2nd Quarter US-Canadian Retail Market Update

This bulletin is courtesy of the Karen Aboud, principal of K.A.A. Business Solutions.

OVERVIEW

Retail results in Q2 were a mixed bag with a few doing very well but most struggling. The comments were mainly about the soft global economy, the very hot summer, higher than normal MD’s, the impact of the exchange rates and the lack of tourists.  In spite of all this some companies did very well.

With the global economy forecast to be soft for the foreseeable future, Retailers need to find new strategies to keep sales and profit positive and maybe learn from those that are successful like Canadian Tire, Lululemon, Burlington and TJX.

PVH Corp

Weak traffic and consumer spending trends in key tourist haunts plagued Calvin Klein and Tommy Hilfiger U.S. stores in the second quarter, and same-store sales declined by 4 percent and 7 percent respectively as a result. But thanks to both brands’ healthy American wholesale businesses, their North America revenue still rose: for Calvin Klein, by 11 percent to $398 million, while Tommy Hilfiger increased 3 percent to $407 million. Their international arms achieved double-digit growth, too, pushing total Calvin Klein revenue to $726.4 million and Tommy Hilfiger to $860.2 million.

Despite a 14 percent decrease in revenue in parent PVH Corp.’s (PVH) Heritage Brands business, the New York-based company’s total revenue increased from $1.86 billion to $1.93 billion in the three months ended July 30. Though Q2 profits fell to $90.5 million or $1.11 per diluted share, PVH now projects that full-year earnings per share will be in the range of $7.50 to $7.60, up from a previous range of $6.45 to $6.55.

Sears Holdings

Sears Holdings (SHLD) is, at this point, postponing the inevitable. The company’s net loss ballooned to $395 million in its second quarter ended July 30, as comparable store sales at Kmart and Sears Domestic declined 3.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} and 7 percent respectively. As a result, revenues fell from last year’s $6.2 billion to $5.7 billion, though the company put part of the blame on the fact that less full-line stores were in operation this year. In fact, things were so bad last quarter that Sears Holdings was forced to accept a $300 million loan from ESL Investments, CEO Eddie Lampert’s hedge fund.

Sears Canada

2nd Q ending Jul 30. Same store sales -5.5{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} due to lower than expected sales of spring product and lower traffic for big ticket, impacted by credit card change.

Cut $128m in costs in 1st half of year. Net Loss $91.6m, compared to profit of $13.5m LY. LY’s profit was fueled by store sale and leaseback agreements.

Sears US

Burlington

Another day, another off-price retailer knocking it out of the park. Burlington Stores(BURL) said Thursday that net sales in the second quarter increased 9.7{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} to $1.3 billion, thanks to a 5.4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} increase in sales at stores open for at least a year, while new and non-comparable stores contributed $51.8 million. Net income jumped 87.1{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} to $20.4 million or 28 cents per diluted share, compared with $10.9 million a year ago. Based on its strong first-half performance, Burlington raised its full-year outlook and said it now expects net sales to rise by 7.8{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} to 8.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} and comps to increase between 3.6{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} and 4.1{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}. The company will open 25 new stores in the second half of the year.

Staples, Inc.

(SPLS) announced today the results for its second quarter ended July 30, 2016. Total company sales for the second quarter of 2016 were $4.8 billion, a decrease of four percent compared to the second quarter of 2015. On a GAAP basis, the company reported a net loss of $766 million, or $1.18 per share. Second quarter 2016 results on a GAAP basis include pre-tax charges of $986 million primarily related to the impairment of European goodwill and other assets and costs associated with the termination of the Office Depot merger agreement.

North American Commercial sales for the second quarter of 2016 were $2.0 billion, flat compared to the second quarter of 2015.

North American Stores and Online sales for the second quarter of 2016 were $2.0 billion, a decrease of six percent compared to the second quarter of 2015.

International Operations sales for the second quarter of 2016 were $721 million, a decrease of seven percent in U.S. dollars or four percent on a local currency basis compared to the second quarter of 2015. This was primarily driven by sales declines in Europe, partially offset by double-digit growth in China.

Hudson’s Bay Company

Hudson’s Bay Company Announces Comparable Sales Results for the Second Quarter Ended July 30, 2016.

Consolidated Comparable Sales Grew 1.9{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, Down 1.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} on a Constant Currency Basis.

Comparable Sales at Department Store Group (“DSG”) Grew 2.6{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, Up 1.1{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} on a Constant Currency Basis Led by strength at the Hudson’s Bay Banner. (DSG includes Hudson’s Bay (Canada), Home Outfitters and Lord & Taylor).

Comparable Sales at Saks Fifth Avenue improved considerably, Up 2.7{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}; Down 1.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} on a Constant Currency Basis.

HBC Off Price (Saks OFF 5TH and Gilt) comparable sales decrease of 11.4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, cycling against an increase of 12.7{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} reported in the prior year.

HBC Europe (GALERIA Kaufhof, Galeria INNO and Sportarena) comparable sales decrease of 0.9{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}

Total Digital Sales increase of 1.4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} on a constant currency comparable basis. Excluding HBC Off Price, total Digital sales increase of 17.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} on a constant currency comparable basis.

At Saks OFF 5TH they significantly reduced promotional activity compared to the prior year, which increased margins substantially while reducing sales. At Gilt, they enhanced the return policy. These two dynamics at HBC Off Price reduced comparable sales in the quarter, but they believe they are the right things to do and will lead to growth.

Strategies for 2016 and 2017 include improved order fulfilment in the Toronto DC, the opening of 20 Hudson’s Bay stores in the Netherlands and 5 Saks Off 5th in Germany.

The TJX Companies

On Aug 16th TJX  announced sales and earnings results for the second quarter ended July 30, 2016. The comp store sales growth was almost entirely driven by customer traffic. They are convinced that they are gaining consumer market share based on a compelling selection of brands and fashions.  Their apparel, including accessories, and home businesses both performed well and merchandise margin increased. Second quarter results were above plan so they have raised their guidance for full year comp sales to increase 3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} to 4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} and earnings per share to be in the range of $3.39 to $3.43. Continuing the pattern from 2015, Canada’s increases surpass both US and International.

Wal-Mart Stores Inc

Wal-Mart said sales at U.S. stores open at least a year rose 1.6 per cent in the second quarter, excluding fuel price fluctuations.

In Canada, Wal-Mart’s comparable sales increased 1.1 per cent in the quarter, “despite increased promotional activity by competitors,” said Brett Briggs, executive vice president and chief financial officer of Wal-Mart.

The retailer’s comparable sales in Canada have been positive for nine straight quarters. This has been helped by market share gains in food, as well as the health and wellness segments, Briggs said citing data from Nielsen.

Earlier this year, Wal-Mart said it would invest US$2.7 billion over two years to increase entry-level wages to US$10 an hour, a move the retailer said has led to cleaner stores, faster checkouts and improved customer service.

Store visits increased 1.2 per cent in the second quarter. They have also just released bonuses to all staff. However, on Sept 2 they revealed that they are cutting 7000 desk jobs over several months in all US stores. These will be automated or handled by head office. The people affected in the stores will be moved into selling jobs so that there are more staff helping customers.

Reitmans Canada Ltd

Q2  Sales were a slight downturn from Q1 but still positive. Total sales were +0.6{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} with a net reduction of 75 Smart Set stores. Comp stores sales +6.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} (Q1 +8.8{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}).  Stores +4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, e-com +45.4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}.

GM improved 50 basis points over Q1 to 56.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}.  GM$ were 2.9{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} higher than LY.

750 stores in Canada. Reitmans 327, Penningtons 130, Addition Elle 104, Thyme Maternity 66, RW & Co 83, Hyba 17 and 23 Smart Set (will close by Jan 2017).

Strategies:

  • Ecom growth
  • New Supply Chain initiative to be completed in 2017
  • Distribution Centre & systems updated
  • Addition Elle launched “Ashley Graham” collections in US at Nordstrom and Lord & Taylor.

Lululemon Athletica Inc

Q2 (ended Jul 31)

Net Revenue +14{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}. Comp sales +4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}. stores +3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, e.com +6{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} (including an one time only online warehouse sales. )

E.com = 17{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} blend of total sales.

GP $ +20{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} over LY. Rate 49.4{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, 260 basis points higher than LY.

Opening 42 new stores in 2016, some will be the new smaller concept “infil” neighbourhood stores that will address community events.

Canadian Tire

Q2 Total Retail Sales +3.1{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} (includes -5.3{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} Petrolium Sales due to lower prices)

Revenue +2.9{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}, +4.5{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007} excluding Petrolium

Same store sales

  • Canadian Tire +2.9{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}
  • FGL +5.8{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}
  • Marks +4.6{bfa08a400c7550404055ff04715e84c9172815d33c25eb3b84e230636ecdc007}

Retail GM increased 55 basis points.

Karen Aboud

Karen Aboud
K.A.A. Business Solutions
Ontario, Canada
Tel: +1 416-489-0384
Email: kaabusinesssolutions@yahoo.ca
Website: www.kaasolutions.net