CHHMA - EYE ON OUR INDUSTRY
Volume 11, Issue 30, August 17, 2011
Inside This Issue:
Register Now for the Industry Memorial Golf Classic
Spots Still Available for CHHMA Go Kart Night
Combi Inc. Appoints New Account Manager
Second Quarter Retailer Results
Canadian Home Resales Stable in July; CREA Hikes Housing Forecast
New Canadian House Prices Continue to Rise in June
Canadian Banks Shifting Rate Increase Forecasts Into 2012
U.S. Home Building Declines in July
U.S. Retail Sales Rise in July
Association News
Register Now for the Industry Memorial Golf Classic
This year's Industry Memorial Golf Classic is being held on Tuesday, September 27th at a new location; the Blue Springs Golf Club in Acton, Ontario.
Click here for further registration information.
The event is held each fall in the memory of stalwarts from the Canadian Hardware & Housewares Industry who have recently passed away. This year's honourees include Joseph Kuchar (founder of Recochem Inc.), Sheldon (Shelly) Lush (former president & chairman of Supreme Aluminum Industries Ltd.), Jack Joseph Pountney (Proctor Silex, Shetland Lewyt, Hoover Company) and
Christof Vanooteghem (LM2 Marketing, Imperial Manufacturing Group, UAP/NAPA).
In addition, we will remember previous honourees: Ian Hay, Trygve Husebye, Bernie Carpenter, Don McDonald, Les Groves, Bob Hilton, Doug Straus, Mel Boshart, George Giles and Ed Barnes.
The event is open to CHHMA members and non-members with golf & dinner or dinner only options.
Money raised from the hole sponsorships and the silent auction will go towards the CHHMA Scholarship Program which provides support for children of CHHMA member company employees to attend university or college.
Consider donating an item or items for the silent auction. Housewares or hardware products, golf items or any item interesting and/or unique would be sincerely appreciated. Whether or not you can attend the tournament, your donation will contribute to the Scholarship Progam which has benefited 54 young people since 2001. Click here for a silent auction pledge form.
If you have any questions, contact Pam Winter at 16-282-0022 ext.21 or pwinter@chhma.ca.
Spots Still Available for CHHMA Go Kart Night
The CHHMA Go Kart Night is taking place on Thursday, September 1st at the Circuit ICAR motorsports complex (http://www.circuiticar.com/accueil.html), located 20 minutes north of Montreal in Mirabel, Quebec.
The Go Kart racing will take place on an outside 1 km long track designed by 1997 F1 World Champion Jacques Villeneuve, where karts can reach speeds of up to 65 km/h.
The cost to attend is $100 for CHHMA members, $120 for non-members plus taxes and will include a cold buffet served in the clubhouse (5:00 p.m.) prior to the racing competition which will start at 6:30 p.m. The competition will be a team format so register a team foursome (individuals not registering as a foursome will be assigned to teams). The event is limited to 40 persons. Click here to register: http://www.chhma.ca/Public/CHHMA-Upcoming-Events.
Member News
Combi Inc. Appoints New Account Manager
Combi Inc. is pleased to announce the hiring of a new account manager, Dave Mayhew.
During the past two years, Dave has worked as a national account manager for Globe Electric. Prior to that, he has worked for Reebok Canada for over 11 years as a sales representative and then director of sales. The company is confident that his vast experience will be a welcome addition to the Combi team and will add value to the relationships they have built with their customers and partners in their common goal to grow sales in the Canadian market.
Dave can be reached at: 514-352-3126 ext.227, dmayhew@combiinc.com.
Industry News
Second Quarter Retailer Results:
Canadian Tire Spending, Bad Weather Lowers Profit in Q2
Aug. 11, Canadian Tire Corporation, Limited released its second quarter results for the period ended July 2, 2011. Consolidated retail sales increased 5.1% to $3.0 billion and consolidated revenues increased 4.1% to $2.57 billion compared to Q2 2010. Consolidated net income fell 13.9% to $105.8 million and basic earnings per share were $1.30 compared to $122.8 million and $1.51 respectively last year.
Lower net income was largely due to planned increases in marketing and advertising expenditures, expenses related to strategic initiatives, lower than expected sales in certain seasonal categories and costs associated with the offer to purchase the Forzani Group Limited.
Retail sales benefited from higher revenues (+22.8%) at its gas stations as pump prices were up significantly and new locations were added. Retail sales at Mark's were up 0.5% in the quarter with a 0.1% increase in same-store sales. Revenue from the financial services business slipped 2.9% in the second quarter, primarily because of higher loan impairment expenses.
Retail sales at Canadian Tire stores increased 1.9% in Q2 2011, up from the 1.3% increase recorded in Q1 2011. Sales increases were driven by solid growth in the Living category, which saw strong sales in backyard living, kitchen and household cleaning. Growth in Living was partially offset by a decline in categories like outdoor tools and gardening which were negatively impacted by cool, wet weather at the start of the quarter. The Automotive category in Canadian Tire stores posted another quarter of increased sales, reflected in strong growth in tires, parts and pressure washers.
Same-store sales for Canadian Tire banner stores increased 0.9% in Q2 2011 from last year.
Home Depot Profit Climbs 14% in Q2
Aug. 16, Home Depot Inc.'s second quarter net income rose 14% for the three months ended July 31, 2011, as shoppers picked up lawn and garden products and made storm-related repairs during the summer.
Net income rose to $1.36 billion (U.S.), or $0.87 per share, up from $1.19 billion, or $0.72 per share in the same period last year. Revenue rose 4.2% to $20.23 billion.
Same-store sales rose 4.3% globally and 3.5% in the U.S.
"Our second quarter results were driven by a rebound in our seasonal business, storm-related repairs and strength in our core categories," said CEO Frank Blake in a statement.
Lowe's Results Impacted by Weather, Economy Worries in Q2
Aug. 15, Lowe's Companies, Inc. reported its second quarter results for the period ended July 29, 2011. Net income was nearly flat as volatile weather and shoppers' worries about the economy muted sales during the key summer selling season.
Net earnings for the quarter totalled $830 million (U.S.), or $0.64 per share. That compares with $832 million or $0.58 per share, last year. Excluding a one-time charge related to an evaluation of the value of some assets, mainly seven stores it closed August 14, earnings totalled $0.68 per share.
Revenue rose 1.3% to $14.54 billion, up from $14.4 billion in Q2 2010. Same-store sales fell 0.3%.
Poor Weather Hurts RONA's Profit in Q2
Aug. 10, RONA inc. announced its second quarter results for the three months ended June 26, 2011. Profit fell to $37 million, or $0.28 per share, from $66.3 million, or $0.51 per share a year earlier. Revenues slipped 2.4% to $34.2 million. Same-store sales were down 9.6% in the quarter and the company expects these same-store sales to be in negative territory for the rest of the year. The slowdown in same-store sales was partially offset by acquisitions, which added $98.6 million in sales to consolidated revenues, for growth of 7.0%.
Hit by poor spring weather, softening consumer confidence, and stepped-up competition from Lowe's, RONA expects to continue to struggle in a tough sales environment for the rest of the fiscal year. But it forecast that it can keep profit margins steady by slashing costs and improving efficiencies. RONA recently announced it will scale back some of its expansion plans by opening fewer new stores and spending $25 million less in capital expenditures.
RONA said that they have increased the sales penetration of their private brand and controlled brand products from 24% to 28%, reduced same-store administration expenses by 10%, reduced same-store retail and distribution inventories by $15 million, and have been very disciplined in their capital investments. These measures are expected to have a positive result in coming quarters.
Sears Canada Posts Loss in Q2
Aug. 16, Sears Canada Inc. recorded a loss in the second quarter ended July 30, 2011, as the department store chain suffered a drop in revenue and same-store sales.
Sears Canada had a loss in the quarter of $2.7 million or $0.03 per share, compared with a profit of $20.5 million, or $0.19 per share, in the same 2010 quarter. Total revenues for the quarter were $1.15 billion, a 5.3% decline from $1.21 billion a year ago. This follows a weak first quarter performance in which Sears Canada recorded a net loss of $49.5 million.
Same-store sales decreased 5.8%.
"We are disappointed with our performance and know we have enormous potential to improve and deliver value to Canadians by delivering a more compelling customer-driven proposition," said President and CEO Calvin McDonald in a statement. "The leadership team and I are working on longer-term initiatives planned to bring out the potential in Sears Canada to re-energize and transform the company into a more meaningful shopping choice for Canadians coast to coast."
Target Profit Up 3.7% in Q2
Aug. 17, Target Corporation reported a larger than expected rise in second quarter profit buoyed by its push into groceries, strong back-to-school sales and growth in its credit business.
Target earned $704 million (U.S.), or $1.03 per share, in the second quarter ended July 31, 2011, up from $679 million, or $0.92 per share, a year earlier. Revenue rose 4.6% to $16.24 billion, up from $15.53 billion.
Same-store sales were up 3.9%, up from 2.0% in Q1.
Results in the company's credit card business also improved. Bad debt expenses plunged to $15 million from $138 million and profit rose to $171 million from $149 million.
Target is counting on two key initiatives to drive revenue - its larger food offering and its 5% discount it began offering in October to customers who pay with Target branded credit and debit cards.
On August 10th, Target announced plans to build a 1.3 million sq. ft. distribution centre in Cornwall, Ontario. The company purchased 169 acres of land in the Cornwall Business Park and construction of the new building has already started. A logistics company will run and handle the distribution centre which is expected to open ahead of the new Canadian stores in early 2013.
Wal-Mart Profit Up, U.S. Sales Fall 0.9% in Q2
Aug. 16, Wal-Mart Stores, Inc. reported that net sales for the second quarter of fiscal year 2012, ended July 31, 2011, were $108.6 billion, an increase of 5.5% from last year, with contributions from all segments.
Income from continuing operations attributable to Walmart for the quarter was $3.8 billion (U.S.), up 5.7% from last year. The retailer earned $1.09 per share from continuing operations, up from $0.97 a year earlier.
Sales at its U.S. Walmart stores open at least a year fell 0.9% during the second quarter, marking the ninth straight quarterly decline as it tries to bring bargain hunters back to its stores. The company's goal is for same-store sales to turn positive by the end of the year.
Wal-Mart has seen customers move to even lower-priced dollar stores as unemployment remains high and inflation cuts into people's spending power. The company has seen U.S. shoppers trying to save money by buying items like lower priced detergents or smaller packages of items.
International sales and sales at the company's Sam's Club unit helped offset the decline at its U.S. Walmart stores. Walmart International increased net sales 16.2% to $30.1 billion for the quarter. Net sales for Sam's Club, excluding fuel, grew to $12.0 billion, an increase of 4.9% from last year. Sam's Club same-store sales, without fuel, increased 5.0% for the period.
Economic News
Canadian Home Resales Stable in July; CREA Hikes Housing Forecast
According to statistics released Tuesday by the Canadian Real Estate Association (CREA), national resale activity was stable in July following an upturn in June, but posted a big year-over-year gain due to weakened demand in July 2010.
National home sales held steady in July from the month prior, with just over half of local markets posting month-over-month gains. Major markets that saw a monthly gain included Edmonton, Montreal as well as Newfoundland and Labrador. Activity was flat in Toronto, while Vancouver recorded a small decline.
"The continued stability in national sales activity shows that homebuyers remain confident about the soundness of investing in a home," said Gary Morse, CREA's President. "Mortgage interest rates are low and keeping home affordability within reach, making it an excellent time for buyers to take advantage of very favourable financing."
Actual (not seasonally adjusted) sales were up 12.3% from a year ago, reflecting weak activity in July 2010, when levels for the month reached their lowest point since 2002.
A total of 284,537 homes have traded hands via Canadian MLS so far this year. This stands just 1.6% below levels in the first seven months of last year, and continues to run in line with the ten-year average.
The number of newly listed homes edged up by less than 1% from June to July. New listings were down in 60% of local markets, but increased in many large cities including Toronto, Vancouver, Edmonton and Ottawa. The national housing market remains firmly planted in balanced territory. The national sales-to-new listings ratio stood at 51.8% in July, which was little changed from 52.3% in June. The number of months of inventory stood at 6.1 months at the end of June nationally, also little changed from 6.0 months at the end of June.
The actual (not seasonally adjusted) national average price for homes sold in July 2011 stood at $361,181, which is the lowest level since January. While this is up 9.3% from a year ago, the increase reflects a short-lived decline in the average price following the introduction of the HST in B.C. and Ontario, and tighter mortgage regulations earlier in 2010.
"Earlier this year, the national average price was being skewed upward by sales in some expensive Vancouver neighbourhoods, but this factor is now diminishing," said Gregory Klump, CREA's Chief Economist. "Upward skewing of the national average price is also shrinking due to overall sales trends in Vancouver, and most recently Toronto. Their market shares as a percentage of provincial and national sales activity are declining from the elevated levels seen in the first half of the year."
On Tuesday, CREA also announced that it has increased its forecast for home sales activity via Canadian MLS for 2011 and 2012, reversing its previous call for a slowdown in housing sales.
Overall, sales activity and prices remained stronger than expected in the second quarter. Sales momentum was also better than expected heading into the third quarter. As a result, the 2011 national forecasts for sales and average price have been raised slightly. National sales are now forecast to reach 450,800 units in 2011, up less than 1% from levels in 2010. The previous forecast called for a decline of about 1% for 2011. Erosion in affordability due to higher prices has prompted a small decline to the outlook for 2012 to 447,700 units.
B.C.'s sales forecast for 2011 has been revised slightly higher, in recognition that home sales there appear to have bottomed out sooner than previously anticipated. The sales forecast for Ontario has been raised, while the outlook for activity in Quebec, Manitoba and Newfoundland and Labrador has been revised lower.
"While there had been some talk of potential interest rate increases, that hasn't happened," said Morse. "In fact, mortgage interest rates have actually come down, and are now expected to remain low for the remainder of this year and into 2012"”
The national average home price is forecast to rise 7.2% in 2011 to $363,500. This is an increase from the previous forecast, reflecting continued strong price growth in Vancouver in Q2 2011 and acceleration of prices elsewhere, particularly Toronto. The national home price is expected to moderate in the second half of 2011, returning to normal following a heavily skewed start to the year due to a surge of multimillion-dollar sales in parts of Greater Vancouver and a higher than normal share of overall sales in more expensive markets.
"Additional new listings are anticipated to result in a more balanced resale housing market in most provinces," said Klump. "The national average price is forecast to stabilize (0.0% change) in 2012, although at a slightly higher level than previously expected."
New Canadian House Prices Continue to Rise in June
Statistics Canada said last Thursday that its New Housing Price Index (NHPI) rose 0.3% in June, following a 0.4% advance in May.
The metropolitan area of Toronto and Oshawa registered the largest increase of the 21 metropolitan regions surveyed. Prices remained unchanged in 10 of those regions.
In Toronto and Oshawa, the price increases were mainly a result of good market conditions whereas builders in Winnipeg cited higher material costs as the main reason for the price increase in that region.
The most significant monthly price decline was recorded in Calgary (-0.3%), as some builders offered promotional pricing to generate sales.
Year-over-year, the NHPI was up 2.1% in June following a 1.9% increase in May. The largest annual price increase was in Toronto and Oshawa (+4.7%) followed by Winnipeg (+4.4%). Prices were also higher in St. John’s (+4.3%), Regina (+3.9%), Kitchener-Cambridge-Waterloo (+3.6%) and Montreal (+3.4%). Eight of 21 metropolitan regions surveyed posted year-over-year declines led by Windsor (-4.3%) and Victoria (-1.7%).
Canadian Banks Shifting Rate Increase Forecasts Into 2012
Canadian Banks, which only last month expected the Bank of Canada to resume tightening this fall, are pushing rate hike forecasts into next year following the recent financial market turmoil.
Last Friday, RBC Capital Markets and BMO Capital Markets said they now see interest rates on hold until the second quarter next year. Previously, TD Securities and Scotia Capital had adjusted their forecasts on rate hikes into 2012 based on the deteriorating global economic and fiscal conditions. Other forecasters have also indicated their economic outlooks are under review.
The swings in the market, mixed economic data, and the debt crises in Europe and the U.S. were all factors behind the changing forecasts.
Some forecasters were already leaning towards delayed rate hikes, but confirmed their views after the U.S. Federal Reserve pledged on Tuesday to keep interest rates low for at least another two years.
While more economists now expect interest rates in Canada to stay lower for longer, few are expecting an outright cut.
U.S. Home Building Declines in July
U.S. builders broke ground on fewer single-family houses in July, leaving home construction at depressed levels in that country. The Commerce Department reported on Tuesday that builders began work on a seasonally adjusted 604,000 homes in July, down 1.5% from June. That’s half of the 1.2 million homes per year that economists say must be built to sustain a healthy market.
Building of single-family homes, which represent 70% of home construction, fell 5% while apartment buildings rose more than 6%.
Building permits, a gauge of future construction, fell 3.2%.
The number of homes under construction is at its lowest level in 40 years. Just 413,000 homes are under construction, after accounting for seasonal factors. A decade ago, that figure would be roughly 1.6 million homes. Though new homes represent 20% of the overall housing market, they have an outsize impact on the economy. Each home creates an average of three jobs for a year and about $90,000 (U.S.) in taxes, according to the National Association of Home Builders. After previous recessions, housing accounted for 15% to 20% of overall economic growth. This time around, between 2009 and 2010, housing contributed just 4% to the U.S. economy.
Over the past year, the number of finished apartments in the U.S. has surged nearly 63%, the largest percentage increase since 1996. Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their rapidly depreciating homes.
New home sales fell in June to a seasonally adjusted pace of 312,000 homes per year. That's less than half the 700,000 per year required in a healthy market. Despite historically low mortgage rates, few Americans are prepared to buy a home as the economy fizzles and job growth is stagnant.
The National Association of Home Builders said on Monday that its survey of industry sentiment was unchanged at 15 this month. The index has been below 20 for all but one month during the past two years and is just seven points above the lowest reading on record, in January 2009. Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006.
David Crowe, the group's chief economist, said a weakening U.S. economy and high unemployment are "discouraging many potential buyers from exploring a home purchase. Even record-low mortgage rates have done little to boost sales."
U.S. Retail Sales Rise in July
Data released last Friday from the Commerce Department showed that U.S. retail sales in July posted their biggest gain since March, as consumers spent more on autos, furniture, clothing and gas.
Retail sales climbed 0.5% in July, following an upwardly revised 0.3% gain in June. Excluding autos, sales increased 0.5%, well above forecasts for a 0.2% gain. Sales were bolstered by a 1.6% increase at gasoline stations, reflecting the higher price of fuel. Auto sales rose 0.4% after a 0.7% gain in June. Purchases of furniture rose 0.5%, electronics stores sales increased 1.4%, and sales at specialty clothing stores climbed 0.5%. Sales at general merchandise stores were flat in July, following a 0.5% rise in June. Many retailers had reported last week that back-to-school promotions had helped boost their sales in July.
High unemployment and a spike in gas prices forced many consumers to be more cautious about spending. Their hesitation was a major reason why the U.S. economy grew a meagre 0.8% in the first six months of the year, the weakest growth since the recession ended.
Meanwhile, U.S. consumer sentiment has dropped to its lowest point in more than three decades in the early August according to a survey released last Friday. The Thomson Reuters/University of Michigan's preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, and down from 63.7 in July.
High unemployment, stagnant wages and protracted debate over raising the U.S. government debt ceiling spooked consumers.
Two-thirds of all consumers surveyed reported that the economy had recently worsened, and just one-in-five anticipated any gains during the year ahead. Bad times in the economy were expected by 75% of all consumers in early August, just below the all-time peak of 82% in 1980.
While consumer spending may have increased in July, this consumer sentiment report indicates that this may not be the case in August.
CHHMA Events For 2011
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Soiree Karting/Go Karting Night
Thursday, September 1
Circuit ICAR, Mirabel, Quebec
Industry Memorial Golf Classic
Tuesday, September 27
Blue Springs Golf Club, Acton, Ontario
Industry Cocktail
Tuesday, November 29
Casino de Montreal, Montreal, Quebec
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To register for all events visit our website at www.chhma.ca or call Pam Winter at (416) 282-0022 ext.21.
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"Eye On Our Industry" is published by the CHHMA as an information resource for our members. Member input regarding content and format is welcomed. Please contact Michael Jorgenson by email: mjorgenson@chhma.ca, or call at (416) 282-0022, ext. 34. CHHMA is located at 1335 Morningside Ave., Suite 101, Scarborough, ON, M1B 5M4 www.chhma.ca