Author: Helen Thomas

May 15, 2014

Builder confidence in the market for newly built, single-family homes in May fell one point to 45 from a downwardly revised April reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

“After four months in which the HMI has shown little signs of fluctuation, it is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “However, builders expressed some optimism that sales will pick up in the coming months.”

“Builders are waiting for consumers to feel more secure about their financial situation,” said NAHB Chief Economist David Crowe.  “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

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

The index’s components were mixed in May.  The component gauging sales expectationsin the next six months rose one point to 57 and the component measuring buyer traffic increased two points to 33.  The component gauging current sales conditions fell two points to 48.

Looking at the three-month moving averages for regional HMI scores, the South rose one point to 48 while the Midwest fell a single point to 47 and the West posted a four-point drop to 47.  The Northeast held steady at 33.

Source: National Association of Home Builders 

May 13, 2014

Retail sales rose ever so slightly in April, putting a damper on hopes of a sharp uptick in economic growth in the second quarter.  According to the U.S. Commerce Department, retail sales, which include categories such as automobiles, gasoline stations and restaurants, rose 0.1% in April, following a revised 1.5% increase in March that ranked as the biggest since March 2010.

According to the National Retail Federation (NRF), April sales, which exclude automobiles, gas stations and restaurants, were unchanged seasonally-adjusted month-to-month, yet increased 4.7% unadjusted year-over-year.

“Even though retail sales were weaker than anticipated, the fundamentals of the economy, including improving job growth and income gains, remain positive,” said chief economist Jack Kleinhenz.  “While the shift in Easter played into the seasonal figures, NRF remains optimistic that retail sales will keep their positive trajectory, albeit in fits-and-starts, in the second quarter.”

Additional findings from NRF’s retail sales analysis include:

• Building material and garden equipment and supplies dealers stores’ sales increased 0.4% seasonally-adjusted month-to-month and 2.7% unadjusted year-over-year.
• Clothing and clothing accessories stores’ sales increased 1.2% seasonally-adjusted month-to-month and 5.2% unadjusted year-over-year.
• Electronics and appliance stores’ sales decreased 2.3% seasonally-adjusted month-to-month and 1.8% unadjusted year-over-year.
• Furniture and home furnishing stores’ sales decreased 0.6% seasonally-adjusted month-to-month yet increased 3.6% unadjusted year-over-year.
• General merchandise stores’ sales increased 0.2% seasonally-adjusted month-to-month and 5.3% unadjusted year-over-year.
• Health and personal care stores’ sales increased 0.6% seasonally-adjusted month-to-month and 6.6% unadjusted year-over-year.
• Nonstore retailers’ sales decreased 0.9% seasonally-adjusted month-to-month yet increased 5.8% unadjusted year-over-year.
• Sporting goods, hobby, book and music stores’ sales increased 0.7% seasonally-adjusted month-to-month yet decreased 0.6% unadjusted year-over-year.

“The shift in Easter to April did not provide enough bounce to retailers as retail sales struggled to keep their strong spring pace,” NRF president and CEO Matthew Shay said.  “With consumer spending accounting for roughly 70% of total economic activity, NRF remains hopeful that the uninspiring April retail sales figures are just a temporary seasonal fluctuation.”

Source: Retailing Today

May 12, 2014

Last week:  Some improvement in trade, domestically and globally, was the big news this week.  The forward indicators have been pointing to some improvement in global industrial conditions, which may be developing, as evidenced by the trade data.  The other big story is financial, in terms of the Federal Reserve continuing to unwind quantitative easing.  This is leading to renewed speculation about the timing of a return to a more normal yield curve in interest rates.  And the irony is that the domestic economy is beginning to pick up enough steam to contemplate raising interest rates, which would mean higher mortgage rates, which would possibly slow the improvement in home building and buying.  How much, and over what time frame, is a story that will unfold perhaps over the next year and a half.

Retail Sales, April (Bureau of the Census)

Vehicle sales (at a 16 million pace in March) reflect some catch up from widespread inclement weather at the start of the year.  Non-auto retail spending will reflect the same trend.  Going forward, the retail pace will be dictated by the pace of hiring and any pickup in wages.  Retailers, still stuck with piled-up inventory, are hoping continued good news on the labor front allows consumers to put into action some long delayed buying plans, which in turn will bring the inventory-to-sales ratio back down to something closer to normal.

Producer Price Indexes, April (Bureau of Labor Statistics)

Energy prices remain relatively stable.  Food prices are stable now but could start to move a little higher.  “Core” prices (which exclude food and energy) remain very low, rising by no more than 0.2 percent per month.  The big worry is that they might start rising even more slowly, as non-energy commodity prices stop rising at all.  In a soft economic environment, there is little reason to think these raw commodity prices will start rising faster this summer.

Consumer Price Indexes, April (Bureau of Labor Statistics)

Globally, inflation is slow.  Domestically, it is simply holding steady, but at a very slow pace.  “Core” prices (which exclude food and energy) have been rising by no more than 0.2 percent per month for more than a year.  Even with the economy starting to grow faster, faster price increases are probably not going to develop this spring or summer.  Energy prices are running below year-ago comparisons.  Food prices, however, are responding to low crop output, the result of a severe and prolonged California drought.  Medical-care inflation has slowed while the cost of housing remains steady.  Without much change in either of those two components, retail inflation will not change significantly.

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

Home building has been running close to a million starts (annualized).  Demand has held up, even with mortgage rates moving a little higher.  And with foreclosure activity winding down, more demand has to be met by increased construction.  The home-owner end of this market could be impacted if mortgage rates rise faster.  Apartment building, however, is the stronger segment of this market, and even with higher mortgage rates, this won’t change.  In fact, with 200,000 new jobs a month and higher mortgage rates, demand for apartments could intensify.

Fact of the Week

The national unemployment rate is now down to 6.3 percent.  But among those 24 years of age or younger, it is over 9 percent.  Moreover, a new report, In Ths Together: The Hidden Cost of Young Adult Unemployment, notes that governments (federal and states) lose almost $9 million in taxes not collected from pay not earned.  Add in the number not working and not in school (and since they are not looking for a job, they are not counted in the labor force) and the cost skyrockets to $25 billion.

What is the cost to individuals?  Starting their careers with bouts of unemployment, delaying their earnings experience and not developing their skill set could result in a collective loss of $20 billion in money not earned over thier working lives.

Nor is this strictly an American problem.  Youth unemployment is higher in several other countries, much higher in a few countries like Spain.  In fact, across the globe there is an army of unemployed and unengaged youth.  There are approximately 75 NEETS (Not in Employment, Education, or Training) across the globe.  What’s more, the slower the global economy grows, the faster the number of NEETS will grow.  And by extension, the call on public resources and the limit on those resources increases, precisely because they are not engaged in economic activity.

Source: The Conference Board

May 13, 2014

U.S. retail sales barely rose in April and a gauge of consumer spending slipped, which could temper hopes of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Tuesday retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars and online retailers.

Retail sales, which account for a third of consumer spending, rose by a revised 1.5 percent in March.  That was the largest increase since March 2010.

Economists polled by Reuters had forecast sales advancing 0.4 percent last month after a previously reported 1.2 percent surge in March.

Data such as employment, as well as manufacturing and services industries surveys had suggested the economy regained strength early in the second quarter after being weighed down by bad weather and a slow pace of restocking by businesses in the first three months of the year.

But the retail sales report cast a shadow on that upbeat outlook.  So-called core sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product, fell 0.1 percent in April.

That followed a revised 1.3 percent advance in March.

Core retail sales had previously been reported to have risen 0.8 percent in March.

Last month, retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores.  Sales at furniture stores fell 0.6 percent, while receipts at food services and drinking places dropped 0.9 percent.

Sales at non-store retailers, which include online sales, fell 0.9 percent.

However, receipts at building materials and garden equipment stores rose 0.4 percent.  Sales at auto dealerships increased 0.6 percent.  There were also increases in sales at gasoline stations, reflecting higher pump prices.

Excluding gasoline and autos, retail sales fell 0.1 percent.

Receipts at clothing stores rose 1.2 percent.  There were also gains in receipts at sporting goods shops.

Source: Fox Business

May 9, 2014

Gap had a good April in terms of sales, and a large part of the reason is the company’s Old Navy banner.

The company reported that April net sales increased 10% to $1.33 billion for the four-week period ended May 3, versus $1.21 billion last year.  Gap’s comparable sales for April 2014 were up 9% versus a 7% increase last year.

For the first quarter so far, Gap’s net sales have increased 1% to $3.77 billion versus $3.73 billion last year.  The company’s comparable sales so far have decreased 1% versus a 2% increase last year.

“We are pleased with our execution overall in April, especially at Old Navy,” said chairman and CEO Glenn Murphy.

For the month, comparable sales by global brand were as follows:

• Gap Global: up 3% versus an 8% increase last year
• Banana Republic Global: up 7% versus a 1% increase last year
• Old Navy Global: up 18% versus a 9% increase last year

The company expects diluted earnings per share for the first quarter to be in the range of $0.56 to $0.57.  It also expects gross margins for the quarter to decline less than the year-over-year decline in the fourth quarter of fiscal year 2013.  In addition, the company expects first quarter fiscal year 2014 operating expenses to be slightly above last year.

Gap will release its complete first quarter earnings results May 22, and will report May sales June 5.

Source: Retailing Today

May 8, 2014

Fred’s plans to implement a long-term marketing strategy stressing everyday low pricing and the convenience of a smaller box to help bolster sales against what the company describes as “intense competitive pressures.”  The company’s pharmacy operations continue to grow, however.

Fred’s reported $150 million in sales for the four weeks ended May 3, representing a decline of 1.6% compared to year-ago sales.  For the first quarter ended May 3, sales totaled $498.5 million, down 0.6%.

Comparable store sales for the month of April decreased 2.3% compared with a 1.2% increase in the same period last year.  On a comparable store basis, year-to-date sales decreased 1.9% versus a 1.3% decrease for the year-earlier period.

“April’s sales reflect the limited success of our legacy marketing strategies in matching up with prevailing intense competitive pressures,” stated Bruce Efird, Fred’s CEO.  “Beginning in late January, we started working with our outside marketing strategies to regain our sales momentum.  Working through extensive research and building a marketing strategy that can be sustained over the long term has taken several months to design, develop and validate”, he said.  “One of the key findings of our research has pointed out that the aggressive use of our new strategy today is likely to be quickly embraced, based on the demographics of our customer base.  The team has put together a solid marketing plan to capitalize on Fred’s position as a low-price leader and brand our convenience departments’ advantages over small-box competitiors.”

Fred’s pharmacy department continued to demonstrate solid sales gains in April, with higher sales and comparable store script growth.  “However, these improvements were not sufficient to offset the sales shortfall in the other general merchandise departments, which experienced negative comparable sales and traffic declines in April,” Efird noted.  “With this in mind, we now expect first quarter earnings per share to be in the range of $0.18 to $0.22.  As we now begin to implement our new marketing strategy, we expect to see its impact beginning in June, when we anticipate a return to positive comparable store sales in the range of 1% to 3%.

During April, Fred’s opened three Xpress stores, closed two stores without pharmacies, and converted on Xpress into a full-service store.

Source: Retailing Today

May 8, 2014

The timing of Easter this year left Costco with 27 days of sales in April, rather than last year’s 28.  But despite the Easter holiday shift, Costco still came out on top with a 7% increase in net sales that reportedly beat analysts’ expectations.

The company reported net sales of $8.56 billion for the month, up from $7.98 billion during the similar four-week period last year.  Although Easter’s timing this year did negatively impact this year’s net and comparable sales by an estimated 1.5 to 2%, inflation in gasoline prices had a positive impact on comparable sales for the four-week period.

Total comparable sales increased 5%, U.S. comparable sales rose 5% and international comparable sales rose 2%.

Excludig gasoline prices and the negative impact of foreign currencies, total comparable sales rose 5%, U.S. comparable sales rose 5% and international comparable sales rose 7%.

Costco plans to report its third quarter results May 29.  It currently operates 652 warehouses, including 463 in the United States and Puerto Rico, 87 in Canada, 33 in Mexico, 25 in the United Kingdom, 19 in Japan, 10 in Taiwan, 10 in Korea and five in Australia.  Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico.

Source: Retailing Today

May 7, 2014

Supervalu, the owner of Cub Foods, along with four Twin Cities-based independent grocery retailers, have each entered into definitive agreements to acquire select Rainbow Foods grocery stores.  In total, they agreed to acquire 18 Rainbow grocery stores, including 13 Rainbow pharmacies and three Rainbow liquor stores in Minnesota.

Jerry’s Enterprises, Haug Enterprises, Lund Food Holdings and Rademacher Enterprises have joined Supervalu in executing these agreements.  Once completed, the acquired stores are intended to be operated by Supervalu, a Cub franchisee or an independent retailer as 10 new Cub Foods locations, two new Byerly’s locations and six locations are expected to be operated under the Rainbow banner.

Of the 18 stores, Supervalu will have 100% ownership in three Cub stores, majority ownership in two Cub stores, minority ownership in three Cub stores and 100% ownership in two Rainbow stores as well as 100% ownership interest in eleven pharmacies.  Roundy’s will be selling these 18 stores for approximately $65 million plus inventory.  Supervalu’s aggregate purchase price across its multiple purchase agreements is approximately $35 million in cash plus the cost of inventory that will be purchased at the closing of the Rainbow store sale.  In addition, as part of the transactions, Supervalue will assume certain lease obligations and certain multi-employer pension liabilities related to the stores being acquired by Supervalu.

“Supervalu is thrilled to participate in this consortium of retailers that is acquiring Rainbow stores,” said Sam Duncan, Supervalu’s president and CEO.  “We’re especially pleased that highly respected independent retailers here in the Twin Cities are also acquiring Rainbow stores.  These independent retailers are great customers to Supervalu who understand the importance of being a strong community grocer.”

Cub Foods consists of a combination of corporate-ownded and franchised locations.  Following the close of the transactions, Cub Foods will total 66 stores in the Twin Cities and 77 stores banner-wide (including 76 stores in Minnesota and one in Illinois).  As part of acquiring these stores and with seasonal employment needs, Cub Foods expects to make more than 1,000 job offers in the coming months.

“For nearly five decades, Cub Foods has been a trusted grocer and innovator in the Twin Cities,” said Mike Stigers, Cub Foods president.  “This community has always been important to us and it is our continued desire to deliver great products, excellent service and an incredible overall value in the grocery store.  With more stores under the Cub Foods brand and being serviced out of our distribution center in Hopkins, we will be better positioned to improve our efficiencies and explore ways to bring even stronger value and price competitiveness to our shoppers going forward.”

The transactions are subject to customary closing conditions and are expected to be completed by the end of the summer.

Supervalu serves customers across the United States through a newtork of 3,339 stores made up of 1,819 independent stores serviced primarily by the company’s food distribution business, 1,330 Save-A-Lot stores, of which 948 are operated by licensee owners, and 190 traditional retail grocery stores.

Source: Retailing Today 

May 7, 2014

Despite the Easter holiday shift, Whole Foods reported second quarter revenue of $3.32 billion, a record increase of 10% from the prior-year quarter.  But the record was not enough for Wall Street, which expected $3.34 billion.

The company’s earnings per share of 38 cents for the quarter also came in below expectations of 41 cents per share.

Comparable store sales, including the negative impact of approximately 50 basis points from Easter shifting from the second quarter last year to the third quarter this year, increased 4.5% on top of a 6.9% increase in the prior year.  The spread between comparable store and identical store sales growth for the quarter due to five relocations and one expansion was approximately 50 basis points.

“The rapidly growing demand for fresh, healthy foods affirms our mission for the last 36 years and highlights the increasing growth opportunity ahead of us,” said co-founder and co-CEO John Mackey.  “Whole Foods Market is the premier brand in natural and organic foods, with unparalleled quality standards and the broadest selection.  As we continue to innovate and evolve at a fast pace, we are confident in our ability to gain market share and expect our sales to approach $25 billion during the next five years.”

Since the end of the first quarter, the company has added eight stores in six new markets.  In the second quarter, the company opened three new stores.  So far in the third quarter, the company has opened one new store and completed its acquisition of four New Frontiers Natural Marketplace stores in Flagstaff, Prescott and Sedona, Arizona; and San Luis Obispo, California.  The company expects to open seven additional stores in the third quarter and another 11 to 14 stores in the fourth quarter.

Whole Foods currently operates 379 stores totaling approximately 14.4 million sq. ft. and expects to cross the 500 store mark in 2017.  Longer term, the company still sees demand for 1,200 Whole Foods Market stores in the United States.

The company has increased its development pipeline to a record 114 stores with the signing of nine new leases, including one relocation, totaling approximately 410,000 sq. ft.  These leases include three new markets and are located in Fayetteville, Arizona; Honolulu, Hawaii; Indianapolis, Indiana; Metuchen, New Jersey; Chappaqua, New York; Lower Gwynedd Township, Pennsylvania; Fort Worth, Texas; and Richmond, Virginia.

Looking ahead, the company is revising its fiscal year 2014 outlook and now expects sales growth of approximately 11%, comparable store sales growth of 5% to 5.5% and diluted earnings per share of $1.52 to $1.56.

The company expects the Easter shift to positively impact comparable store sales growth in the third quarter by approximately 50 basis points.

Source: Retailing Today

May 8, 2014

Builder confidence in the single-family 55+ housing market for the first quarter of 2014 is up year over year, according to the National Association of Home Builders’ (NAHB) latest 55+ Housing Market Index (HMI) released today.  Compared to the first quarter of 2013, the single-family index increased 4 points to a level of 50, which is the highest first quarter reading since the inception of the index in 2008 and the 10th consecutive quarter of year over year improvements.

“There are many factors contributing to the positive signs in the 55+ housing market,” said Steve Bomberger, chairman of NAHB’s 50+ Housing Council and president of Benchmark Builders Inc. in Wilmington, Delaware.  “Rising house prices and low interest rates are helping baby boomers sell their existing homes at a favorable price and in turn, purchase a new home more suited to their current lifestyles.”

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 rose six points to 52 and expected sales for the next six months climbed nine points to 62.  Meanwhile, traffic of prospective buyers held steady at a reading of 41.

The 55+ multifamily condo HMI increased one point to 39, which is the highest first-quarter reading since the inception of the index.  Two of the 55+ multifamily condo HMI components showed increases compared to a year ago: present sales increased four points to 41 and expected sales for the next six months rose five points to 48.  Traffic of prospective buyers, however, decreased six points to 32.

Three of the four 55+ multifamily rental indices showed slight declines in the first quarter.  Present production dipped one point to 42, expected future production decreased three points to 45 and current demand for existing units dropped one point to 55.  Future demand did show an increase of one point to 59.

“The 55+ segment of the housing market is stronger now than it was a year ago,” said NAHB Chief Economist David Crowe, “helped by factors like rising house prices, which has increased owners’ equity and allowed them to buy in a 55+ community.  But there are still some headwinds hampering a stronger recovery, as builders in many markets are facing tight credit conditions and a lack of lots and labor.”

Source: National Association of Home Builders