Author: Helen Thomas

August 8, 2014

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

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

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

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

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

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

Source: Retailing Today

August 7, 2014

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

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

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

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

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

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

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

Fred’s currently operates 704 discount general merchandise stores.

Source: Retailing Today

August 7, 2014

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

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

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

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

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

Source: Retailing Today

August 7, 2014

Builder confidence in the single-family 55+ housing market for the second quarter is up year over year, according to the National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today.  Compared to the second quarter of 2013, the single-family index increased three points to a level of 56, which is the highest second quarter reading since the inception of the index in 2008 and the 11th consecutive quarter of year over year improvements.

“We have seen steady improvement in the 55+ housing sector as buyers and renters are attracted to new homes that offer many of the luxuries and conveniences they desire,” said Steve Bomberger, chairman of NAHB’s 50+ Housing Council and president of Benchmark Builders Inc. in Wilmington, Delaware.  “55+ buyers are very selective and have high expectations, and new construction can meet their needs and discerning tastes.”

There are separate 55+ HMIs for two segments of the 55+ housing market: single-family homes and multifamily condominiums.  Each 55+ HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic).  An index number below 50 indicates that more builders view conditions as poor than good.

Two of the components of the 55+ single-family HMI posted increases from a year ago: present sales climbed seven points to 61 and expected sales for the next six months rose one point to 61.  Meanwhile, traffic of prospective buyers dropped six points to 42.

Although the 55+ multifamily condo HMI dipped five points to 38, it is still the second highest reading for the second quarter since the inception of the index.  All three components of the index decreased for the second quarter: present sales dropped five points to 39, expected sales for the next six months fell four points to 42 and traffic of prospective buyers dropped three points to 35.

The indices tracking production and demand of 55+ multifamily rentals moved in different directions in the second quarter.  Present production rose three points to 53, expected future production increased one point to 53, while current demand for existing units dropped three points to 59 and future demand fell two points to 61.

“One of the factors contributing to the positive signs in the 55+ housing market is the slow but steady increase in existing home sales in the last three months,” said NAHB Chief Economist David Crowe.  “The 55+ market is strongly driven by consumers being able to sell their existing homes at a favorable price in order to buy or rent in a 55+ community.

Source: National Association of Home Builders

August 7, 2014

Markets in 56 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 year-over-year net gain of seven markets.

The index’s nationwide score moved up slightly to .89, meaning that based on current permit, price and employment data, the nationwide average is running at 89 percent of normal economic and housing activity.  Meanwhile, 78 percent of markets have shown an improvement year-over-year.

“Things are gradually improving,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “As the job market grows, we expect to see a steady release of pent up demand of home buyers.”

Baton Rouge, Louisiana continues to top the list of major metros on the LMI, with a score of 1.39 – or 39 percent better than its last normal market level.  Other major metros leading the list include Honolulu; Oklahoma City; Houston and Austin, Texas.  Rounding out the top 10 are Los Angeles; San Jose, California; Salt Lake City; Des Moines; and New Orleans.

“With the national tally only reaching 43 percent of normal, single-family housing permits continue to be the lagging component of the index,” said NAHB Chief Economist David Crowe.  “The big bright spot is employment, where the number of metro areas having reached or exceeded their norms grew from 26 to 46 in a year.”

“In the 22 metros where permits are at or above normal, the overall index indicates that these markets have fully recovered,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.  “This finding shows the impact that an uptick in permits can have on the overall health of markets.”

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

August 7, 2014

Steady Improvement Builds In U.S., Uncertainty Continues In Europe

Labor markets were mixed across the advanced economies, according to unemployment rates and employment growth data compiled and standardized by The Conference Board International Labor Comparisons (ILC) program for June 2014.

Unemployment rates in June fell in three of the nine countries compared and rose in five.  Italy saw the largest decline of 0.3 points – though, at 12.5 percent, Italian joblessness remains near an all-time high.  Unemployment fell 0.2 points in the United States (to 6.1 percent) and the Netherlands (to 6.8 percent).  By contrast, joblessness rose 0.2 points in both Japan and Sweden, to 3.3 percent and 7.9 percent, respectively.  Unemployment in Germany was unchanged at 5.1 percent, lowest by far among the European countries.

“Despite mixed unemployment trends seen across European economies in June, joblessness in the European Union as a whole has been on a downward trend over the last year,” said Elizabeth Crofoot, Senior Economist with the International Labor Comparisons program at The Conference Board.  “Italy’s apparent return to recession in the second quarter of 2014, however, comes after eleven consecutive quarters of rising unemployment, highlighting the country’s inability to gain a foothold in the recovery process.”

Employment in June rose in three countries, declined in three, and was unchanged in three.  Employment indexes in the U.S., Australia, and Italy each rose by 0.2 points.  Standing at 100.1, the U.S. employment index now exceeds the level of 2007 (=100) for the first time since the recession.  France saw the sharpest drop in employment – down 0.5 points to 101.3.

Source: The Conference Board

August 5, 2014

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

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

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

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

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

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

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

Source: Retailing Today

Source: National Retail Federation

August 5, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Retailing Today 

July 30, 2014

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

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

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

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

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

Source: Retailing Today