Fred's wants to be what it calls "the convenient small box store of choice" and to achieve that goal, it has embarked on a two-pronged strategy focused on general merchandise and pharmacy.

Neither business is new for Fred's, an operator of 704 stores throughout the Southeast, but the need for a new approach to serving shoppers in the digital age was heightened after the company reported weak sales and profits for the first quarter ended May 3.  Sales declined to $498.3 million from $501.5 million and same store sales dropped 1.9% on top of a prior year decline of 1.3%.  The company's first quarter profits of $6.1 million, or 17 cents a share, were roughly half the $11.4 million, or 31 cents a share, profit the company earned the prior year.

There were some legitimate reasons for the weakness, as have been cited by numerous other retailers, but Fred's reasons went beyond the unusually cold weather and a tepid economy to include competitive promotions, issues related to the timing of tax credits and what it referred to as extraordinary inflationary pressures on generic drugs combined with third-party payers reluctant to increase reimbursement rates.

"Realizing that customers' shopping habits are changing faster than ever, we recognize that we need to adapt to these changes and meet customers' needs on their terms," said Fred's CEO Bruce Efird.  "Fred's new strategy takes into consideration the ongoing emergence of internet shopping.  This trend continues to reduce trips to conventinal brick-and-mortar stores, but, at the same time, potentially expands the number of convenience, need-based shopping trips.  We will be marketing the diverse categories we carry compared with other small box competitors to emphasize convenience, using a new marketing and signage strategy."

Rather than add e-commerce capabilities to its website, Efird said the front end of Fred's stores will be re-merchandised with power displays and pallets, along with a faster checkout configuration, all focused on ease of shopping and designed to emphasize the advantages of shopping at Fred's 15,000 sq. ft. stores.  The changes are meant to better position Fred's to serve more of the need-based categories and provide customers with an easier and more convenient shopping experience.

"We are now engaged in a robust reworking of our current pharmacy distribution agreement, with benefits expected to begin in the second half of 2014 and with the full impact anticipated in 2015," Efird said.  "We will be making the general merchandising changes over the balance of this year, which include cleaning out unproductive SKUs and exiting categories that do not align with Fred's enlarged convenience model.  The costs of these branding, marketing and merchandising strategies will be finalized by the end of the second quarter."

The company expects to fully implement a new marketing campaign by mid-July with further plans calling for the new front end, adjacencies and fixtures to be substantially completed early in the fourth quarter.

Source: Retailing Today

Target Tries Out Same-Day Delivery Service In Select Markets

May 27, 2014

Target will test same-day delivery in three markets as the online shipping war among retailers continues to gain momentum.  Target will launch a $10 rush delivery pilot in June in the Minneapolis, Boston and Miami markets, offering guests the ability to order as late as 1:30 p.m. in the afternoon and receive a delivery of qualifying items between 6 p.m. and 9 p.m. the same day, the company stated in its recent quarterly call with analysts.

Later in the year, Target plans to rollout standard shipping from 136 stores in 38 markets across the country.  By leveraging the store network as fulfillment centers, it can offer faster, standard shipping - typically one to two days - and provide access to store only items not previously available from Target.com.  The retailer stated that it will continue to monitor results to determine further rollout plans.

The retailer also stated that it continues to see "encouraging results" from its recent rollout of in-store pickup of digital orders.  These orders make up about 10% of Target's digital transactions and when guests pick up their items, more than 20% of the time, they take the opportunity to shop the store and spend much more than the average basket, the company stated.  In the first quarter, Target expanded the number of SKUs eligible for in-store pickup to more than 60,000, including some shelf stable grocery items.

Source: Retailing Today

Costco Misses Estimates Although Sales Solid

May 29, 2014

Solid sales growth at Costco during the second quarter and a 6% same store sales increase at U.S. clubs did not translate into strong profits for the warehouse club operator whose earnings fell shy of analysts' estimates.

Costco's worldwide revenues for the 12 week period ended May 11 increased 7.1% to nearly $25.8 billion and consisted of product sales that increased 7.1% to slightly more than $25.2 billion and membership revenue which rose 5.6% to $561 million.  Total company same store sales increased 4% and consisted of a 5% U.S. comp increase and a 3% international increase.  Both figures were negatively affected by lower gasoline prices and foreign exchange.  U.S. comps increased 6% excluding the negative effects of gas prices and international comps increased 8% on a constant currency basis.

Costco saw its profits increase 3% to $473 million, or $1.07 a share, from $459 million, or $1.04 a share.  The consensus among analysts was that Costco would earn $1.09 a share.

Costco ended its second quarter with a total of 655 warehouses worldwide, including 464 locations in the United States and Puerto Rico, 87 in Canada, 33 in Mexico, 25 in the United Kingdom, 19 in Japan, 10 in Taiwan, 10 in Korea, six in Australia, and one in Spain.  The company plans to open as many as eight new warehouses during the second half of its fiscal year.

Source: Retailing Today

Apartment And Condominium Market Shows Positive Growth In First Quarter

May 29, 2014

Production of apartments and condominiums showed positive growth in the first quarter of 2014, according to the latest Multifamily Production Index (MPI), released today by the National Association of Home Builders (NAHB).  The index increased three points to 53, which is the ninth consecutive quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100.  The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

Th MPI provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and "for-sale" units, or condominiums.  In the first quarter of 2014, the MPI component tracking builder and developer perceptions of low-rent units increased one point to 48 and for-sale units jumped eight points to 54.  Meanwhile, the index tracking market-rate rental properties slipped one point to 59, but has remained consistently above 50 since the fourth quarter of 2010.

"Developer confidence in market-rate units has been pretty stable for quite some time," said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, California, and chairman of NAHB's Multifamily Leadership Board.  "Now we're really starting to see confidence in the condo market start to catch up - a segment that had been delayed in its recovery - along with the single-family market."

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, dropped one point to 37.  With the MVI, lower numbers indicate fewer vacancies.  The MVI improved consistently through 2010 and has been at a fairly moderate level since 2011 after peaking at 70 in the second quarter of 2009.

"The MPI shows stable production of apartments and condos, which is what our forecast calls for," said NAHB Chief Economist David Crowe.  "In 2014, we expect multifamily starts to grow about 6 percent over 2013, to about 326,000 units."

The MPI and MVI have continued to perform well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.

For data tables on the MPI and MVI, visit www.nahb.org/mms.

Source: National Association of Home Builders 

Economic Highlights For The Week Ahead

May 27, 2014

Last week: The Conference Board Leading Economic Index continues to point toward more solid footing for the U.S. economy.  Investors remain skeptical.  After the drop in bond yields last week, yields moved very little this week.  Are consumers equally skeptical?  This week's consumer confidence report will show whether consumers remain in a "wait and see" mode.  Of course, consumers pay more attention to changes in the labor market than the bond or stock market.  Next week, the latest news on job growth may live up to consumer expectations and help convince them that it is time to finally implement some long delayed replacement purchasing.

The Conference Board Consumer Confidence Index, May

The data point to an improving economic environment.  Are consumers buying it?  Confidence, especially consumer expectations, was higher in April than at the start of this year.  Did it move higher in May?

Personal Income and Outlays, April (Bureau of Economic Analysis)

Income growth has generally been in a range of about 0.2 to 0.3 percent.  Spending was even slower through March but might have improved in April, as the severe winter weather lets up.  The bigger issue is whether job growth and some rise in wages will be enough to move above that 0.2 to 0.3 percent range.

Question of the Week: Is the housing recovery running out of steam?

The housing recovery certainly ran into more than a simple speed bump.  Consider that sales of existing homes peaked in July of 2013.  But that's not all.  Sales peaked in different parts of the country nearly simultaneously.  That's not a typical pattern.  Moreover, the drop in sales ran counter to all computer models.  Clearly something happened to change the trend, and in an unusual manner.  Perhaps the rise in mortgage rates, as well as the run up in home prices resulted in a pull back.  Another factor may have been the slowing in sales of distressed homes - foreclosed homes put on the market.  A third factor had to do with the number of sales to those buying a home to rent out or renovate and resell (so-called flip sales).

Mortgage rates have actually retreated a little from the peak last year.  The supply of distressed homes has continued to dwindle, though the pace has slowed.  On the other hand, with job gains averaging almost 200,000 per month over the past 12 months, and expected to continue, if not accelerate a little, demand for homes could well start moving up.

One more factor affects sales of homes: getting mortgage approval.  This likely did not impact sales last year as lending conditions remained restrictive.  Many lenders were still dealing with nonperforming loans.  This problem has diminished to the point that some lenders have eased credit conditions.  In sum, fewer diminished sales, fewer flip sales, more sales to the newly employed, mortgage rates not moving up (at least for now), and eased lending conditions should all combine to allow home sales to start moving higher.  In turn, more demand would send more crews out to build more new homes.  So, no, the housing recovery is not running out of steam.  It did hit a speed bump.  But that speed bump is now in the rear view mirror.

Source: The Conference Board 

The Conference Board Consumer Confidence Index Improves In May

May 27, 2014

The Conference Board Consumer Confidence Index, which had decreased in April, improved moderately in May.  The Index now stands at 83.0, up from 81.7 in April.  The Present Situation Index increased to 80.4 from 78.5, while the Expectations Index edged up to 84.8 from 83.9 in April.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: "Consumer confidence improved slightly in May, as consumers assessed current conditions, in particular the labor market, more favorably.  Expectations regarding the short-term outlook for the economy, jobs, and personal finances were also more upbeat.  In fact, the percentage of consumers expecting their incomes to grow over the next six months is the highest since December 2007 (20.2 percent).  Thus, despite last month's decline, consumers' confidence appears to be growing."

Consumers' assessment of present-day conditions improved in May.  Those stating business conditions are "good" decreased to 21.1 percent from 22.2 percent, while those stating business conditions are "bad" declined to 24.1 percent from 24.8 percent.  Consumers' assessment of the labor market was more favorable.  Those claiming jobs are "plentiful" rose to 14.1 percent from 13.0 percent, while those claiming jobs are "hard to get" decreased slightly to 32.3 precent from 32.8 percent.

Consumers' expectations increased slightly in May.  The percentage of consumers expecting business conditions to improve over the next six months edged up to 17.5 percent from 17.2 percent, while those expecting business conditions to worsen decreased marginally to 10.2 percent from 10.5 percent.

Consumers were more positive about the outlook for the labor market.  Those anticipating more jobs in the months ahead increased to 15.4 percent from 14.7 percent, while those anticipating fewer jobs edged up to 18.3 percent from 18.0 percent.  The proportion of consumers expecting their incomes to grow increased to 18.3 percent from 16.8 percent, but those expecting a drop in their incomes also increased, to 14.5 percent from 12.9 percent.

Source: The Conference Board