Kroger And Costco Outshine Walmart

March 6, 2014

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

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

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

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

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

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

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

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

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

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

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

Source: Retailing Today

Sales Solid, But Holidays Pressured Profits At Costco

March 6, 2014

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

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

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

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

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

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

Source: Retailing Today

Staples Digital Reinvention Results In 225 Store Closures

March 6, 2014

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

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

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

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

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

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

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

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

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

Source: Retailing Today

Winter No March For Walgreens In Second Quarter

March 5, 2014

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

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

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

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

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

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

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

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

Walgreens opened eight stores during February, including five relocatons.

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

Source: Retailing Today

New Details Shared On Walmart's Small Formats

March 6, 2014

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

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

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

Source: Retailing Today

Leading Markets Index Shows 59 Metros At Or Above Normal Levels In March

March 6, 2014

Markets in 59 out of the approximately 350 metro areas nationwide 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 one from the previous month.

The index's nationwide score held steady at .87.  This means that based on current permits, prices and employment data, the nationwide average is running at 87 percent of normal economic and housing activity.  Meanwhile, 32 percent of metro areas saw their score rise this month and 84 percent have shown an improvement over the past year.

"Despite the cold weather that has constrained economic and housing activity across much of the nation this winter, markets are returning to normal levels," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  "As the job and housing markets continue to mend and the onset of spring releases the pent-up demand for new homes, this will bode well for the remainder of 2014."

"The strong energy sector is at the forefront of the recovery and centered in many small and mid-sized markets in Texas, Louisiana, North Dakota and Wyoming," said NAHB Chief Economist David Crowe.  "In fact, these four states account for eight of the top 10 markets on the LMI and 45 percent of the markets that are at or above normal."

"The number of markets on this month's LMI at or above 90 percent of previous norms has climbed to 130 - a positive trend to watch as the year progresses," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

Baton Rouge, Louisiana, tops the list of major metros on the LMI, with a score of 1.41 - or 41 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 Harrisburg, Pennsylvania and Pittsburgh - all of whose LMI scores indicate that their market activity now exceeds previous norms.

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

Lowe's Appoints Chief Customer Officer

March 4, 2014

Lowe's has named Michael A. Jones as the company's chief customer officer, effective April 30.  Jones currently serves as Lowe's chief merchandising officer, overseeing the full merchandise offering for all Lowe's U.S. stores and Lowes.com, as well as all global sourcing activities.

Jones will succeed Gregory M. Bridgeford, who plans to retire after 32 years with the company. In his new role, Jones will be responsible for overseeing customer experience design, merchandising, marketing and communications and digital interfaces.

"I am confident that Mike is the right person to succeed Greg as chief customer officer.  During the past 14 months, Mike and Greg have worked closely together and have made terrific progress in further elevating and enhancing the Lowe's customer experience," said chairman, president and CEO Robert A. Niblock.  "In assuming this new role, Mike brings extensive leadership experience, expertise in key product categories relevant to the home improvement business, understanding of the need for vendor collaboration, and a clear focus on the customer.  We look forward to his further contributions to Lowe's."

Jones joined Lowe's in January 2013 with more than a decade of executive leadership experience in sales, service, product management and international business, serving with Husqvarna as president and EVP for North and Latin America from 2009 until joining the company in 2013.  Before his role at Husqvarna, Jones spent 15 years at General Electric, where his most recent role was general manager of global cooking products from 2007 to 2009.  Jones received a bachelor's degree in business administration from California Coast University in Santa Ana, California.

"At the same time, Lowe's thanks Greg for his extraordinary dedicaton to the company throughout the past three decades," added Niblock.  "As Lowe's has grown from a regional hardware chain in the 1980s to the nation's second-largest home improvement company today, Greg has been a valued member of our organization.  Two years ago, I asked Greg to delay his retirement plans and assume the role of chief customer officer to lead our efforts as we became a more customer-focused enterprise.  Greg has built a world-class team that is executing on our strategy, so that the timing is now right for Greg to pass the baton to Mike.  We wish greg all the best in his retirement."

Bridgeford was promoted to chief customer officer in 2012, after serving as EVP of business development since 2004.  Bridgeford joined Lowe's in 1982 as executive assistant to the chairman, and has served in a variety of increasingly responsible positions, including VP of corporate development, SVP of merchandising/general merchandising manager, SVP of marketing, and SVP of business improvement, and real estate, engineering and construction.  Bridgeford has a bachelor's degree in psychology from the University of Virginia and earned an MBA from Wake Forest University.

Source: Retailing Today

Home Depot Advancing Omnichannel Agenda

March 4, 2014

The nation's leading home improvement retailer is no stranger to e-commerce, but its efforts to offer a more robust omnichannel experience took a major step forward recently with the opening of the company's first direct fulfillment center.

The approximately 1 million sq. ft. facility less than an hour south of Atlanta in the community of Locust Grove is the first of three new direct fulfillment centers Home Depot plans to build in the next two years.  The other two facilities, strategically located in Perris, California, and Troy, Ohio, will stock more than 100,000 items, which are capable of being shipped to 90% of zip codes in the United States within 48 hours.

"We tried to look at it from the customer's perspective of how they want to be supported instead of designing a facility based on how we want to support customers," said Scott Spata, Home Depot's VP of distribution.  "These facilities are designed for same-day order picking and they will also allow us to experience out of stocks less often."

In addition to accelerating shipments to customers and more reliablle in-stock levels, Spata said the DFCs combined with a network of more than 2,000 stores will help the company more effectively satisfy shoppers' expectations for a seamless experience.  Currently, about one third of Home Depot's e-commerce volume results from shoppers who buy online and have their goods shipped from DFCs to stores, or shoppers who buy online and pick up goods that are already stocked at the stores.

An even more extensive assortment of more than 500,000 items is available from what Spata called the long tail of the Home Depot's product offering.  While the company can satisfy the majority of shoppers' needs between the 35,000 items in stores and the 100,000 items in DFCs, a more extensive assortment is available from the company's vendor-direct program.

"It is a seamless experience for the customer," Spata said, referring to orders placed on HomeDepot.com that are fulfilled directly by suppliers.

To further develop its omnichannel capabilities, Home Depot expects to pilot this year ship-from-store capabilities and refine the processes on how products ordered online and returned to stores are returned to distribution centers or made available for sale.  "Buy online, return in stores has been an absolute homerun for customers," Spata said.

However, those items are then accumulated in stores for shipment back to the DFC since Home Depot doesn't allow non-store SKUs returned to stores to be sold in stores.  That may change over time as the company's e-commerce volume builds, but for now the approach involves leveraging back haul capabilities and the creation of regional reclamation centers to more efficiently process returns.

While Home Depot has considerable work ahead to execute its omnichannel vision, the company has enjoyed tremendous e-commerce growth.  About the time the DFC opened last month, Home Depot CEO Frank Blake reported the company's U.S. stores produced a 4.9% comp increase and e-commerce sales grew by 50%.

"Our online customer satisfaction scores improved as we continued to enhance the experience across our full site, mobile and tablet and we're seeing accelerated improvement in our conversion rates," Blake said.

Those metrice are poised to improve going forward as the company integrates its new DFC into the supply chain and takes the locations in California and Ohio online.

Source: Retailing Today

February 2014 Manufacturing ISM Report On Business - PMI At 53.2%

March 3, 2014

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

Economic activity in the manufacturing sector expanded in February for the ninth consecutive month, and the overall economy grew for the 57th 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 (ISM) Manufacturing Business Survey Committee. 

Manufacturing expanded in February as the PMI registered 53.2 percent, an increase of 1.9 percentage points when compared to January's reading of 51.3 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 February PMI indicates growth for the 57th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the ninth consecutive month.  Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the PMI for January and February (52.3 percent) corresponds to a 3 percent increase in real gross domestic product (GDP) on an annualized basis.  In addition, if the PMI for February (53.2 percent) is annualized, it corresponds to a 3.3 percent increase in real GDP.

As in January, several comments from the panel mention adverse weather conditions as a factor impacting their businesses in February.  Other comments reflect optimism in terms of demand and growth in the near term.

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

Source: Institute For Supply Management

The Home Depot Makes Changes To Executive Team

February 28, 2014

The Home Depot has promoted Craig Menear to president, U.S. retail.  Menear was previously EVP, merchandising, responsible for all merchandising departments and merchandising services and strategy; the company's supply chain network; global sourcing; vendor management; marketing; and online sales.

In his new role, Menear will add responsibility for all U.S. store operations, with Marvin Ellison, EVP, U.S. stores, reporting to Menear.

The company also announced that Mark Holifield, SVP, supply chain, has been elevated to EVP, supply chain and product development, with responsibility for sourcing and proprietary brands.  Holifiled will continue reporting to Menear.

"Craig is a world-class retailer and has done a terrific job in recent years leading some of the most important and successful initiatives in our company," said chairman and CEO Frank Blake.  "And Mark has successfully led one of the most extensive supply chain transformations in retail history.  Both are very deserving of their new leadership roles, and I look forward to their continuing contributions to our business."

Menear, a 34 year retail veteran, joined the Home Depot in 1997 as a merchandising manager in the company's Southwest Division, and steadily rose through the company's merchandising ranks to his current position.  Prior to joining the company, Menear held various merchandising positions at other retailers including Ikea, Builders Emporium, Grace Home Centers and Montgomery Ward, as well as operating an independent retail business.

Holifield has more than 30 years of experience in supply chain management.  He joined the Home Depot in 2006 to design and implement a complete transformation of the company's supply chain and logistics infrastructure, resulting in steadily improving inventory turns and in-stock levels.  Prior to the Home Depot, Holifield spent 12 years at Office Depot in supply chain roles of increasing responsibility, and earlier in his career, held supply chain roles at Frito-Lay and H.E. Butt Grocery.

Source: Retailing Today

Sears Narrows Loss In Fourth Quarter

February 27, 2014

As far as sales go, Sears Holdings didn't have a very happy holiday.  But the company was still able to narrow its loss for the fourth quarter, as it lowered expenses and reduced inventory.

The company said the costs of transforming into a member-centric retailer using an integrated online platform and the omnichannel Shop Your Way membership program fueled its net losses.  It attributed declining revenues to lower same store sales and having fewer stores in operation.

Sears lost $358 million for the period ended February 1, compared with a loss of $489 million a year ago.

Sales dropped 14% to $10.6 billion, from $12.3 billion.  Same store sales fell 6.4%.  At Sears stores, the metric was down 7.8%.  It fell 5.1% at Kmart.

For the fiscal year, Sears reported a net loss of $1.4 billion, compared to a $930 million net loss in the previous fiscal year.

Revenues also declined during the fourth quarter and fiscal year.  Quarterly revenues dropped 14% to $10.6 billion from $12.3 billion, and annual revenues declined 9% to $36.2 billion from $39.9 billion.  Same store sales declined 3.8%, with decreases of 3.6% at Kmart and 4.1% at Sears Domestic.

"During 2013, we made progress in our continuing transformation into a member-centric retailer leveraging Shop Your Way and integrated retail, which we believe will position us for enhanced growth and profitability to create long-term shareholder value," said Edward S. Lampert, Sears Holdings' chairman and CEO.  "Our full year results are impacted during this transformation as we continue supporting traditional promotional programs and marketing expenditures while we invest in our Shop Your Way program and integrated retail strategy.  We have been investing hundreds of millions of dollars annually in our transformation and will continue to invest in the future of the company."

The company said it continues to explore "strategic alternatives" for its auto centers and Lands' End business.

Source: Retailing Today

J.C. Penney's Q4 Shows Signs Of Progress

February 26, 2014

In a sign of some progress in its turnaround efforts, J.C. Penney reported a net profit of $35 million for the fourth quarter ended February 1, compared to a loss of $552 million a year ago.  Excluding a tax benefit and other items, Penney had a loss of $206 million for the quarter.

Looking forward, the company expects same store sales to increase approximately 3% to 5% for the first quarter and to increase mid-single digits for the full year 2014.

Net sales for the quarter fell 2.6% to $3.78 billion from $4.88 billion in the year ago quarter, which included an additional 53rd week.  Analysts had expected $3.85 billion.

Same-store sales rose 2% for the quarter, with holiday sales up 3%.  Online sales were $381 million for the quarter, up 26.3% versus the same period last year, excluding the 53rd week.

The company's top performing merchandising divisions were home, men's apparel, women's accessories and Sephora.

"J.C. Penney achieved what it set out do to on a number of important fronts in 2013," said CEO Myron Ullman.  "We stabilized our business, both financially and operationally, and restored our process disciplines, promotions, inventory levels and focus on the customer.  As a result, we generated positive comparable store sales in the fourth quarter and ended the year with more than $2 billion in total available liquidity."

For the full year, the company reported an operating loss of $1.42 billion, which includes $215 million of restructuring and management transition charges.

Ullman said the retailer's turnaround is gaining momentum.  "With the most challenging and expensive parts of the turnaround behind us, we will focus on improving gross margin, managing expense and steadily growing our sales in 2014.  Our strategic plan seeks to enhance performance across all of the key drivers of our business: merchandising, marketing, store experience, jcp.com, our teams, and our operations.  The goal is to deliver consistently improving financial results, and to restore J.C. Penney as a leader in American retail."

Source: Retailing Today

Target Data Breach May Affect Future Profits

February 26, 2014

Target continues to cope with the fallout of a data breach, which, as expected, hurt the company's fourth quarter results.  The company incurred $61 million in expenses related to the breach during the quarter, but was able to bring the total impact to $17 million after applying a $44 million insurance payment.

But the retailer added that it is not only unable to estimate future expenses related to the data breach but also warned that those costs may adversely affect operations results in the first quarter and full year 2014 and future periods.

Expenses may include payments associated with potential claims by the payment card networks for alleged counterfeit fraud losses and non-ordinary course operating expenses (such as card re-issuance costs), REDcard fraud and card re-issuance expense, payments associated with civil litigation, governmental investigations and enforcement proceedings, expenses for legal, investigative and consulting fees and incremental expenses and capital investments for remediation activities.

"For more than 50 years Target has succeeded by focusing on our guests," said chairman, president and CEO Gregg Steinhafel.  "During the first half of the fourth quarter, our guest-focused holiday merchandising and marketing plans drove better-than-expected sales. However, results softened meaningfully following our December announcement of a data breach.  As we plan for the new fiscal year, we will continue to work tirelessly to win back the confidence of our guests and deliver irresistible merchandise and offers, and we are encouraged that sales trends have improved in recent weeks."

Net earnings dropped to $520 million from $961 million in the prior year period.  Sales decreased 6.6% to $20.9 billion from $44.4 billion last year, reflecting the impace of an additional accounting week in 2012 as well as a 2.5% decrease in comparable-store sales, partially offset by the contribution of new stores.

Target operates 1,917 stores: 1,793 in the United States and 124 in Canada.

Source: Retailing Today

Office Depot Focuses On Global Growth Following Q4

February 25, 2014

Since Office Depot completed its merger transaction with Office Max November 5, 2013, the company has been aggressively executing its integration plan.  The company's fourth quarter results for the period ended December 28, 2013 include OfficeMax's operations, which generated $939 million of sales.

Chairman and CEO Roland Smith said that the company is focused on a number of key priorities, which include creating a lean organization with clear roles and accountabilities as well as defining its vision, mission and long-term global growth strategy.  Smith anticipates that the company's comprehensive reorganization will be completed by the end of the month.

"For 2014, we are committed to delivering not less than $140 million of adjusted operating income," he added.

Total sales for the quarter increased 33% to $3.5 billion compared to the prior year quarter.  The company also reported an operating loss of $118 million for the quarter compared to operating income of $5 million in the prior year quarter, and a net loss attributable to common stockholders of $144 million, or $0.34 per share, compared to a net loss of $17 million, or $0.06 per diluted share in the prior year quarter.  The reported results include merger-related expenses, asset impairment and other charges.

Following the merger with Office Max, divisional reporting was aligned to the three divisions historically utilized by Office Depot: North American Retail, North American Business Solutions, and International.  The former OfficeMax U.S. Retail business is included in North American Retail, the former Office Max U.S. Contract and Canada businesses are included in Business Solutions and the former Office Max businesses in Australia, New Zealand and Mexico are included in International.

North American Retail Division sales in the quarter increased 31% to $1.4 billion compared to the prior year quarter, primarily reflecting $384 million of sales from the OfficeMax stub period, from the merger closing date to December 28.  Same-store sales decreased 4% primarily due to lower average order values and lower transaction counts, resulting from decreased store traffic.

Office Depot ended 2013 with a total of 1,912 retail stores in the North American Retail Division, made up of 1,089 Office Depot branded locations and 823 OfficeMax branded locations.  During the fourth quarter of 2013, the company closed 16 Office Depot stores and seven OfficeMax stores, and opened one store under each brand.

Business Solutions Division sales increased 54% to $1.2 billion in the quarter compared to the prior year period, primarily reflecting $422 million of sales from the OfficeMax stub period.

International Division sales increased 15% to $911 million in the quarter - an increase of 12% on a constant currency basis - compared to the prior year period, including $133 million of sales from the OfficeMax stub period.

Source: Retailing Today

Weather Trends: March 2014

February 27, 2014

Weather Trends International expects March 2014 to trend similar in temperature to last year and below normal for the U.S. as a whole.  The month starts out with cold, possibly record-breaking in the North, along with some potentially snowy and/or icy weather as a storm system moves through.  Colder trends linger into the second week of the month, but toward St. Patrick's day, temperatures look to take a turn toward trending warmer than last year.  Unfortunately, following a lousy March for spring categories in 2013, this year will be similar temperature-wise across much of the North with some improvement arriving toward the mid to latter half of the month.  In the West, temperatures will trend cooler than last year but still near or above normal.  Like last year, this year is expected to be snowier than normal with much of the East seeing similar amounts to last year and the Mountain West will see a significant boost in snowfall, especially in weeks two, four and five.  Overall, spring categories, like apparel and sun care, will start the month off very weak, but some improvement will arrive around mid-March.  Demand for spring categories will be generally flat to last year, except in the Southeast where warmer temperature trends are expected.

Source: Retailing Today, Weather Trends International

The Conference Board Consumer Confidence Index Declines Moderately

February 25, 2014

The Conference Board Consumer Confidence Index, which had increased in January, fell moderately in February.  The Index now stands at 78.1, down from 79.4 in January.  The decline was driven by the Expectations Index, which dropped to 75.7 from 80.8.  The Present Situation Index, by contrast, climbed from 77.3 to 81.7.

"Consumer confidence declined moderately in February, on concern over the short-term outlook for business conditions, jobs, and earnings," said Lynn Franco, Director of Economic Indicators at The Conference Board.  "While expectations have fluctuated over recent months, current conditions have continued to trend upward and the Present Situation Index is now at its highest level in almost six years (April 2008, 81.9).  This suggests that consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead."

Consumers' appraisal of current conditions improved for the fourth consecutive month.  Those claiming business conditions are "good" increased to 21.5 percent from 20.8 percent, while those claiming business conditions are "bad" declined to 22.6 percent from 23.4 percent.  Consumers' assessment of the labor market also improved.  Those claiming jobs are "plentiful" increased to 13.9 percent from 12.5 percent, while those saying jobs are "hard to get" decreased slightly to 32.5 percent from 32.7 percent.

Consumers' expectations, which had been improving over the past two months, retreated in February.  The percentage of consumers expecting business conditions to improve over the next six months decreased to 16.3 percent from 17.0 percent, while those anticipating business conditions to worsen increased to 13.3 percent from 12.2 percent.  Consumers' outlook for the labor market was also more pessimistic.  Those expecting more jobs in the months ahead declined to 13.3 percent from 15.1 percent, while those anticipating fewer jobs increased to 20.6 percent from 19.0 percent.  The proportion of consumers expecting their incomes to increase declined from 16.6 percent to 15.4 percent, but those anticipating a decrease in their incomes also declined, from 13.9 percent to 13.1 percent.

Source: The Conference Board

Winter Weather Affects Macy's Fourth-Quarter Results

February 25, 2014

Despite an 11% profit increase in the fourth quarter, sales at Macy's missed forecasts as ongoing winter storms hurt the retailer's results in January.

Macy's reported net income of $811 million during the fourth quarter, up 5% from $730 million in the same period a year earlier.  Sales dropped 1.6% to $9.2 billion from $9.35 billion.  Analysts had expected a more modest decline to about $9.28 billion.  Same-store sales grew 1.4% for the quarter, less than the 2.5% projected by Wall Street.

During the full fiscal year, net income rose 19% to about $1.45 biooion.  Net sales totaled $27.93 million, up 0.9% from $27.69 million.  Same-store sales increased 1.9%.

Although same-store sales in November and December 2013 rose 3.6% due to strong holiday performance, a worse-than-expected post-holiday slump in January 2014 led to Macy's net sales loss for the quarter.  Macy's said severe weather resulted in 244 Macy's and Bloomingdale's stores across the country being shut down at some point during the month.

Macy's credited part of its net income growth to its ability to place more of the 2,500 employees who were laid off in January 2014 into new jobs than it had expected.  In addition, Macy's said its core business strategies, My Macy's localization, omnichannel integrationand magic selling, which are known by the acronym of M.O.M, helped drive profitability and will continue to do so in the future.

"As has been the case since we began implementing these strategies in the 2008/2009 period, our competitive advantage is in the unique combination of localization, omnichannel and enhanced customer engagement," said president, chairman and CEO Terry J. Lundrgen.  "Customers are able to shop for and buy the products that they want and prefer in our stores, via mobile devices and on computers in a shopping environment that delivers outstanding value and is supported with great service."

The company is reiterating its annual sales and earning guidance, initially provided January 8.  Same-store sales growth in fiscal 2014 is expected in the range of 2.5-3%.  Earnings of $4.40 to $.50 per share are expected in 2014.

The company also announced plans for new Macy's stores in Sarasota, Florida; Las Vegas; and the Bronx, New York, in fiscal 2014.  A new Bloomingdale's will open in Palo Alto, California, to replace an older store in the same shopping center.

Source: Retailing Today

Lowe's Delivers In Q4 Despite Severe Winter Weather

February 26, 2014

Severe winter weather was no match for Lowe's in the fourth quarter.  The company reported sales of $11.7 billion, up 5.6% from the same quarter last year, as comps increased 3.9%.  The company also posted fourth-quarter net earnings of $306 million, up 6.3%.

"During the quarter, we delivered solid performance in core home improvement categories, balancing softer sales of seasonal gifts and holiday decorations," said CEO Robert Niblock.  "When extreme winter weather arrived late in the quarter, our distribution network responded quickly and efficiently to move product where it was most needed."

For the full year, sales reached $53.4 billion, a 5.7% increase over 2012 sales.  Comps for the year finished at 4.8%, as net income surged 16.7% to $2.3 billion.

Looking ahead, Lowe's expects total sales for fiscal 2014 to increase about 5%, and comparable store sales to increase about 4%.  The company expects to open about 15 home improvement stores and five Orchard Supply hardware stores.

Niblock added that he was pleased with the progress Lowe's made during 2013 and that the retailer continues to "transform."

As of January 31, Lowe's operated 1,832 stores in the U.S., Canada and Mexico.

Source: Retailing Today

Calendar Shift Affects The Home Depot's Fourth Quarter

February 25, 2014

Although the Home Depot's overall sales missed analysts' expectations, the retailer said the calendar shift, which resulted in one fewer week in the fourth quarter compared to the prior year quarter, affected its results.

The world's largest home improvement retailer reported fourth quarter total sales of $17.7 billion, down 3% from the same quarter last year, which benefited from an extra week in the calendar.  On a 13 week basis, the company's sales actually increased 3.9%.

Comp-store sales in the quarter increased 4.4% company-wide and 4.9% in the United States.  Net earnings were $1.01 billion, down slightly from $1.02 billion a year ago.

For the full year, the company pointed to strong performances across the board.  Net sales increased 5.4% to $78.8 billion - excluding the 53rd week from the prior year, the increase was 7.2%.  Comp-store sales increased 6.8% for the company, and increased 7.5% for the U.S.

"In 2013, we posted our strongest comp sales growth in 14 years as solid execution and the recovering housing market aided our performance," said Frank Blake, CEO and chairman.

Looking ahead, the company expects sales growth of about 4.8% in 2014, with comp-store sales growth of about 4.6%.  The company's guidance also called for seven new stores.

Source: Retailing Today

Heavy Markdowns Hurt Dillard's In Q4

February 24, 2014

Dillard's CEO William T. Dillard II voiced disappointment in the retailer's gross margin performance despite what he called a profitable fourth quarter.  Although comparable sales gew 2%, the retailer said lower-than-expected sales necessitated heavy markdowns.

The company reported a net income of $119.1 million for the quarter and fiscal 2014, a 26% decline from $161.4 million for the same period a year earlier.  Net sales in the fourth quarter declined 3% to $2.03 billion from $2.1 billion.  During the fiscal year, net income dropped about 4% to $323.7 million from $336 million, and net sales slightly declined to $6.53 billion from $6.59 billion.  Same-store sales rose 1%.

Looking ahead, Dillard's plans to open two new stores in October 2014: a 200,000 sq. ft. location in The Shops at Summerlin in Las Vegas and a 180,000 sq. ft. location in The Mall at University Town Center in Sarasota, Florida.

Source: Retailing Today