Author: Helen Thomas

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

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

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

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

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. 

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

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

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

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

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