Author: Helen Thomas

May 19, 2014

Last week:  In a data heavy week, it’s hard to imagine that the big news of the week came from the financial markets.  And, it was driven not by domestic considerations but what is happening overseas.  The backdrop is the continuing tapering by the Federal Reserve.  Where it once bought $85 billion in bonds per month, it has tapered down to $45 billion and will be even lower over the next few months.  Faced with slow growth in the Euro-zone (or no growth in France, Italy, and the Neatherlands), and very low inflation (which could go still lower), the European Central Bank is thought to be considering its own quantitavie easing program.  If the ECB is going to buy bonds, increasing the demand without an increase in supply could well bid up the price (thereby lowering the yield).  In anticipation, markets this week lowered yields on sovereign debt, even in France, Italy and the Netherlands.  Will the ECB act?  Will it more than offset Fed tapering?  More importantly, will Euro growth perk up and inflation gradually move up to the ECB’s target of 2 percent?  The only thing that is clear right now is that financial markets will be paying very close attention to this story this summer.

The Conference Board Leading Economic Index for the U.S.

The Coincident Economic Index, which tells us where the economy is right now, continued to rise moderately through March.  The Leading Economic Index for the United States has been consistently much stronger, suggesting there could be more punch going forward.  With the end of inclement winter weather, and some fundamental strengthening in the economy, the growth path going forward looks encouraging.  Was that still the signal in the data in April?

Fact of the Week

As the Federal Reserve continues to taper on bond buying, we are also moving closer to the day when interest rates are no longer artificially low.  The Federal Government debt totals about $17 trillion.  Every inch up on borrowing rates therefore implies higher borrowing costs, possibly resulting in changes elsewhere in the nation’s budget to afford paying the debt service.

Meanwhile, American households are in debt to the tune of about $11 trillion, the lion’s share of which is mortgage debt.  But to the extent that this amount is tied to fixed rate mortgages, hikes in interest rates will have less impact on households now, though possibly more impact on those trying to take out a mortgage going forward.  Either way, with that much debt to carry, small changes in interest rates can have big consequences – even bigger consequences if the economy were to quickly slide back to a 2 percent growth path.  Luckily, the forecast is for something closer to 2.5 percent.  And that difference in growth could make the difference in how much negative impact there is coming from higher interest rates, down the road.

Source: The Conference Board

May 16, 2014

While other retailers saw sales affected by a winter that overstayed its welcome, Dillard’s marked its 15th consecutive quarter of positive sales.

Despite weak sales in home and furniture, Dillard’s said sales trends in the first quarter were strongest in the men’s apparel and accessories category and the junior’s and children’s apparel category, followed by ladies’ accessories and lingerie.

The retailer reported total merchandise sales for the quarter of $1.539 billion, a 1% increase from $1.530 billion for the prior-year period.  Comparable-store sales increased 2%.

Sales trends were strongest in the Central region, followed by the Eastern and Western regions, respectively.

“We reported record earnings per share of $2.56 compared to $2.50.  Our 2% comparable store sales increase marks our 15th consecutive quarter of positive sales.  Additionally, we executed $65.9 million of share buyback as a result of our strong cash flow,” said CEO William Dillard II.

Gross margin from retail operations decreased 14 basis points of sales for the quarter compared to the first quarter last year.  The decline resulted primarily from increased markdowns compared to the prior-year first quarter.

At May 3, the company operated 278 Dillard’s locations and 18 clearance centers spanning 29 states, as well as its e-commerce site.

Source: Retailing Today 

May 16, 2014

Nordstrom’s full line stores saw first quarter same store sales decline but the department store operator’s off price Rack division is doing just fine.

Total sales increased 6.8% to $2.8 billion with top-performing categories including accessories, women’s shoes, and cosmetics.  A 3.9% overall same store sales increase was comprised of a 1.9% decline at full line stores and a 6.4% comp increase at the rapidly expanding Nordstrom Rack stores.  Nordstrom’s direct (e-commerce) sales grew by 33% in the quarter on top of a 25% prior year increase and the company launched its Nordstromrack.com Web site.

Nordstrom said its profits declined to $140 million, or 72 cents a share, from $145 million, or 73 cents a share, due in large part to heavy investments in technology and supply chain to support omnichannel initiatives and entry into Canada.  Despite the decline, the company’s earnings of 72 cents were four cents better than analysts expected and above the company’s guidance range of 60 cents to 70 cents.

Nordstrom ended the quarter with 117 full line stores, the same as the prior year, while the number of Rack outlets increased to 150 locations from 128.  During the remainder of the year, three new full line stores are expected to open along with 17 Rack stores.

Source: Retailing Today

May 15, 2014

Kohl’s joins a growing list of retailers whose first quarter results took a hit from a severe and extended winter.  Despite missing estimates, the company is staying firm on its guidance for the full fiscal year.

The company reported net sales for the quarter of $4.07 billion, a 3.1% decrease from $4.2 billion for the prior-year quarter.  Comparable store sales decreased 3.4% in the quarter compared to a 1.9% decrease in the prior-year quarter.  Net income was $125 million for the quarter, a drop of 15% from $147 million in the prior-year quarter.  Diluted earnings per share fell 9% to $0.60 from $0.66 in the prior-year quarter.

“We did not achieve our first quarter sales goals, but we were encouraged by the improvement in sales as the quarter progressed,” said chairman, president and CEO Kevin Mansell.  “Our teams managed our inventory levels appropriately and expenses were controlled throughout the organization during the quarter.”

The company still anticipates diluted earnings per share of $4.05 to $4.45 for fiscal 2014, which is consistent with its previous guidance.

Kohl’s ended the quarter with 1,160 stores in 49 states, compared with 1,155 stores at the same time last year.  The company opened four new store locations, relocated one existing store and permanently closed two stores during the quarter.

Source: Retailing Today

May 15, 2014

Walmart continues to envision flat same store sales at its U.S. stores after reporting weaker than expected profits on weak U.S. sales results that were negatively affected by a winter that wouldn’t end.

Net income declined 5% to $3.6 billion and earnings per share of $1.10 were five cents below analysts’ expectations and below the company’s prior year first quarter profit of $1.14.  Even excluding the effects of the severe winter, estimated by Walmart to be three cents a share, the company’s profit figure would have been below the prior year amount, although with the guidance range of $1.10 to $1.20.

Sales at Walmart’s U.S. stores increased 2% to $67.9 billion although same store sales declined 0.1% after declining 1.4% during the first quarter the prior year.  Sales at Sam’s Club including fuel were essentially flat at 13.9 billion, but increased 0.5% if fuel sales are excluded.  Same store sales declined 0.5%, excluding fuel, after a prior year drop of 0.2%.

“Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected,” said Doug McMillon, Wal-Mart Stores, Inc. president and CEO.  “Walmart’s underlying business is solid, and I’m confident in our long-term strategies.  We’ll continue to invest in price and enhance our service to improve sales.  We remain focused on growth across the enterprise, especially in small formats like Neighborhood Market in the U.S.”

The company highlighted what it called significant investments in e-commerce initiatives, including its global technology platform, and said sales worldwide rose approximately 27% and noted that e-commerce had a 0.3% favorable impact on same store sales.

“We have the opportunity to create transformative growth through stronger e-commerce capabilities,” McMillon said.  “Our investments are focused on improving customer experience and fulfillment capacity.  We’re working to deliver a relevant personalized and seamless customer experience across all channels to further grow sales.”

Total company sales for the quarter ended April 30 increased 0.8% to $114.2 billion, but would have grown 2.1% if a $1.6 billion negative impact of currency exchange rates were excluded from the calculation.

Walmart had set a low bar for itself heading into the quarter which began in early February as severe winter weather was hitting the nation at the time the company provided guidance calling for flat same store sales at U.S. stores and clubs.  Although weather conditions have improved nationwide, the retailer continues to forecast relatively flat comps while touting strong fundamentals of its business.

“A number of severe winter storms negatively impacted us during the quarter.  A solid start to spring and a strong Easter drove positive comps in the back half of the quarter,” said Bill Simon, Walmart U.S. president and CEO.  “Neighborhood Markets continued to deliver strong results.  Comp sales increased approximately 5% for the quarter, and net sales have nearly doubled versus two years ago.  We saw strength across food and health and wellness, and we’re particularly pleased with our overall traffic trend.  April marked the 46th consecutive month of positive comps for Neighborhood Market.”

Like McMillon, Simon touted Walmart’s solid fundamentals and said, “our recently launched initiatives, including the Walmart 2 Walmart money transfer service and the video game trade-in program, along with continued price investment, will resonate with the customer.”

As for Sam’s Club, president and CEO Rosalind Brewer, highlighted several noteworthy developments such as 10.9% growth in membership income driven by a fee increase.

“We expect that the combination of the national rollout of Sam’s Club Cash Rewards and the launch of our new industry cash back credit card will enhance member value to drive stronger membership growth,” Brewer said.  “These programs, along with our improvements in merchandise, are expected to drive better comp sales in the future.”

Source: Retailing Today

May 15, 2014

Things took a wacky turn in the retail world this week as JCPenney reported a 6.2% same store sales increase and a huge gross margin expansion while Macy’s, Kohl’s and Walmart stumbled.

JCPenney still lost money, lots of it, during the quarter ended May 3, but total sales increased 6% to $2.8 billion.  The 6.2% same store sales increase the company reported was the result of sequential improvement throughout the quarter and broad-based strength across categories.  The comp increase would have been even stronger had the company employed a new method of calculating results that exclude temporary impacts it plans to use going forward.  For example, certain items such as sales return estimates and liquidation sales will now be excluded from same store sales calculation.  Had this methodology been applied during the first quarter, JCPenney would have reported a 7.4% comp increase rather than a 6.2% gain.

In addition to a same store sales surprise, gross margins expanded by 230 basis points to 33.1% of sales from 30.8% last year despite the negative effects of clearance activity.

“We are very pleased to report that JCPenney delivered its second consecutive quarter of comparable store sales growth, as well as continued gross margin improvement.  It is clear that our efforts to re-merchandise many areas of the store and revamp our messaging to the customer are taking hold,” said JCPenney CEO Myron Ullman.  “Despite a difficult retail environment, our strong performance during the Easter holiday period and other key promotional events enabled us to deliver better than anticipated sales results.  We expect to carry this momentum into the second quarter as we continue to position the company for long-term profitable growth.”

Women’s and men’s apparel, home, and fine jewelry were the company’s top performing merchandise divisions in the quarter and Sephora inside JCPenney also continued its strong performance, according to the company.  Geographically, all regions delivered sales gains over the same period last year with the best performance in the western and central regions of the country.

Lest anyone get carried away with the company’s performance, it is worth noting JCPenney was cycling against a prior year comp decline of 16.6% and it continues to report sizable losses.  The operating loss during the first quarter was $247 million, which was roughly half the prior year loss of $486 million.  A net loss of $352 million was worse than the prior year net loss of $348 million.

The other noteworthy development announced in conjunction with the release of first quarter results involved a new $2.35 billion credit facility to replace an existing $1.85 billion line of credit.

“With a solid plan in place to complete the turnaround, we are pleased with the support of our banking partners and their confidence in our ability to succeed,” Ullman said.

Looking ahead, JCPenney expects a second quarter comp increase in the mid-single digits at its 1,100 stores and significant full year gross margin improvement.

Source: Retailing Today

May 14, 2014

Sears Holdings plans to hire an investment banking firm to explore strategic alternatives regarding its 51% ownership stake in Sears Canada.

The strategic alternatives are said to include the potential sale of Sears Holdings’ interest or Sears Canada as a whole, according to a statement by the Hoffman Estates, Illinois-based company.  In a separate statement, Sears Canada said its board of directors intended to cooperate fully with Sears Holdings in the strategic alternatives exploration process to achieve full value for all shareholders.

Sears Canada is a separate publicly held company that operates 176 Sears stores, 233 hometown deal stores, seven Sears home services showrooms and approximately 1,400 catalog and online merchandise pick-up locations in Canada.

Sears Canada sales during the 13 week fourth quarter ended February 1, 2014 declined 9.6% to $1.18 billion compared to $1.3 billion during the 14 week period the prior year.  Same store sales also declined 6.4% due in large measure to extensive store closures related to severe winter weather.  Full year sales for the 52 week period declined 8.2% to nearly $4 billion from $4.3 billion during the 53 week prior year fiscal period.  Same store sales for the year fell 2.7%.

Source: Retailing Today

May 16, 2014

Soaring production of multifamily apartments pushed nationwide housing starts above the million-unit mark in April, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  Total housing production rose 13.2 percent for the month to a seasonally adjusted annual rate of 1.07 million units, due entirely to a 39.6 percent increase on the multifamily side, while single-family production held steady.

“The flat single-family data confirm our latest surveys, which show that single-family builders remain concerned that tight credit availability and uncertain conditions are keeping potential buyers on the sidelines,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  “However, demand for apartment construction still remains high.”

Single-family housing starts rose 0.8 percent to a seasonally adjusted annual rate of 649,000 units in April.  Meanwhile, multifamily production jumped 39.6 percent to a seasonally adjusted annual rate of 423,000 units – their fastest pace since January 2006.

“The growth in multifamily production is a very positive development as it shows an expected increase in household formations from young people renting apartments and taking the first step into the housing market,” said NAHB Chief Economist David Crowe.  “These young households will form the demand for ownership in the future.”

All four regions posted gains in combined single and multifamily housing production in April, with the Northeast posting a 28.7 percent gain, the Midwest registering a 42.1 percent increase, the West posting an 11.1 percent increase and the South noting a 1.5 percent gain.

Issuance of building permits, which can be an indicator of future building activity, rose 8 percent to a seasonally adjusted annual rate of 1.08 million units in April.  This was due entirely to an increase in the multifamily sector, where permits registered a 21.8 percent gain to 453,000 units.  Single-family permits registered a marginal 0.3 percent gain to 602,000 units.

Source: National Association of Home Builders

May 14, 2014

The nation’s leading department store retailer overcame weak first quarter sales to muster a 3.2% profit improvement and expressed confidence in its performance the remainder of the year.

The company’s first quarter earnings per share of 60 cents was a penny better than analysts forecast and a 9% improvement from prior year earnings of 55 cents.  However, sales declined 1.7% to nearly $6.3 billion while same store sales, excluding sales from departments licensed to third parties, fell 1.6%

“Overall, business trends were soft in January through March, with the exception of the Valentine’s Day shopping period,” said Macy’s chairman and CEO Terry Lundgren.  “The trend improved in April when the weather began to turn in northern climate zones.  We see this as a good sign moving forward into the second quarter.”

In addition to weather, Lundgren said first quarter comparisons were negatively impacted by a calendar shift for the company’s “Friends & Family” promotional event and comparisons against a strong performance during the first quarter the prior year.

Undeterred by the top line weakness, the company affirmed earlier guidance calling for full year same store sales growth in the range of 2.5% to 3% and earnings per share of $4.40 to $4.50.  The company also rewarded shareholders by increasing the quarterly dividend payout 25% to 31.25 cents and increasing the stock buyback program by $1.5 billion.

“The fundamentals of our business and our ongoing strategies remain strong,” Lundgren said.  “This, combined with the momentum we have built over the past five years, leads us to feel confident about the company’s prospects.  Our board shares this confidence and increased our dividend and share repurchase authorization to provide an even greater return for our shareholders.”

Macy’s ended the quarter with roughly 840 stores.

Source: Retailing Today

May 15, 2014

Reports Record First Quarter Earnings per Share of $2.56 versus $2.50

Dillard’s, Inc. (DDS-NYSE) announced operating results for the thirteen weeks ended May 3, 2014. 

Summary of the Company’s First Quarter Performance

• A 2% increase in comparable store sales
• Diluted earnings per share of $2.56 versus $2.50
• Cash flow from operations of $161.9 million versus $136.9 million
• Share repurchase of $65.9 million (0.7 million shares) of Class A Common Stock

Dillard’s Chief Executive Officer, William Dillard, II, stated, “We reported record earnings per share of $2.56 compared to $2.50.  Our 2% comparable store sales increase marks our 15th consecutive quarter of positive sales.  Additionally, we executed $65.9 million of share buyback as a result of our strong cash flow.”

First Quarter Results

Dillard’s reported net income for the prior year 13-week period ended May 4, 2013 of $111.7 million ($2.56 per share) compared to net income of $117.2 million ($2.50 per share) for the 13 weeks ended May 4, 2013.

Included in net income for the prior year 13-week period ended May 4, 2013 is a net after-tax credit totaling $4.4 million ($0.99 per share ) comprised of the following three items:

• A $7.6 million after tax gain ($0.16 per share) related to the sale of an investment
• A $1.0 million after tax credit ($0.02 per share) related to a pension adjustment
• After-tax asset impairment and store closing charges of $4.2 million ($0.09 per share)

Net Sales – 13 Weeks

Total merchandise sales for the 13-week period ended May 3, 2014 were $1.539 billion and $1.530 billion for the 13-week period ended May 4, 2013.  Total merchandise sales increased 1%, and sales in comparable stores increased 2% for the first quarter.

Sales trends for the first quarter were strongest in the men’s apparel and accessories category and the juniors’ and children’s apparel category followed by ladies’ accessories and lingerie.  Sales were weakest in home and furniture.  Sales trends were strongest in the Central region, followed by the Eastern and Western regions, respectively.

Net sales (which include the operations of the Company’s construction business, CDI Contractors, LLC) for the 13 weeks ended May 3, 2014 were $1.551 billion and $1.549 billion for the 13 weeks ended May 4, 2013.

Gross Margin/Inventory

Gross margin from retail operations (which excludes CDI) decreased 14 basis points of sales for the 13 weeks ended May 3, 2014 compared to the 13 weeks ended May 4, 2013.  The decline resulted primarily from increased markdowns compared to the prior year first quarter.  Inventory increased 1% at May 3, 2014 compared to May 4, 2013.

Consolidated gross margin remained unchanged as a percentage of sales at 39.5% for the 13 weeks ended May 3, 2014 and May 4, 2013.

Selling, General & Administrative Expenses

Selling, general and administrative expenses (“operating expenses”) were $393.7 million and $390.2 million for the 13 weeks ended May 3, 2014 and May 4, 2013, respectively, increasing 19 basis points of sales.  Increased selling payroll was partially offset by decreased advertising expense during the quarter.  Included in operating expenses for the prior year first quarter is a $1.5 million pretax credit ($1.0 million after tax of $0.02 per share) related to a pension adjustment.

Share Repurchase

During the quarter ended May 3, 2014, the Company repurchased $65.9 million (0.7 million shares) of Class A Common Stock at an average price of $89.34 per share under the Company’s share repurchase plans.  Remaining authorization under the share repurchase program at May 3, 2014 was $224.5 million.

Total shares outstanding (Class A and Class B Common Stock) at May 4, 2013 were 43.2 million and 46.3 million, respectively.

Store Information

At May 3, 2014, the Company operated 278 Dillard’s locations and 18 clearance centers spanning 29 states and an Internet store at www.dillards.com.  Total square footage at May 3, 2014 was 50.5 million.

Source:  Dillard’s, Inc. Investor Relations