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Are The Retailer Blues Over?

Are The Retailer Blues Over?
By Jeff Green @pymnts
7:30 AM EDT August 21st, 2014

Several major public retailers this week reported second-quarter earnings, with a general consensus that positive days appear likely ahead. Or at least that’s the outlook they generally see based on market conditions today that could change quickly given their fragile state with tensions rising overseas and other factors that remain in flux, such as job security.

Comparable same-store (or comp) sales for most of the merchants, which included such names as department-store giants Target and TJX (Marshall’s and T.J. Maxx) as well as home-improvement retailers Lowe’s and The Home Depot, are improving, are at least average comp tickets are. Comp sales are important because they represent trends in foot traffic, which in recent times for some have been on the decline as more consumers have chosen instead to shop online. That has many traditional brick-and-mortar merchants tacking online and omnichannel strategies, with some using different tactics than others.

Here’s a look at the performance of some of the retailers reporting this week. For a review of how some others that reported earlier did during the second quarter, clickhere.

Lowe’s

Home-improvement center retailer Lowe’s reported a positive quarter, with net earnings of $1.04 billion representing a 11 percent increase from $941 million a year ago. Sales increased 6 percent, to $16.6 billion from $15.7 billion, driven partially by a 4 percent rise in comp-store sales, the company said, noting a year ago the increase was the company’s highest ever, at 11.3 percent.

“We recovered most of the outdoor product sales missed in the first quarter due to unfavorable weather conditions,” Robert Niblock, Lowe’s chairman, president and CEO, told analyst during a call to discuss the quarter’s performance. “But discretionary interior projects did not perform as well as expected. Outdoor product sales were strong with a roughly 6.5 percent comp for the quarter, while indoor comps were roughly 3 percent.”

For the quarter, transactions increased 3 percent, and the comp average ticket increased 1 percent.

Home-improvement spending will continue to progress in tandem with strengthening job and income growth, Niblock said. And this also aligns with recent consumer-confidence readings in the company’s second quarter consumer sentiment survey, which revealed that homeowners’ views around personal finances and home values continues to improve, he added.

“Consumers are indicating stronger intentions to complete a home-improvement project, with most of them planning a specific project in the next three months, Niblock said. “And while most of these planned projects are still small ticket, we are seeing a rise in homeowners planning big-ticket projects.”

During the quarter Lowe’s began the relaunch of www.lowesforpros.com, a dedicated platform for professionals to purchase online from Lowe’s, in a test involving a small number of customers. “This site will provide [professionals] useful functionality such as tools to develop requisition list and views of their purchase history as well as customized product catalogs,” he said. “And the site can be integrated with purchasing systems pros use to manage their business to further streamline their day-to-day operations.”

Lowe’s operates 1,837 home improvement and hardware stores in the United States, Canada and Mexico

Home Depot

For another home-improvement retailer, The Home Depot, second-quarter sales were $23.8 billion, a 6 percent increase from $22.5 billion a year earlier. Net earnings were up 14 percent, to $2.05 billion from $1.8 billion. The company says it expects fiscal 2014 sales to rise about 4.8 percent from a year earlier.

Customer transactions totaled 409.7 million, up 4 percent from 393.2 million. The average ticket was $58.43, up 2 percent from $57.39.

Comp sales were up 6 percent from last year, Frank Blake, Home Depot chairman and CEO, noted during an earnings call with analysts. “All three of our U.S. divisions posted mid-single digit comps, with the variance of performance within 100 basis points of each other,” he said. “We are pleased with these results since we were anniversarying double-digit comps in the second quarter of last year. Every region positively comped as did 38 of our top 40 markets.”

Transactions for tickets under $50, representing approximately 20 percent of the company’s U.S. sales, were up 3 percent for the second quarter, Craig Menear, Home Depot president of U.S. retail, told analysts on the call. “Transactions for tickets over $900, also representing approximately 20 percent of our U.S. sales, were up 8.4 percent,” he said. “The drivers behind the increase in big-ticket purchases were appliances, windows, water heaters, wood and laminate flooring.

Target

For Target, U.S. segment second-quarter sales declined 1.3 percent, an improvement of one percentage point from the first quarter, which was the first that reflected the impact of Target’s data breach late last year.

As a company, sales increased 2 percent, to $17.4 billion from $17.1 billion a year earlier, reflecting new-store business and flat comparable sales, which had risen 1.2 percent a year earlier. Net earnings were down 62 percent, to $234 million from $611 million.

Second quarter sales in Canada (a new market for Target) increased 63 percent, to $449 million from $275 million last year, reflecting the contribution from new stores partially offset by an 11.4 percent decline in comparable sales.

During a conference call with analysts to discuss the quarter’s earnings, Kathee Tesija, chief merchandising and supply chain officer, noted that, in the U.S., second quarter comparable sales were strongest in hard lines, driven by both toys and electronics. “Comparable sales were also positive in our less discretionary food, health and beauty categories, while they were down slightly in apparel and down low single digit in home,” she said.

U.S. segment comparable transactions were down 1.3 percent, completely offset by an increase in the average basket, Tesija said. “While we aren’t satisfied with the traffic decline, we are pleased that the U.S. traffic trend improved a full percentage point compared with the first quarter,” she said.

Second-quarter digital sales, including flexible fulfillment, increased more than 30 percent over last year, Tesija said. The rise reflected a nearly 50 percent increase in visits to the company’s mobile website, including iOS and Android apps, which more than offset a decline in visits to the company’s conventional site, she said

“Importantly, conversion continues to improve rapidly on both our conventional site and mobile platforms, driving a meaningful improvement in overall conversion despite the unfavorable mix shift between the migration to mobile,” Tesija said. “To build on our momentum in digital, we recently launched a new ad campaign focused on millennials that aims to expand the brand perception of Target from a brick-and-mortar destination to a total retail experience.”

The campaign features three of Target’s most prominent omnichannel initiatives—subscriptions, store pickup and Cartwheel (a year-old mobile offers/couponing service), Tesija said. “Market research indicates that these three solutions are among the most important to guests because they help them save time, save money, and stay organized,” she said.

Later this year, Target plans to develop an optimized mobile experience and move to test in-store acquisition via mobile devices, and it is exploring gifting subscriptions, which would allow guests to register for subscriptions easy for gift givers to fulfill, Tesija said on the call.

The company was satisfied with the results from a second quarter test of ship-from-store capability in the Boston, Miami and Minneapolis markets. As part of the test, some guests were offered the option of a $10 service to get same day Target.com orders placed before 1:30 p.m., Tesija said.

“In the three test markets, the ability to leverage our store’s crossover inventory has allowed us to capture more sales by meaningfully improving digital in-stocks,” she said. “In addition, shipping from a store dramatically reduces shipping times without the need to rely on air freight.”

This fall, when Target rolls out standard ship-from-store capabilities to 35 additional markets, the company will be within one- to two-day ground transit of 91 percent of the U.S. population, Tesija said.

Target operates 1,925 stores, 1,795 in the U.S. and 130 in Canada.

TJX

At TJX Companies Inc., which includes TJ Maxx and Marshalls stores, net sales for the second quarter of fiscal 2015 increased 7 percent, to $6.9 billion, while consolidated comparable store sales increased 3 percent over last year’s reported 4 percent increase. For Marmaxx (T.J. Maxx and Marshalls stores combined), comparable store sales were up 2 percent after a 4 percent gain a year earlier.

Net income was up 8 percent, to $517.6 million from $479.6 million.

Customer traffic gained momentum throughout the quarter, and was positive in July, the company said. “Over a 37-year history, we have sustained steady sales and earnings growth through many types of economic, retail and consumer environments,” Carol Meyrowitz, TJX CEO, told analysts when discussing the quarter’s performance. “This includes 22 consecutive quarters of consolidated comp store sales increases.”

Customer traffic improved every month of the quarter versus last year and was slightly positive in July, she said, citing eCommerce expansion as one of the company’s four pillars for growth, which also includes driving comp sales, brick and mortar growth and innovation. More than 70 percent of online returns visiting TJX’s stores, Meyrowitz said.

“While it’s still early, we are very pleased with our eCommerce businesses and see online as a growth vehicle for the future,” she said. “Some investors have asked why we’re not moving faster online. To be clear, we are taking a deliberate approach to growing eCommerce to ensure that online growth is incremental to our successful brick-and-mortar business.”

Meyrowitz also cited the recent acquisition of Sierra Trading, an eCommerce business that makes money, “We’re going to learn from them,” she said. “We view online as another way to attract future generations of customers and offer shoppers 24/7 access to our value. Eventually, we can see eCommerce working for all of our retail brands.”

Scott Goldenberg, TJX executive vice president and chief financial officer, noted that second quarter comp was driven by an increase in ticket. Customer traffic was essentially flat for the second quarter and positive in July compared to last year, he said.

As a company, TJX operates 3,279 stores, including 1,090 T.J. Maxx and 956 Marshalls locations.

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