Builder Confidence Holds Steady In April

April 15, 2014

Builder confidence in the market for newly built, single-family homes rose one point to 47 in April from a downwardly revised March reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

"Builder confidence has been in a holding pattern the past three months," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  "Looking ahead, as the spring home buying season gets into full swing and demand increases, builders are expecting sales prospects to improve in the months ahead."

"Job growth is proceeding at a solid pace, mortgage interest rates remain historically low and home prices are affordable," said NAHB Chief Economist David Crowe.  "While these factors point to a gradual improvement in housing demand, headwinds that are holding up a more robust recovery include ongoing tight credit conditions for home buyers and the fact that builders in many markets are facing a limited availability of lots and labor."

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor."  The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low."  Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI index gauging current sales conditions in April held steady at 51 while the component gauging traffic of prospective buyers was also unchanged at 32.  The component measuring expectations for future sales rose four points to 57.

The HMI three month moving average was down in all four regions.  The West fell nine points to 51 and the Midwest posted a four point decline to 49 while the Northeast and South each dropped two points to 33 and 47, respectively.

Source: National Association of Home Builders

Housing Starts Rise 2.8 Percent In March

April 16, 2014

Led by a 6 percent rise in single-family starts, nationwide housing production rose 2.8 percent above an upwardly revised February rate of 920,000 to a seasonally adjusted annual rate of 946,000 units in March, according to newly released figures from HUD and the U.S. Census Bureau.

"We see improving signs of new-home construction as we move into the spring buying season," said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  "The strongest recovery is in the Northeast and Midwest, where builders were hampered by severe winter weather earlier this year."

"Today's report is in line with our forecast of a gradual strenghtening in the housing sector in 2014," said NAHB Chief Economist David Crowe.  "However, several uncertainties including tight credit conditions for home buyers and erratic job growth are making builders cautious about getting ahead of demand."

Single-family housing starts rose 6 percent to a seasonally adjusted annual rate of 635,000 units in March, while multifamily starts fell 6.1 percent to 292,000 units.

Regionally in March, combined single and multi-family housing production rose strongly in the Northeast and Midwest with gains of 30.7 percent and 65.5 percent, respectively, but fell 9.1 percent and 4.5 percent in the South and West, respectively.

Overall permit issuance fell 2.4 percent to 990,000 units in March.  The Northeast and Midwest posted gains of 33.3 percent and 26 percent, respectively, while the West was unchanged and the South posted a 17.1 percent decline.

Source: National Association of Home Builders

Economic Highlights For The Week Ahead

April 14, 2014

Last week: During a quiet week with relatively little news, the drop in stock prices garnered headlines, even as corporate profit reporting gets underway.  There seems to be a little more retail activity in early spring, as the wet, cold winter fades into memory.  And forecasts continue to reflect optimism that the economy is picking up momentum.  Still, it is hard to shake the memory of prolonged weak growth.  And new reports about softness in the housing market (another dip in mortgage applications) do not help.  So, some cautious optimism seems to pervade, except on stock exchanges.

Retail Sales, March (Bureau of the Census)

Vehicle sales (at a 16.4 million pace in March) reflect some catch up from widespread inclement weather at the start of the year.  Nonauto retail spending will appear stronger than it really is for the same reason.  Going forward, the retail pace will be dictated by the pace of hiring and any pickup in wages.  Retailers, still stuck with piled up inventory, are hoping continued good news on the labor front allows consumers to put into action some long delayed plans.

Consumer Price Indexes, March (Bureau of Labor Statistics)

Globally, inflation is slowing.  Domestically, it is simply holding steady, albeit at a very slow pace.  "Core" prices (which exclude food and energy) have been rising by no more than 0.2 percent per month for more than a year.  There is little reason to expect anything different.  Energy prices are running below year-ago comparisons (not including natural gas and electricity, driven higher by the bad weather).  Food prices are relatively quiet, although meat prices could be driven lower as more steak hits the markets due to herd culling out west, another weather impact.  Prices will rise as demand exceeds supply.  "Core" prices, however, are unlikely to start rising much even if the economy turns a corner.  Medical-care inflation has slowed while the cost of housing remains steady.  Without much change in either of those two components, retail inflation will not change significantly.

Housing Starts and Building Permits, March (Bureau of the Census)

Home building has been running close to a million starts (annualized).  Demand has held up, even with mortgage rates moving a little higher.  And with foreclosure activity winding down, more demand must be met by increased construction.  Weather has delayed some home building, but it hasn't stopped the industry from staffing up, in anticipation of putting up more units (single family or apartment).  The most likely path forward is continued slow improvement.  Alternatively, a faster pace is far more likely than a slowdown.

Industrial Production, March (Federal Reserve Board)

The ordering rate remains soft and the inventory overhang weighs on production schedules.  So even if retail buying is poised for a pickup, it remains too soon to expect industrial production to start posting anything close to robust gains.  That may develop later this spring.  For now, flat industrial production is more likely.

Source: The Conference Board 

Home Depot Looks To Win With Water Initiative

April 14, 2014

To help customers save water and grow its sales in the process, Home Depot will execute a massive customer education initiative later this month.

Home Depot regularly holds in store clinics to arm customers with knowledge to tackle home improvement projects, and its newest initiative applies that thought process to a less familiar merchandise classification.  On Saturday, April 26, every one of Home Depot's 1,977 U.S. stores will host an hour and a half long "Water Conservation Workshop," in which 10 home improvement projects will be covered.

The emphasis will be on those things that help customers save the most water such as converting to a dual-flush toilet, switching to EPA WaterSense labeled showerheads and faucets, and installing drip irrigation and rotary nozzle or dual spray sprinklers.  Home Depot estimates its customers saved 42.5 billion gallons of water through the purchase of WaterSense labeled products.

"At The Home Depot, we're committed to helping our customers solve everyday home improvement challenges, and for many, water conservation is one of those challenges," said Joe McFarland, president of the retailer's western division where drought conditions have been extreme.  "We have the products and our associates have the know-how to help our customers identify water-saving solutions and implement them at home.  These workshops help us to share that knowledge with our communities and inspire residents to take action."

In addition to hosting workshops, Home Depot said it adjusted its in-store environment for hundreds of stores in the West, creating unique signage and shifting inventory and displays to help make customers more aware of the various actions they can take to conserve water.

"Conserving water is one of the most important things we can do for our communities, for our environment, and for our economy," said Nancy Stoner, EPA acting assistant administrator for water.  "WaterSense labeled products provide efficiency without sacrificing performance and their use will help communities throughout the country preserve their water resources."

Source: Retailing Today

So Long Winter. Retail Sales Spring Up In March

April 14, 2014

Warmer spring weather spurred continued consumer spending and activity this March.  According to the National Retail Federation, March retail sales, which exclude automobiles, gas stations and restaurants, increased 0.8% adjusted month-to-month and 1.6% unadjusted year-over-year.

"Consumers shed their winter coats last month for fresh, spring merchandise," NRF president and CEO Matthew Shay said.  "Retail sales increased in most categories and sectors as consumers took to stores to purchase new spring attire and home furnishings in hopeful expectation of warmer weather.  Sales should continue to remain positive this spring with the approach of Easter and expected tax refunds."

Earlier this month, NRF's Easter Spending Survey reported that the average American consumer will spend $137.46 this Easter holiday on clothing, candy, gifts and more, with total spending reaching $15.9 billion.

March retail sales, released today by the U.S. Census Bureau, which include categories such as automobiles, gasoline stations, and restaurants, increased 1.1% seasonally adjusted month-to-month ($433.9 billion).  The Census also reported that retail sales increased 2.8% adjusted year-over-year.

"Improving economic conditions and consumer confidence should push consumers to return to spending habits this spring," NRF chief economist Jack Kleinhenz said.  "Consumers released some pent-up demand in March after two consecutive months of harsh winter weather that not only hampered employment opportunities but also retail sales.  We remain optimistic that retail sales will continue their positive march this spring."

Additional findings from NRF's retail sales report include:

• Building material and garden equipment and supplies dealers stores' sales increased 1.8% seasonally-adjusted month-to-month and 6.2% unadjusted year-over-year.
• Clothing and clothing accessories stores' sales increased 1.0% seasonally-adjusted month-to-month yet decreased 2.3% unadjusted year-over-year.
• Electronics and appliance stores' sales decreased 1.6% seasonally-adjusted month-to-month and 2% unadjusted year-over-year.
• Furniture and home furnishing stores' sales increased 1% seasonally-adjusted month-to-month and 1% unadjusted year-over-year.
• General merchandise stores' sales increased 1.9% seasonally-adjusted month-to-month yet decreased 0.2% unadjusted year-over-year.
• Health and personal care stores' sales increased 0.3% seasonally-adjusted month-to-month and 4% unadjusted year-over-year.
• Nonstore retailers' sales increased 1.7% seasonally-adjusted month-to-month and 8% unadjusted year-over-year.
• Sporting goods, hobby, book and music stores' sales increased 0.3% seasonally-adjusted month-to-month yet decreased 5.5% unadjusted year-over-year.

Source: Retailing Today

Rite Aid Delivers 'Strong' Fourth Quarter, Acquires RediClinic

April 10, 2014

In the wake of acquiring Houston-based RediClinic, Rite Aid reported revenues of $6.6 billion for the fourth quarter ended March 1, resulting from a 2.2% lift primarily attributed to an increase in pharmacy same-store sales.

For the full year, Rite Aid reported $25.5 billion in revenues, up 0.5%.

For the quarter, the company reported net income of $55.4 million or $0.06 per diluted share, and adjusted EBITDA of $356.3 million, or 5.4% of revenues.  For the full year, Rite Aid reported net income of $249.4 million or $0.23 per diluted share, and adjusted EBITDA of $1.3 billion, or 5.2% of revenues.

"Thanks to the strong teamwork of our dedicated Rite Aid associates, we delivered strong fourth-quarter and fiscal 2014 results, including new company records for fourth-quarter and full-year adjusted EBITDA," stated Rite Aid chairman and CEO John Standley.  "These accomplishments reflect the significant progress we're making in executing key initiatives and delivering on our promise to actively work with our customers to keep them well," he said.  "Our recent acquisitions of Health Dialog and RediClinic, our expanded partnership with McKesson and our continued commitment to investing in our store base have positioned us to transition our strategy from turnaround to growth as we more aggressively pursue opportunities to become a growing retail healthcare company."

Same-store sales for the quarter increased 2.1% over the prior year, consisting of a 3.5% increase in pharmacy sales, partially offset by a 0.7% decrease in front-end sales.  Pharmacy sales included an approximate 123 basis point negative impact from new generic introductions.  The number of prescriptions filled in same stores decreased 1.8% over the prior year period, with 1.3% of this decrease being driven by a decrease in flu-related prescriptions and flu shots.  Prescription sales accounted for 67.5% of total drug store sales, and third party prescription revenue was 97.1% of pharmacy sales.

In the fourth quarter, the company relocated two stores, remodeled 94 stores and expanded three stores, bringing the total number of wellness stores chainwide to 1,215.  The company also closed eight stores, resulting in a total store count of 4,587 at the end of the fourth quarter.

Comparable sales for the year increased 0.7% consisting of a 1.2% increase in pharmacy sales, partially offset by a 0.2% decrease in front-end sales.  Pharmacy sales included an approximate 232 basis point negative impact from new generic introductions.  The number of prescriptions filled in same stores decreased 0.3% over the prior year period.  Prescription sales accounted for 67.9% of total drugstore sales, and third party prescription revenue was 97% of pharmacy sales.

For the year, the company relocated 11 stores, acquired one store, remodeled 405 stores, expanded four stores and closed 37 stores.

Rite Aid said it expects sales for fiscal 2015 to be between $26 billion and $26.5 billion with same-store sales expected to range from an increase of 2.5% to an increase of 4.5% over fiscal 2014.

The company's outlook for fiscal 2015 is based on the anticipated benefits of its wellness remodels, customer loyalty program, new pharmacy sourcing arrangement with McKesson and other initiatives to grow sales and drive operational efficiencies.  The company's outlook also considers planned wage and benefit increases, the introduction of new generics in the second half of fiscal 2015, generic drug price increases and a challenging reimbursement rate environment.

Capital expenditures are expected to be approximately $525 million.  This number does not include the purchases of Health Dialog or RediClinic, Rite Aid noted.

Source: Retailing Today

Family Dollar Makes Strategic Changes Following Disappointing Q2

April 10, 2014

Family Dollar plans to close 370 underperforming stores, cut jobs and lower prices on 1,000 basic items following a disappointing second quarter, which was adversely affected by the extra week in last year's quarter, severe weather, holiday promotions and a challenging consumer environment.

The company is also slowing its new store growth beginning in fiscal 2015 to bolster its return on investment.  It now anticipates opening 350 to 400 new stores as opposed to approximately 525 stores in 2014.

Net income in the quarter ended March 1 fell 35% to $90.9 million from $140.1 million in the year-ago period.  Net sales decreased 6.1% to $2.7 billion, from $2.9 billion.  Same-store sales declined 3.8% as a result of decreased customer transactions, partially offset by an increase in the average customer transaction value.

"Our second quarter results did not meet our expectations," said chairman and CEO Howard R. Levine.  "The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer.  In addition, like many retailers, our second quarter results were significantly impacted by severe weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses."

The job cuts and store closures are expected to reduce annual operating costs by $40 million to $45 million beginning third quarter of fiscal 2014.

Looking ahead, the company expects to record an estimated $85 million to $95 million restructuring charge in the second half of fiscal 2014 related to the workforce reductions and store closures.

For the third quarter of fiscal 2014, Family Dollar expects that same-store sales will decline in the low single digit range and for the fourth quarter of fiscal 2014, the company expects that same-store sales will be flat to up slightly.  Family Dollar also expects a low single digit increase in net sales during the full fiscal year.

Source: Retailing Today

Easter Sales Decline And Shift Online

April 9, 2014

Average spending per person is forecast to decline this Easter, despite pent up demand from a long cold winter.  

According to new consumer research from the National Retail Federation, fewer people will celebrate Easter this year and average spending per person will decline to $137 from $145 last year.  Total spending is expected to reach roughly $15.9 billion.  A key reason for the decline is that the number of Americans who said they plan to celebrate Easter fell to 80.3% this year compared to 83% last year.

"The winter doldrums left consumers with a lot of pent up demand, and though many Americans may take a cautious approach to spending on Easter items this year, retailers are anticipating that warmer weather will easily put consumers in the mood to buy bright clothes, holiday decorations and more," said NRF president and CEO Matthew Shay.  "As one of the biggest holidays of the year, retailers are looking forward to increased customer traffic in stores and online, and will roll out promotions on everything from garden supplies and patio sets to apparel and grocery items as they help their customer prepare for the holiday."

Though fewer Americans will celebrate this year, families are still looking forward to their traditional Sunday meals.  Those who do plan to celebrate will spend the most on a grocery bill for a family dinner or Sunday brunch out; according to the survey, 85.7 percent of those celebrating will spend an average of $43.18 on a holiday meal, totaling $5 billion.

Since the holiday traditionally marks the ceremonial start to spring, 42.9 percent will purchase new spring attire, spending an average of $22.71; total spending on apparel is expected to reach $2.6 billion.  Additionally, nine in ten (89.3%) of those celebrating will stock up on Easter candy, spending a total of $2.2 billion.  Families will also spend on gifts ($2.4 billion), flowers ($1.1 billion) and decorations ($1.1 billion).

Another notable shift relates to the number of people who now indicate that smartphones and tablets will play a greater role in their Easter decision-making.  Roughly one-third of those who own tablets said they would use the device to research products and compare prices, with the behavior most pronounced in the 18-24 year old age bracket, where 44% plan to use their tablets.  A similar phenomenon was evident with smartphones, where 23.4% of overall respondents said they would use their devices to research products, while 37.1% of those 18-24 plan to do so.

Many will use their smartphones to check off their Easter shopping list.  Of those who own smartphones, nearly one in four (23.4%) will use their device to research products or compare prices.  Just 12.2 percent will make an actual purchase with their smartphone.  Nearly one in five (19.2%) tablet owners will make a purchase on their device, but most will simply research holiday gifts, apparel and other items (30.2%).

"Americans are eager to dip their toes in the fresh green grass this Easter and celebrate the day with friends and family," said Prosper Insights and Analytics director Pam Goodfellow.  "Though they are planning to trim their budgets in terms of spending on food, clothes and gifts, most will look for personal and fun items that won't break the bank in order to enjoy the day."

 Sources: National Retail Fereration and Retailing Today

The Conference Board Employment Trends Index Increases In March

April 7, 2014

The Conference Board Employment Trends Index increased in March.  The index now stands at 117.52, up from 117.01 (an upward revision) in February.  This represents a 5.1 percent gain in the ETI compared to a year ago.

"The increase in the Employment Trends Index in the first quarter is signaling solid job growth in the coming months," said Gad Levanon, Director of Macroeconomic Research at The Conference Board.  "With GDP forecasted to average 2.5 to 3.0 percent through the end of this year, there is little reason to expect employment growth to slow any time soon."

March's increase in the ETI was driven by positive contributions from four of its eight components.  In order from the largest positive contributor to the smallest, these were: Initial Claims for Unemployment Insurance, Industrial Production, Number of Temporary Employees, and Real Manufacturing and Trade Sales.

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 

Labor Market Improving, Together With A Little Catch Up

April 4, 2014

The economy generated a gain of 192,000 jobs in March.  Undoubtedly, there was some catch up in hiring following the inclement weather this winter.  Still, the underlying hiring trend is encouraging, with more good news expected this spring and summer.  This confirms the signals from The Conference Board's Consumer Confidence Index and Leading Economic Index for the U.S.  More jobs means more pay checks, lifting sentiment and resulting in more consumer buying.  If demand is improving, business will respond by investing so as to supply the goods and services in demand.  The key, as always, is sustained job gains in the service sector including health and education.  If these numbers continue, the much-anticipated strengthening of the economy may materialize sooner rather than later.

Source: The Conference Board

Latest NAHB Index Reading Shows Recovery Continues To Spread

April 7, 2014

Of the approximately 350 metro markets nationwide, 59 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 11 metros year over year.

The index's nationwide score ticked up to .88 from a March reading of .87.  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, 28 percent of metro areas saw their score rise this month and 83 percent have shown an improvement over the past year.

"I think the big news here is that regions outside of the energy states continue to gain ground," said NAHB Chief Economist David Crowe.  "It's a promising sign to see areas like Los Angeles and San Jose joining the top ten largest MSAs showing a recovery.  We still expect 2014 to be a strong year for housing and to aid in the overall economic recovery.  The job market continues to mend and with that we will see a steady release of pent up demand of buyers."

Baton Rouge, Louisiana continues to top the list of major metros on the LMI, with a score of 1.42 - or 42 percent better than its last normal market level.  Other major metros at the top of the list include Honolulu, Oklahoma City, Austin and Houston, Texas, as well as San Jose, California and Harrisburg, Pennsylvania - all of whose LMI scores indicate that their market activity now exceeds previous norms.

"Things are getting slowly better overall," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  "And with the housing market now entering the spring buying season, the fact that the nation's economy is headed in the right direction is a very promising sign."

"Stronger employment numbers seemed to be the driving force this month - an important factor to the recovery of our economy," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report.

Smaller metros showing recovery continue to be dominated by the middle of the country experiencing an energy boom.  Odessa and Midland, Texas, boast LMI scores of 2.0 or better, with their markets 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 level of economic activity.

Source: National Association of Home Builders

Food Assortment, Prices Lowered At Family Dollar

April 1, 2014

In a move to increase traffic and grow sales, Family Dollar said it added 400 products to its food offerings and reduced prices on 1,000 other items.

As part of the rollout, the operator of more than 8,100 stores enlisted the aid of television personality, author and chef Pat Neely.  Plans call for Neely to participate in several special events including a recipe contest in which the challenge is to prepare a meal for four for under $15.  The contest winner will receive a cooking experience with Neely at his home in Memphis.

"At Family Dollar, our focus is solely on our customer.  It's important for us to constantly evaluate our assortment, making sure that we have the products and national brands that are relevant to her and her family, always at a great everyday value," said Jason Reiser, Family Dollar's chief merchandising officer.  "I am excited to add these new food items to our already robust assortment, and I am confident that our customers will be impressed by the expanded selection we have to offer."

According to Neely, Family Dollar stores have everything shoppers need to make delicious dishes at everyday low prices whether the occasion is a quick weeknight meal, fun lunch or famly reunion.

"Pat brings a down-to-earth style and flair that resonates with Family Dollar and our customers," Reiser said.  "We are excited to welcome Pat to the Family Dollar family.  He's a great ambassador for us as we expand our food assortment."

Source: Retailing Today

March 2014 Manufacturing ISM Report On Business - PMI At 53.7%

April 1, 2014

New Orders, Employment and Production Growing, Inventories Growing, Supplier Deliveries Slowing

Economic activity in the manufacturing sector expanded in March for the 10th consecutive month, and the overall economy grew for the 58th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.  The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

Manufacturing expanded in March as the PMI registered 53.7 percent, an increase of 0.5 percentage points when compared to February's reading of 53.2 percent.  A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy.  Therefore, the March PMI indicates growth for the 58th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 10th consecutive month.  Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (52.7 percent) corresponds to a 3.1 percent increase in real gross domestic product (GDP) on an annualized basis.  In addition, if the PMI for March (53.7 percent) is annualized, it corresponds to a 3.5 percent increase in real GDP annually."

Of the 18 manufacturing industries, 14 are reporting growth in March.

Source: Institute For Supply Management

NAHB Reveals Most Popular Features In New Homes

March 27, 2014

During New Homes Month in April, the National Association of Home Builders is sharing with home buyers the most popular features in new single-family homes in 2014.  Builders from across the country were surveyed on what features they were most likely to include in a typical single-family home this year, revealing that convenience, livability and energy efficiency are top priorities.

"Newly constructed homes can suit the specific requirements of today's home buyers," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  "And now is a great time to consider buying a new home, as consumers can take advantage of competitive home prices and low interest rates to find the perfect new home for their families."

Home builders are including features that are practical and functional for the daily lives of today's home buyers.  The features that are most likely to be included in a typical single-family home this year are: a walk-in closet in the master bedroom, low-e windows, a laundry room, and a great room.

Energy efficiency is a key theme with Energy-Star rated appliances, programmable thermostats and Energy-Star rated windows at the top of the list.  These features help make the home more comfortable and can save the home owner significant money over the long term.  On a median per square-foot basis, home owners spent 78 cents per square foot per year on electricity, while owners of new homes spent 65 cents per square foot per year, according to data from the 2009 American Housing Survey.

Builders also list features such as granite countertops, a double sink and a central island as winning elements in new-home kitchens, and a linen closet and a private toilet in the bathroom.  Additional features likely to be incuded throughout the home include first-floor ceilings at least nine feet high, a front porch, outdoor lighting, and a patio.

Source: National Association of Home Builders

Weather Trends: April 2014

March 28, 2014

Weather Trends International expects April 2014 to trend the coldest in five years and drier than last year for the U.S. as a whole.  Warmer year-on-year temperature trends in the Central states will be sandwiched in between colder trends on the East and West coasts.  A more active severe weather season than last year in the South Central states can be expected, especially across parts of Texas and Oklahoma.  Storm cleanup supplies and plastic sheeting will see increased demand in harder hit areas.  There is the potential for a hard frost and freeze through late in the month in the Northeast, Great Lakes and Ohio Valley, which could damage tender vegetation in garden centers.  Following another cold March, the start of the season for many spring categories will fall into the retail April month in the East, except for the Deep South where spring has already sprung.  Although the weeks before Easter on the East Coast will trend colder than last year, most of the colder trends will fall on the weekdays while the weekends look more favorable helping to drive holiday apparel and footwear demand.  Drier trends in Florida and the Midwest will be beneficial for store traffic and outdoor categories, but wetter weather in the Southwest and South Central states will inhibit traffic at times.

 

Source: Retailing Today, Weather Trends International

Fred's Fourth Quarter Takes Hit

March 27, 2014

Favorable tax credits and a 53rd week in fiscal 2012 affected Fred's net income results for the fourth quarter.  Severe weather also contributed some to the company's net sales decline, as did higher-than-normal utility bills and rising generic drug costs.

The company reported a substantial 34.5% decrease in its net income during the quarter of fiscal 2013, to $5.56 million from $8.49 million in the same quarter a year earlier.  Net sales declined 7.2% to $495 million from $533.4 million, and same store sales grew 0.1%.

"Our comapny's performance in the fourth quarter reflected all the difficulties that have been cited throughout the retail sector recently as we dealt with the unusually harsh weather of the past several months and a significant 24% increase in the cost of generic drugs, which reduced gross margin by 100 basis points in our pharmacy department," said CEO Bruce A. Efird.  "Operationally, we achieved earnings of $0.17 per share for the quarter."

During the full fiscal year, Fred's net income fell 12% to $26 million from $29.6 million and net sales dropped 0.8% to $1.94 million from $1.95 million.

Looking ahead, total sales for first quarter 2014 are expected to be flat to up 2%.  Same-store sales for the first quarter are expected to be flat to down 2% reflecting poor weather conditions and weather-related store closings that have affected Lawn & Garden and other seasonal merchandise.

Source: Retailing Today

The Wealth Effect And Consumer Spending

March 26, 2014

A recent Federal Reserve report shows that household finances have regained substantial ground since the Great Recession, driven largely by the run-up in home values and surge in stocks.  These positive forces have contributed to the highest level of wealth in our history - the net worth of U.S. households and nonprofits reached $80.7 trillion by the end of 2013.

The effect of wealth on consumption is an issue of longstanding interest to economists, which has sparked interesting research and debate.  As wealth accumulates, consumers increase confidence, and with it, consumer spending and the use of credit.  Based on this reasoning, economists are anticipating further growth and gains this year. 

However, not all wealth is created equal, and its impact on consumption and spending varies.  Housing prices have a larger role in consumer spending compared with financial wealth like stocks and bonds.  Here's how.

Housing Prices

As home prices rise, households regain equity (they owe less on their mortgage than the value of their home).  As a result, they may find it easier to sell, refinance or borrow.  Overall, equity as a share of real estate has reached 51.7%, the highest point since the recession.

The key to increased spending, though, is how individuals turn rising home values into cash.  How much depends on how easily individuals can borrow and the desire by banks to lend.  For every dollar increase in housing values, research has estimated that consumption increases between 6 and 9 cents.

Stocks and Bonds

Stocks and bonds amount to 35 percent of net worth, and are at the highest level in 15 years.  Compared with housing wealth, financial wealth is readily accessible and much easier to convert into cash.  With this ease, you might think its impact on spending would be larger than housing.  However, research has found just the opposite.  For every dollar change in financial wealth, consumer spending tends to only increase by 2 to 4 cents.

The reduced impact of financial wealth is largely due to the fact that it is not shared as broadly as housing wealth.  There are many more Americans with homes than financial investments.  However, some analysts believe that the wealth and consumption relationship may not stem from the direct effect of financial wealth on spending, but rather from a signaling channel.  That is, as stock prices rise and fall, household optimism about the economy may cause households to revise their expectations about their future wages and consumption.

Optimistic Expectations

In the coming months, higher home and equity values (the wealth effect) combined with the use of consumer credit, should add to the pace of consumer spending.  While take-home pay remains the primary source of consumer spending, access to credit also plays a large role into economic activity.

Even though consumers have taken advantage of extremely low interest rates to purchase big ticket items, that doesn't mean households are returning to pre-Great Recession spending habits.  It appears that there is more responsible borrowing on the part of consumers.  Credit card use has been extremely tepid as consumers remain hesitant to return to 2007-2008 behavior.  If consumers remain hesitant, their improved finances may not lead to big gains in spending.

I remain optimistic about consumer spending this year thanks to better employment prospects, a strengthening balance sheet and an expected uptick in after-tax income that makes it easier to finance debt dependent purchases.

This optimism is tempered with the reality that rising interest rates could otherwise thwart consumer attitudes toward spending and borrowing.  If interest rates begin to rise, it would make it more expensive for households to access and utilize credit and limit the increase in home prices.  Alternatively, if interest rates remain steady as we expect, consumers should gain more confidence as the employment situation improves, spurring additional spending and economic activity throughout 2014.

Source: National Retail Federation

Walgreens Sees Top-Line Growth In Second Quarter

March 25, 2014

Despite expected headwinds from slower generic drug introductions, comparisons with last year's flu season and severe weather, Walgreens saw solid top-line growth in the second quarter ended February 28, driven by record quarterly sales and record second quarter prescriptions filled.

The company also continued to gain prescription market share while maintaining a firm hold on its costs. 

Walgreens posted a sales increase of 5.1% to $19.6 billion for the quarter.  First half sales were up 5.5% to $37.9 billion.

Prescription sales, which accounted for 62.2% of sales in the quarter, increased 7%, while prescription sales in comparable stores increased 5.8%.  The company filled 214 million prescriptions in the quarter, an increase of 2.8% over last year's second quarter.  Prescriptions filled in comparable stores increased 2.2% in the quarter.  As of February 28, Walgreens increased its retail prescription market share 20 basis points from a year ago to 19% as reported by IMS Health on a 30-day adjusted basis.

Walgreens also saw strong growth in prescriptions filled for Medicare Part D patients, which increased 16% in the second quarter compared with last year's quarter, while the company's Part D market share increased 80 basis points in February compared with the same month a year ago.  "Our Medicare Part D program is accelerating our momentum in pharmacy," Greg Wasson, president and CEO Walgreens, told analysts.  "As we move forward we are well positioned with senior customers as a preferred provider in four of the top national plans," he said.

And Walgreens has been recognized by patients and payers for tightly integrating its health and wellness services with its retail clinic offerings, Wasson said.  Patients appreciate the convenience of services and payers view Walgreens as an emerging alternative healthcare model and part of the patient care delivery team, he said.  "To help meet this growing demand, we have a goal to add nearly 100 new Healthcare Clinic locations in calendar 2014 on top of our 400 current retail clinics."

In addition, Walgreens has grown its 90-day at retail business substantially.  The 90-day at retail prescriptions were up 15%, Wasson said.  "For perspective, our 90-day at retail alone is as large as one-third of the total mail market industry," Wasson said.

The total number of all CDC-recommended immunizations and vaccines administered by Walgreens reached 8.6 million in the first half of the fiscal year, an 11% increase over the previous year.

Front-end comparable store sales increased 2% in the second quarter, customer traffic in comparable stores decreased 1.4% and basket size increased 3.4%, while total sales in comparable stores increased 4.3%.

"We head into the second half of the year with nearly 80 million active members in our Balance Rewards loyalty program and with expectations that the generic drug headwind that affected the first half will ease and turn around by the end of the year," Wasson added.  "With 80 million active members - we now have the largest loyalty program in the industry," he told analysts.

The company is leveraging insights from its Balance Rewards loyalty program to provide customers with more value and simplified promotions.  Balance Rewards reached a milestone in February with more than 100 million enrollees and nearly 80 million active members at the end of this year's second quarter.

Walgreens is also leveraging its omnichannel reach across all sales channels, Wasson said.  "Today, 9 million customers touch the Walgreens brand every day - at our stores, over the web or through mobile channels - making Walgreens a true omnichannel provider."

"In addition, our joint synergy program with Alliance Boots is expected to exceed its second-year estimate, and we are bringing critical elements of the Well Experience to additional stores," Wasson noted.  Wasson noted there are now 628 Well Experience stores across the nation.

The combined synergies for Walgreens and its strategic partner, Alliance Boots, in the first half of fiscal 2014 were approximately $236 million.  The joint synergy program is now estimated to deliver second-year combined synergies of $375-$425 million, an increase from the previous second-year estimate of $350-$400 million.

Walgreens also announced Tuesday that as part of its efforts to optimize the company's asset base, it plans to close 76 drug stores during the second half of fiscal 2014.  Including these store closures, Walgreens still expects a net increase in its store count in fiscal 2014 of approximately 55-75 locations.  "While we seize the opportunity for store growth as the population ages and consumers look to community pharmacy for their health care needs, we also continue to focus on optimizing our assets and organization to position Walgreens for our future as a global company," Wasson said.

The store closures represent less than 1% of Walgreens' store base, Wasson added.

In the fiscal 2014 second quarter, the company opened or acquired 28 new drug stores compared with 29 in the year-ago quarter.

At February 28, Walgreens operated 8,681 locations in all 50 states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands.  The company has 8,210 drug stores nationwide, 138 more than a year ago.  Walgreens also operates worksite health and wellness centers, infusion and respiratory services, specialty pharmacies and mail service facilities.  Its Take Care Health Systems subsidiary manages more than 700 in-store convenient care clinics and worksite health and wellness centers.

Source: Retailing Today 

New Home Sales Continue To Trend Relatively Flat In February

March 25, 2014

Sales of newly built, single family homes fell 3.3 percent to a seasonally adjusted annual rate of 440,000 units in February, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

"There is no doubt that the persistently bad weather took a toll on sales in February," said Kevin Kelly, chairman of the National Association of Home Builders and a home bulder from Wilmington, Delaware.  "However, builders continued to increase their inventory of for-sale homes, indicating they still anticipate a relatively strong spring buying season."

"We still expect 2014 will be a strong year for housing," said NAHB Chief Economist David Crowe.  "The first two-month average of 2014 is exactly in line with where 2013 left off.  If not for the unusual weather, we would easily be ahead of last year's pace.  We also continue to see household formations and pent-up demand sales forward."

Regionally, new home sales activity fell 32.4 percent in the weather-battered Northeast, 1.5 percent in the South and 15.9 percent in the West.  The Midwest posted a gain of 36.7 percent, stemming from an unusually low January figure.

The inventory of new homes rose to 189,000 units in February, a 5.2 month supply at the current sales price.

Source: National Association of Home Builders

The Conference Board Consumer Confidence Index Rebounds In March

March 25, 2014

The Conference Board Consumer Confidence Index, which had decreased in February, improved in March.  The Index now stands at 82.3, up from 78.3 in February.  The Present Situation Index edged down to 80.4 from 81.0, while the Expectations Index increased to 83.5 from 76.5.

"Consumer confidence improved in March, as expectations for the short-term outlook bounced back from February's decline," said Lynn Franco, Director of Economic indicators at The Conference Board.  "While consumers were moderately more upbeat about future job prospects and the overall economy, they were less optimistic about income growth.  The Present Situation index, which had been on an upward trend for the past four months, was relatively unchanged in March.  Overall, consumers expect the economy to continue improving and believe it may even pick up a little steam in the months ahead."

Consumers' assessment of current conditions was little changed in March.  Those claiming business conditions are "good" increased to 22.9 percent from 21.2 percent; however, those claiming business conditions are "bad" also rose, to 23.2 percent from 22.0 percent.  Consumers' appraisal of the labor market was relatively unchanged.  Those claiming jobs are "plentiful" decreased marginally to 13.1 percent from 13.4 percent, while those saying jobs are "hard to get" increased slightly to 33.0 percent from 32.4 percent.

Consumers' expectations, which fell last month, rebounded in March.  The percentage of consumers expecting business conditions to improve over the next six months increased to 18.1 percent from 17.3 percent, while those anticipating business conditions to worsen declined to 10.2 percent from 13.6 percent.  Consumers' outlook for the labor market was also moderately more optimistic.  Those expecting more jobs in the months ahead edged up to 13.9 percent from 13.7 percent, while those expecting fewer jobs fell to 18.0 percent from 20.9 percent.  The proportion of consumers expecting their incomes to grow declined to 14.9 from 15.8 percent, but those anticipating a decline in their incomes also decreased to 12.1 percent from 13.4 percent.

Source: The Conference Board