CHHMA - EYE ON OUR INDUSTRY
Volume 11, Issue 19, May 19, 2011


Industry News

Canadian Tire Profits Up in First Quarter; CTC To Add Major Appliances  
     
Last Thursday, Canadian Tire Corporation, Limited released its first quarter results for the period ended April 2, 2011. First quarter profit rose 13.4%, aided by a boost in retail sales and its gas bars. For the period, the company reported earnings of $58.4 million, or $0.71 per share, compared with $51.6 million, or $0.63 per share, in the same period a year earlier. Consolidated revenues rose 4.6% to $1.98 billion and total retail sales, which includes sales at Mark's and at its gas bars, rose 3.7%. Retail sales at its flagship Canadian Tire stores slid 0.6%. Sales at gas bar locations rose 15.8% on higher volume and prices. Mark's sales rose
6.2% over the same quarter a year ago. The automotive category in Canadian Tire stores increased year over year reflecting the company's focus on this important business. Same store sales were down 1.4% for Canadian Tire stores in the first quarter. Mark's same stores sales were up 6.2%.

"Our revenue performance in automotive, apparel and financial services met our expectations for the quarter and we are pleased with our overall consolidated earnings and growth," President and CEO Stephen Wetmore said in a statement. "We saw strong retail sales in January and February, however, unseasonable weather in March, and continuing into April, has reduced our customer traffic and sales in seasonal product categories [gardening, cycling, backyard products]. We are a strong business, executing well on our key programs, so it's unfortunate to see how our seasonal business impacted our results this quarter."

Canadian Tire also announced at the company's annual general meeting of shareholders last Thursday that the company is finally making strides in improving its automotive business and that it will begin selling major appliances in its stores across Canada to bolster its assortment of household goods.

To revitalize its automotive department, the retailer put more than 4,000 employees through a 'tire training' program and assigned 35 in-field auto specialists to oversee a network of about 15 stores a piece. It installed kiosks in its stores for consumers to look up and order tires on the spot; the ability to order online will follow later this year. It also piloted a program to increase the number of available parts to its stores.

Now Canadian Tire is plotting a dramatic makeover of its "living" segment which includes kitchen, storage and organization, by expanding into appliances and beefing up kitchen and other goods. With Target set to arrive in Canada by 2013, Canadian Tire is looking to draw more women into its stores with a wider array of kitchen, home-storage and patio goods, including more upscale brands.

Canadian Tire's research shows that the retailer is already the country's #1 seller of kitchen and home organization products, but ranks only fifth or sixth as the destination among women for those products. In other words, women often purchase a kettle or shelving unit at Canadian Tire simply because they're already in one of those stores picking up a gardening tool or bicycle, not because the retailer was top-of-mind for those home products.

Mr. Wetmore believes he can bolster sales by getting women to head to the retailer specifically for home goods, rather than buying them as an afterthought. The strategy includes the addition of large appliances to the mix, such as refrigerators and washing machines, because they are the types of products for which shoppers make a special trip.

Canadian Tire tested a select array of appliances in 11 stores last year and will roll them out to most outlets in 2011. A wider makeover of the stores' home or living section will first appear as a store pilot later this year and launch in all outlets next year, executive vice-president Mike Arnett said. The appliances won't replace other products as the company is planning to make better use of the stores' existing space.  
  

Home Depot Sales Lower in First Quarter

On Tuesday, Home Depot Inc. reported weaker than expected first quarter sales as inclement weather hurt demand for seasonal goods at the start of the spring selling season. Sales fell 0.2% to $16.82 billion (U.S.) in the first quarter ended on May 1, 2011. Lower expenses helped on the profit front. Net income rose16.3% to $812 million, or $0.50 per share, from $725 million, or $0.43 a share, a year earlier. Sales at stores open at least a year fell 0.6%, with those in the U.S. declining 0.7%. Home Depot still expects fiscal year sales to be up about 2.5%. It sees earnings of $2.24 a share, excluding future stock repurchases, up from a prior forecast of $2.20.

"We continued to improve our business and delivered double-digit earnings growth," said Frank Blake, Chairman and CEO. "Our sales declined slightly due to a slow spring selling season, but for the year we expect sales to grow in line with the guidance we previously provided. We will maintain our focus on providing great customer service and product and project values."

Meanwhile, a new management team has been unveiled at The Home Depot Canada "to simplify the structure of the merchandising department, to increase speed to market, and streamline decision making," said new President Bill Lennie in a letter to vendors.

Jeff Kinnaird replaces Gino DiGioacchino, who has left the company, as Vice President of Merchandising, and will be responsible for merchandising operations, global sourcing, and development of private labels. Kinnaird was most recently VP Operations for Canada East. Mark Getty has become Senior Director, Merchandising Operations in charge of field merchandising, store environment, integrated vendor services, and business lifecycle approach and execution. He was previously Director, Canadian Operations. John DeFranco has become Senior Director Global Sourcing and Merchandising Strategy. He will be responsible for assortment planning, private brands, and trend and design leadership. He was formerly Senior Director Softlines.

Within the category management team, the departments have been streamlined from six directors of merchandising to four. The changes were made to better focus those departments on four key categories: hardlines, building materials, projects and decor. Pam O'Rourke, Director of Merchandising - Hardlines, is now leading departments 25 and 28. Doug Graham, Director of Merchandising - Decor, will now lead departments 23, 24, 27L and 59. Mark Coffey, Director of Merchandising Project Business, will now lead departments 29A, 29B, 29K and 30. A fourth Director of Merchandising - Building Materials has yet to be named. That person will lead departments 21, 22, 26and 27E.

Other key positions include Jeff Hastings as Regional VP, Operations, Canada West. He'll assume overall duties for Canadian store operations. He was Regional Director, Operations. Dan McAreavey is now Regional VP, Operations, Canada East. He'll also continue as VP Contractor Services for the company's pro, installation and rental services. Mike Rowe, VP Finance, will add supply chain to his portfolio.  
        

Lowe's Reports Lower First Quarter Sales & Earnings  
 
Lowe's Companies, Inc. reported on Monday net earnings of $461 million for the first quarter ended April 29, 2011, a 5.7% decrease from the same period a year ago. Earnings per share of $0.34 were flat compared to the first quarter of 2010. Sales for the quarter decreased 1.6% to $12.2 billion from $12.4 billion in the first quarter last year. Comparable store sales for the first quarter decreased 3.3%.

During the first quarter, Lowe's opened four stores, including one relocation, and closed one store that was damaged by a tornado. As of April 29, 2011, Lowe's operated 1,751 stores in the U.S., Canada and Mexico representing 197.3 million square feet of retailing space, a 1.6% increase over last year.

"We delivered earnings per share within our guidance for the quarter, despite lower than expected sales," commented Robert A. Niblock, Lowe's Chairman and CEO. "During the quarter, we faced ongoing economic pressures, unfavorable weather conditions and tough comparisons to last year's government stimulus programs. While we are focused on competing effectively in the current environment, we are also working diligently on our commitment to deliver better customer experiences. We are building momentum in 2011 behind our transformation from a home improvement retailer to a home improvement company."

For the second quarter, total sales are expected to increase approx. 4%, with comparable store sales increasing approx. 2%.

For the fiscal year, total sales are also expected to increase approx. 4%, with comparable store sales increasing 0%-1%. The company expects to open around 25 stores in 2011 reflecting total square footage growth of approx. 1.3%. Earnings per share are forecasted to be in the range of $1.56 - $1.64 for the fiscal year ending February 3, 2012.


Sears Canada Posts First Quarter Loss on Falling Sales 

On Tuesday, Sears Canada Inc. announced its first quarter results for the 13 week period ended April 30, 2011. Total revenue for the quarter was $992.5 million compared to $1.068 billion last year, a decrease of 7.1%. Same store sales decreased 9.2%. Net earnings for the first quarter were a loss of $49.5 million or $0.47 per share compared to a loss of $8.8 million or $0.08 per share for the same period last year.

Commenting on the results, Dene Rogers, President and CEO, said "Aside from the continuing economic difficulties, several other external factors impacted our results: a cold spring in most of the country which affected apparel and other seasonal categories, and record-high fuel costs and other household expenses which have led to very high debt-service levels curtailing Canadians' discretionary income. Imminent interest rate increases are also affecting spending levels. These factors have combined to create a very competitive retail climate. In addition, our Home Services business also felt the impact of the end of government sponsored home energy rebate programs. Despite a disappointing quarter, Sears is committed to improving its results and we continue to focus on becoming Canada's No.1 retailer and improving the lives of Canadians coast to coast."

Sears Canada operates 196 corporate stores, 272 hometown dealer stores, 33 home improvement showrooms, 1,800 catalogue merchandise pick-up locations and 108 Sears travel offices.

 
Wal-Mart First Quarter Sales Fall, But Profit Improves 

Growing overseas business and strict cost controls helped Wal-Mart Stores Inc.'s net income rise 3% in the first quarter. But the retailer posted their eighth straight quarter of revenue declines at stores open at least a year. The company also offered a cautious earnings outlook because of worries that higher prices for gasoline and groceries could put more strain on its low-income customers.

Wal-Mart reported net income of $3.39 billion (U.S.), or $0.98 per share, in the three months ended April 30,2011. That compares with $3.3 billion, or $0.87 per share, in the same period last year. Net sales for the first quarter were $103.4 billion, an increase of 4.4% from last year's $99.1 billion figure. Wal-Mart's U.S. division posted a 0.3% drop in revenue at stores open at least a year, dragged down by a 1.1% drop at its namesake stores, while Sam's Clubs rose 4.2%. Sam's Club total revenue rose 9.4% and accounts for 12% of company revenue. Wal-Mart's U.S. division eked out a 0.6% in total revenue because it opened more stores.

Wal-Mart is trying several strategies to revive U.S. growth, bring back disaffected customers and draw new ones. It is restoring thousands of items it had stopped carrying in an overzealous bid to streamline its stores. The company is highlighting these items with flags on the store shelves trumpeting "It's Back." Wal-Mart is also hammering its return to the "Every Day Low Price" message with a new ad campaign. And it plans to open smaller stores under a concept it calls Walmart Express.

Wal-Mart's international business, which produces 26% of company revenue, has been a bright spot. The international division's revenue rose 11.5% to $27.9 billion for the first quarter. "Walmart International remains the key growth driver for our company and the segment is seeing continued growth through a combination of comp sales and new stores," Wal-Mart CEO Mike Duke said in a statement.

For the second quarter, Wal-Mart expects earnings per share between $1.05 and $1.10. For stores open at least a year, Walmart U.S. stores could see revenue between -1% and +1% for the second quarter.
  

Stewardship News

Register by 5pm on May 19 for Blue Box Fee Consultation Meeting 

Stewardship Ontario is inviting all Blue Box program stewards to participate in a consultation session to review the fee setting methodology. By participating, stewards can ensure that their questions, concerns and ideas are taken into account by Stewardship Ontario as possible changes to the methodology are being considered.

The consultation will be held at the Sheraton Toronto Airport Hotel and Conference Centre on Thursday, May 26, 2011 from 9am until noon. Attendees may opt to participate in-person or via webcast.

Date: May 26, 2011

Time: 9am to noon

Location: Sheraton Toronto Airport Hotel and Conference Centre
801 Dixon Road, Toronto, Ontario M9W 1J5
http://www.sheraton.com/torontoairporthotel

Room: TBD

If you wish to participate, please complete the registration form by 5pm on Thursday, May 19, 2011. Room name and webcasting information - along with briefing materials - will be sent to all registered attendees on May 20, 2011.
 

Government & Legislative News

Register for Information Session on the New Canadian Consumer Product Safety Act 

Health Canada is inviting industry (Manufacturers, Importers, Distributors and Retailers) to attend a free half-day information session to learn more about the new Canada Consumer Product Safety Act (CCPSA), which is coming into force on June 20, 2011.

There are new requirements you need to know about including: 

- Mandatory Reporting of an Incident 
- Preparing and Maintaining Documents

There are a number of these information sessions being held across the country between May 25 and June 16. Click here to register or visit http://www.healthcanada.gc.ca/productsafety for further information. In order to secure your participation, please note that you are required to register online at least 7 days before the session you would like to attend. 
        

Association News 

Last Call for the CHHMA Ontario Golf Tournament at Angus Glen

The 42nd Annual CHHMA Ontario Golf Tournament is less than a week away and there are still some spots available if you would like to tee it up at the Angus Glen Golf Club in Markham, Ontario next Wednesday, May 25.

The cost to attend is $245+HST for CHHMA members and includes breakfast, golf, an executive lunch, awards and prizes. Each golfer will also receive a pair of golf shoes. The shotgun starting time is 7:45 a.m. and registration and breakfast will start at 6:30 a.m. Proceeds from the day will help support the Ontario Special Olympics.

So invite some of your colleagues or customers and have a great time on the links with your industry peers.

Click here  to register.
 

Jean-Luc Meunier Breakfast Seminar Fast Approaching 

The CHHMA is pleased to be presenting Mr. Jean-Luc Meunier, Sr. Vice-President, Affiliate Dealer-Owner Network Development, RONA inc. at an upcoming breakfast seminar in Boucherville, Quebec on Tuesday, May 31.

The breakfast seminar will take place at the Hotel Mortagne, 1228 Rue Nobel, Boucherville, QC J4B 5H1 with registration starting at 7:30 a.m. followed by breakfast and the presentation from 8:00 a.m. to 10:00 a.m.

The cost to attend is $65 for CHHMA members, $85 for non-members.  Register now.
 

Register Now for CHHMA Western Golf Tournament  

The 15th Annual CHHMA Western Golf Tournament is set for Tuesday, June 7 at the Morgan Creek Golf Club in Surrey, B.C. Tee-off times will be allocated between 11:14 a.m. and 1:17 p.m., followed by dinner and award/prize presentations which will start at 6:30 p.m. The cost to attend is $230+HST for CHHMA members, $255+HST for non-members and $80+HST for dinner only. Money raised from the tournament will go towards the CHHMA Scholarship Program which awards scholarships each year to children of CHHMA member employees.

Click here for further details or to register. 


Night at the Races - June 15th

The 15th Annual CHHMA Night at the Races is taking place on Wednesday, June 15th at the Woodbine Racetrack in Toronto. This year's event will be held in the Favourites Dining Room, which offers a great view of the track and an excellent buffet dinner. The evening is always a lot of fun and is an ideal way to get to know others in the industry. The traditional in-house betting challenge presents the opportunity to win some prizes too.

So invite your colleagues, customers and spouses and we hope to see you there!

Click here for more info or to register. 


Maple Leaf Night Recap 

There was an excellent turnout and the mood was very positive at last Tuesday's Maple Leaf Night held at the Mirage Hotel & Casino in Las Vegas. CHHMA members and Canadian retailers in town for the National Hardware Show had an opportunity to kick back and enjoy some friendly conversation over food and drinks after the opening day of the show. We would like to thank the sponsor companies once again for their support in making this event a success and look forward to seeing everybody next year. 
       

Economic News

New Mortgage Rules Lower April Resales 

Statistics released by the Canadian Real Estate Association (CREA) on Tuesday, showed that national resale housing activity declined in April , reflecting changes to mortgage regulations that came into effect previously. As anticipated, the changes pulled forward some sales activity that would have otherwise occurred at a later date.

Seasonally adjusted national home sales were down 4.4% in April from March, and actual sales were down 14.7% from April of last year. Declines were largest in some of Canada's more expensive and active markets, including Toronto, Vancouver, and the Fraser Valley.

"Last April, several transitory factors artificially boosted sales. This included the impending tightening of mortgage rules, speculation about higher interest rates and the looming introduction of the HST in some provinces. This year, additional measures to tighten mortgage rules were implemented in March and other transitory factors were absent," said Gregory Klump, CREA's chief economist. "This makes it difficult to compare the two months in order to reliably gauge the impact of the latest round of mortgage rule changes."

The number of newly listed homes edged up 1.3% in April from the previous month on a seasonally adjusted basis, but remained well below levels in January and February, when the impending changes to mortgage regulations were announced. With fewer sales and an increase in newly listed homes, the national housing market moved further into balanced territory in April. The national sales-to-new listings ratio (a measure of market balance) stood at 52.5% in April, down from 55.7% in March. More than two-thirds of local markets in Canada were balanced in April. Almost half of the remainder could be classified as sellers' markets based on a ratio of sales to new listings above 60%.

"These statistics exaggerate the year-over-year declines," said Bank of Montreal economist Robert Kavcic. "The market is very balanced, once you smooth things out. If you look at sales versus new listings, we're bang on the long-run average for Canada right now."

The seasonally adjusted number of months of inventory stood at 6.0 months at the end of April on a national basis, up from 5.7 months in March.

The national average price for homes sold in April was $372,544, up 8% from the same month last year. April marked the third consecutive month in which the national average price was up by 8% from year-ago-levels. The national average price was up slightly 0.33% from March's $371,286 level. The national average price has been skewed in recent months due to surging multi-million dollar property sales in selected areas of Greater Vancouver. Demand for these properties moderated in April from March. A reduction in this upward skewing was offset by fewer sales of lower priced properties.

"Changes to mortgage rules that took effect in April 2011 likely sidelined a number of first-time home buyers," said Klump. "By contrast, higher end home sales in Greater Vancouver and Toronto had their best April ever."  
  

U.S. Housing Starts Fall in April

U.S. housing starts and permits for future home construction fell in April as an abundance of homes on the market discouraged builders from taking on new projects, pointing towards continued weakness in the housing market.

The Commerce Department reported on Tuesday that U.S. housing starts in April fell 10.6% from March to a seasonally adjusted annual rate of 523,000 units. That is down nearly 25% from one year ago and is less than half of the 1.2 million housing starts that economists consider as a sign of a healthy market. March's starts were revised up to a 585,000 unit pace from the previously reported rate of 549,000 units.

Tighter lending standards and high unemployment are weighing on the U.S. housing sector, which is in the midst of one of its worst years in history. Builders are also competing with millions of foreclosures, which are forcing down prices for previously occupied homes. The median price of a new home was about 34% higher in March than the price for a resale. That's more than twice the mark up in a healthy housing market.

In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. Many potential buyers who would qualify for loans are worried that prices will fall further. Others are hesitant to put their own homes on the market when prices are dropping.

The weak housing market is weighing on the overall U.S. economic recovery. Each new home built creates an average of three jobs for a year and generates about $90,000 (U.S.) in taxes, according to the builders' group. In the past modern-day recession, housing accounted for 15% to 20% of overall economic growth. In the first post recession year, between 2009 and 2010, housing contributed just 4% to the economy. 


U.S. Builders See Little to Like in Housing Market

U.S. homebuilders are concerned that the struggling housing market won't recover this year and some feel it may be getting worse.
 
The National Association of Home Builders said on Monday that its builders' outlook for the industry in May was unchanged at 16. It has been at that level for six of the past seven months. Any reading below 50 indicates negative sentiment about the market. The index hasn't been above that level since April 2006.

When asked about where they see sales of single-family homes heading over the next six months, the builders offered their most pessimistic outlook since September.

Last year was the worst in more than a decade for sales of previously owned homes and the worst for new-home sales in nearly a half-century.

The trade group cited a handful of factors weighing on the housing market. Some were familiar such as tight lending standards, high unemployment and an increase in the number of homes sold at foreclosure. But the builders' group also noted that higher gas prices were creating "consumer anxiety and reluctance to go forward with a home purchase," said the group's chairman, Bob Nielsen.

About 90% of the builders surveyed said potential buyers are also holding back on purchases because they are concerned they won't be able to sell their current home at a favourable price.

Economists expect home prices will continue to struggle this year before a modest recovery takes hold. The hardest-hit states, including Arizona, California, Florida and Nevada, are inundated with foreclosures and short sales, when a lender allows a borrower to sell their property for less than what is owed on the mortgage.

Builders had been hopeful that a strong spring season, traditionally the best time for home construction, could help power a turnaround. But that has yet to happen. Regionally, the West saw a two-point gain and the South received a one-point gain in their index of construction activity, both to 16. The Midwest held steady at 14. The Northeast fell five points, to 15.

The index gauging current conditions rose one point, to 16, while the recorded foot traffic of prospective buyers also rose by a point, to 14. But the outlook for the next six months fell two points, to 20. That was the lowest level in eight months. 


U.S. Retail Sales Rise in April but at Slower Pace

Sales at U.S. retailers posted their smallest gain in nine months in April as high food and gasoline prices drew spending away from other areas, but upward revisions to March's data suggest consumer spending in the first quarter might have been stronger than initially thought.

Total U.S. retail sales increased 0.5% in April, the 10th straight month of gains, the Commerce Department said last Thursday. March sales were revised up to a 0.9% increase from a previous 0.4% rise.

Sales at gasoline stations, which accounted for about 10.5% of overall retail sales in April, rose 2.7%, after rising 4.1% in March. Excluding gasoline, retail sales were up 0.2% after rising 0.5% the prior month. Sales at food and beverage stores rose 1.2% after gaining 0.2% in March. Sales at building materials and garden equipment suppliers edged up 0.1% in April.

Consumer spending grew at a 2.7% rate in the first quarter of 2011, slowing from a 4.0% pace in the fourth quarter of 2010, according to the Commerce Department's first estimate of GDP determined last month.

In the 12 months to April, overall retail sales were up 7.6%.
        

 CHHMA Events For 2011

Ontario Golf Tournament
Wednesday, May 25
Angus Glen Golf Club, Markham, Ontario

Jean-Luc Meunier, RONA, Breakfast Seminar
Tuesday, May 31
Hotel Mortagne, Boucherville, Quebec

Western Golf Tournament
Tuesday, June 7
Morgan Creek Golf Club, Surrey, B.C.

Night at the Races
Wednesday, June 15
Woodbine Racetrack, Toronto, Ontario

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
Location TBA, Montreal, Quebec

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