Industry News
Loblaw Cuts 700 Head Office, Administrative Jobs
Loblaw Companies Limited said on Tuesday that it is cutting about 700 office and administrative jobs as part of a continuing turnaround plan to reduce costs and make the company more efficient.
The Canadian grocery giant said in a news release that job notices will be going out immediately and the cuts should be complete within three weeks. It said the move will result in a one-time expense of $60 million, to be recorded in the fourth quarter of its financial year.
“We’re managing costs where it makes sense by reducing administrative expense. We will continue to invest in driving the business forward by devoting more resources to enhance the customer proposition,” said Vicente Trius, who took over as president last summer. “The change was made as part of a strategic plan to make Loblaw stronger as we evolve to address changing customer needs and to ensure we have the flexibility to adjust to the demands of the marketplace.”
Loblaw has been undergoing a major turnaround to deal with a variety of challenges, including problematic technology and supply chain systems and growing pressure from competitors such as Walmart and starting next year, Target.
George Condon, a consultant and former editor of Canadian Grocer, told the Globe & Mail that Loblaw had to do something.
“Their sales have not been doing terribly well over the past few years. Loblaw has got a very big, well equipped head office. It seems to me that would be a logical place to cut,” he said. “It’s been a little bit top heavy.”
All the major grocery chains’ profit margins are under pressure, but Loblaw has been particularly hard hit, he added.
The company has poured about $2.3 billion into its technology and supply chain in the past five years, generating savings that now open the way for it to eliminate 700 jobs or 10% of its head office and administrative staff.
The company has been spending an average of about $1 billion a year from 2008 to 2012 on capital expenditures, and roughly half of that has been poured into IT and supply chain enhancements, spokeswoman Julija Hunter said. The annual spending is expected to drop to $850 to $900 million a year in the next few years, the company said.
Loblaw will report its third quarter results on Nov. 14 and has not disclosed expected savings from the job cuts.
Wal-Mart Outlines Financial Plan for Next Year
Wal-Mart Stores Inc. held its 19th Annual Meeting for the Investment Community last Wednesday and said it is gaining market share nearly everywhere it runs stores and still sees its international business as a growth engine despite its decision to slow down store openings in some key countries.
The company told analysts and investors that it is seeing growth in both large and small U.S. stores and has had a strong start to layaway sales ahead of the holiday season.
Chief executive Mike Duke also said the company is “playing to win in a very real way now” in e-commerce. He said he is pleased with Wal-Mart’s progress in online search and other areas.
Wal-Mart reaffirmed its most recent capital expenditure forecast of $12.6 billion to $13.5 billion for the current fiscal year and that the fiscal 2014 capital plan will range from $12.0 billion to $13.0 billion.
The company anticipates 5% to 7% sales growth which is projected to increase net sales by $23.0 billion to $33.0 billion. Retail square footage is expected to grow 3% to 4% in the next fiscal year which would add another 36 to 40 million square feet around the world.
Walmart U.S. has now posted four consecutive quarters of same-store sales growth after nine straight quarterly declines, though the pace of growth slowed to 2.2% in Q2 from 2.6% in Q1, and also trails competitors such as Target and Dollar General Corp.
Walmart U.S. will reduce its fiscal 2014 capital plan from 2013, while balancing its expansion between supercenters and smaller formats. The segment will add approx. 125 supercenters and continue to accelerate the rollout of Neighbourhood Markets, with a goal of 95-115 small formats next year.
“Supercenters remain our primary driver of growth and returns. Because we see increased momentum in comp and total sales and traffic performance, we will continue to accelerate the rollout of Neighbourhood Markets,” said Bill Simon, Walmart U.S. president and CEO. “Our small format provides a competitive advantage that allows us to rapidly fill in new markets and compete more effectively with grocery, dollar and drug store competitors.”
Walmart U.S. has seen roughly $400 million in layaway orders already, after starting the process mid-September, a month earlier than it did when it brought the service back in 2011. With layaway, shoppers buying certain items can put them on hold and pay for them over time.
Plans for Walmart U.S. this holiday season include offering sales prices on certain toys on Tuesdays based on weekend feedback from social media followers and using 100 “Twitter elves” to help with marketing and customer service on the popular microblogging site.
At Sam’s Club, holiday season plans include selling Children’s Place merchandise in its stores. The company said Sam’s Club will leverage efficiencies to add 10 to 15 new clubs and remodel about 15 stores next year in its $1.0 billion capital allocation, which is essentially flat with the current year.
Walmart International’s capital plan is also relatively flat for next year at $4.5 to $5.0 billion, and will deliver growth of 20 to 22 million square feet next fiscal year.
Mr. Duke said Wal-Mart still plans to open more stores around the world, but will slow down store openings in Brazil, China and Mexico. In Brazil and China, Wal-Mart wants to work on making improvements in its hundreds of stores. Meanwhile, the store approval process in Mexico, where its local affiliate has more than 2,000 locations, has slowed and become more complex following allegations that the company bribed government officials to speed up approvals.
Bain Capital to Acquire Apex Tool Group for $1.6 Billion
Bain Capital Partners LLC, a leading global private investment firm, announced last Wednesday that it has signed a definitive agreement to acquire Apex Tool Group, a leading tools manufacturer, from Danaher Corporation and Cooper Industries. The transaction is valued at approximately $1.6 billion subject to post-closing adjustments. Additional terms of the deal were not disclosed.
Apex, formed in July 2010 as a joint venture between Danaher and Cooper (both owning 50%), is one of the largest global producers of industrial hand and power tools, tool storage, drill chucks, chain, and electronic soldering products for industrial, commercial and demanding do-it-yourself applications. Based in Sparks, Maryland, the company serves a variety of markets, including automotive, aerospace, electronics, energy, hardware, industrial, and consumer retail. Apex markets some of the top tool brands in the industry including Crescent® wrenches, GearWrench® ratcheting wrenches, Lufkin® measuring tools, and Jobox® tool storage products, in addition to being the principal manufacturer of several private label products for retailers. Apex has strong market positions in developed markets as well as in key developing markets, such as China and Brazil.
Apex will continue to be led by Steve Breitzka, Apex president and CEO, and the rest of the current management team. “With the support of Danaher and Cooper, we’ve succeeded in combining two premier tool manufacturers into a single world-class company,” said Breitzka. “We are excited that Bain Capital has chosen to invest in the future growth of Apex, and we look forward to partnering with them to seize the many opportunities in the marketplace. Bain Capital’s extensive resources and relevant expertise will help us continue to serve our customers well, strategically grow our market share and create additional career opportunities for our valued associates.”
“We’ve been impressed with the global platform of market leading positions that the Apex team have been able to build. In the market, Apex is known for its long tradition of quality and manufacturing excellence, and portfolio of well-known tools brands,” said Seth Meisel, a managing director at Bain Capital. “Building on this record, we look forward to collaborating with Steve and his team to drive the next phase of growth for Apex.”
The acquisition is expected to be completed in the first half of 2013.
Apex had net income of $134 million on sales of $1.46 billion last year and employs 7,600 people.
Bain Capital, LLC is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity, high-yield assets and mezzanine capital with approximately $66 billion in assets under management. Bain Capital has a team of over 300 professionals dedicated to investing and to supporting its portfolio companies. Since its inception in 1984, Bain Capital has made private equity investments and add-on acquisitions in over 450 companies around the world, including such industrial, distribution and consumer retail companies as HD Supply, Sensata Technologies, SigmaKalon, Feixiang Chemicals, Trinseo, Gymboree, Toys "R" Us, Dollarama, Burlington Coat Factory, and Dunkin' Brands. The firm has offices in Boston, New York, Chicago, Palo Alto, London, Munich, Tokyo, Shanghai, Hong Kong and Mumbai.
Economic News
September Home Resales Rise from August but Plunge 15.1% Year-Over-Year
According to statistics released Monday by the Canadian Real Estate Association (CREA), national home resales rebounded slightly in September, marking the first monthly increase since the spring, but were 15.1% below levels of a year ago – mainly due to a slowdown in Vancouver.
The number of home sales processed through the MLS® Systems of real estate Boards and Associations in Canada rose 2.5% on a month-over-month basis in September. This was the first monthly gain in activity since March 2012 and a partial recovery from the 6.2% drop recorded in August in the wake of the stricter mortgage rules that took effect July 9. Even Greater Vancouver showed a month-over-month rise in sales on a seasonally adjusted basis.
Sales activity picked up in about 60% of local markets in September, including Greater Vancouver, Calgary, Edmonton, Greater Toronto, and Quebec City.
Actual (not seasonally adjusted) activity nonetheless remained down 15.1 % from year-ago levels, with more than half of all local markets posting declines of at least 10%.
A number of cities whose housing markets have been solid in recent years, such as Ottawa, Montreal and Winnipeg, saw declines between 14% and 17% last month from the previous September. Sales in the Greater Vancouver area fell 32.5% from a year ago, according to the region’s real estate board. But the average price of a home still stood at $606,100, down 0.8% from a year ago. Sales in the Greater Toronto area fell 21% from a year ago, according to that region’s real estate board but prices remain higher than they were last September.
In the past three months, combined sales are down about 7% from year-ago levels, compared with a rise of nearly 5% year-over-year in the first six months of the year.
“New mortgage rules continue to keep a lid on national sales activity,” said CREA president Wayne Moen. “That said, national figures mask diverging trends in different markets, with activity down in some places while sales elsewhere remain strong.”
“National activity is likely to remain down from year-ago levels over the fourth quarter of 2012,” said Gregory Klump, CREA’s chief economist. “In the shadow of the latest mortgage rule changes, activity has ratcheted down from higher levels seen during the fourth quarter last year. While some first time home buyers may no longer qualify for mortgage financing under the new rules, it is likely that many others are stepping back and reassessing how much house they can realistically afford, which is one of the things new mortgage rules were designed to do.”
National sales reached 110,376 units in the third quarter of 2012, down 6.5% from the previous quarter. A total of 366,353 homes have traded hands over Canadian MLS® Systems so far this year, up 1% from levels reported over the first nine months of 2011.
The number of newly listed homes rebounded by 6.5% in September on a month-over-month basis after declines in each of the previous two months. Led by double-digit gains in Greater Toronto and Greater Vancouver, new supply was up in more than 60% of all local markets in August, including most other large urban centres.
Calgary and Quebec City were the only two large markets where new listings eased in September, with declines of less than two per cent.
With the increase in new listings outstripping the increase in sales activity, the national housing market became further entrenched within balanced market territory in September.
The national sales-to-new listings ratio, a measure of market balance, stood at 49% in September, remaining near the midpoint of a balanced market. Based on a sales-to-new listings ratio of between 40 to 60 per cent, a little less than two thirds of all local markets were in balanced market territory in September.
The small monthly rise in national sales activity resulted in a decline in the months of inventory to 6.4 months at the end of September compared to 6.6 months at the end of August. Months of inventory readings declined from the previous month in more than half of all local markets.
So far, the sharp decrease in year-over-year sales has not had a major impact on national home prices. The actual (not seasonally adjusted) national average price for homes sold in September was $355,777, up 1.1% from the same month last year.
Most economists expect prices will fall over the next year, and many say a correction in the neighborhood of 10% to 15% would be a healthy development for the market.
The national average price continues to be influenced by compositional factors, most notably by fewer sales in Greater Vancouver this year compared to much stronger levels last year. The result has been a downwardly skewed national average price this year compared to an upwardly skewed average selling price last year.
Excluding Greater Vancouver (which currently accounts for less than 5% of national activity) from the national average price calculation, yields a year-over-year increase of 3.4%, reflecting average sale prices that rose in 70% of all local markets in September.
Unlike average price, the MLS Home Price Index (HPI) is not affected by changes in the mix of sales, so it provides the best gauge of Canadian home price trends.
The index tracks home price trends in some of Canada’s most active housing markets, including Greater Vancouver, the Fraser Valley, Calgary, Greater Toronto, and Greater Montreal. The MLS HPI is also being developed for additional markets whose results will be included in the Aggregate Composite index. Each time an additional market joins the MLS HPI, the Aggregate Composite index will be revised beginning with January 2005.
This month, Regina joined the Aggregate Composite MLS HPI.
The Aggregate Composite MLS HPI rose 3.9% year-over-year in September. This was the fifth time in as many months that the year-over-year gain shrank, and marks the slowest rate of increase since May 2011.
Year-over-year price gains decelerated for all benchmark property types tracked by the index. The increase was strongest for one-storey single family homes (+5.7%) and two-storey single family homes (+5%). Prices for townhouse and apartment units continue to post more modest gains, rising 1.1% and 1.5% respectively.
The MLS HPI rose fastest in Regina (14.2% year-over-year), which was the only market covered by the index in which price growth accelerated.
The MLS HPI also climbed in Calgary (6.5%), Greater Toronto (5.7%), Greater Montreal (2.2%), and the Fraser Valley (2.1%). In Greater Vancouver, the MLS HPI posted a 0.8% year-over-year decline in September.
“It’s just a matter of time” before falling sales lead to lower prices, CIBC economists Benjamin Tal said in the Globe & Mail. “I think that in the next six months, we’ll see a very clear trend of softening prices.” He’s among those who believe that a price correction now would be positive, because it would be worse if the market held strong until interest rates begin rising.
“It’s actually a healthy softening in a reasonably healthy environment,” he said. “You don’t want to start seeing a rapid softening due to the impact of higher rates. Right now, we’re basically choosing to slow. Banks are being more conservative, the government is slowing things, and consumers and home buyers are more selective and more aware of where we are in the cycle. To me this is the healthiest combination for a slowdown; you don’t want to slow down in a panic.”
“The Canadian housing market has clearly lost some of its lustre,” said TD Bank economist Francis Fong in a research note. “Sales have fallen from their peaks in most markets across the country with [September’s monthly] gain only partially offsetting August’s substantial decline.”
“That being said, with interest rates remaining sufficiently accommodative, we do not anticipate any precipitous decline in housing activity in the near term. Rather, we expect a gradual unwinding of the imbalance in both sales and prices over the next few years. Moreover, the bulk of the correction will be concentrated in the markets we feel are particularly overvalued, such as Toronto and Vancouver.
New Home Prices Rise in August
Statistics Canada said last Thursday that its New Housing Price Index (NHPI) rose 0.2% in August from the month prior, following a 0.1% increase in July.
The regions of Toronto & Oshawa and Calgary were the top contributors to the advance.
In Toronto & Oshawa, market conditions were the primary reason for higher prices. In Calgary, builders reported that the main factors were increased material and labour costs, as well as market conditions.
The largest percentage monthly price advance occurred in Quebec City (+0.6%), followed by London (+0.5%), both primarily as a result of higher material and labour costs.
Prices were unchanged in 9 of the 21 metropolitan regions surveyed in August.
On a year-over-year basis, the NHPI was up 2.4% in August, following a 2.3% increase in July. The main contributor to the advance was Toronto & Oshawa.
The largest percentage year-over-year increases occurred in Toronto & Oshawa (+4.7%), Winnipeg (+4.4%), Regina (+3.5%), Quebec City (+3.3%) and Kitchener-Cambridge-Waterloo (+3.0%).
Among the 21 metropolitan regions surveyed, 4 posted 12-month price declines in August. The largest decrease was recorded in Victoria (-3.0%).
New Leading Economic Indicator Introduced
Last Thursday, the Ottawa-based think-tank Macdonald-Laurier Institute launched a new leading economic indicator, filling a gap left by the cancellation of Statistics Canada’s monthly index.
Many other countries have a key leading indicator which incorporates several gauges of economic activity in order to give advance warnings of recessions or upturns. Statistics Canada stopped producing its leading indicator in May amid budget cuts at the agency.
The MLI index “will provide policy makers, business people, investors and ordinary Canadians as much as six months’ advance warning of significant changes in Canada’s economic performance and will do so with a high degree of reliability and accuracy,” said Philip Cross, MLI’s research coordinator and former chief economist at Statistics Canada.
The first monthly reading of the MLI index (which tracks nine components) showed an increase of 0.1% in August, following four consecutive monthly gains of 0.2% determined from historical data.
The MLI indicator contains six of the 10 components of the Statistics Canada index – housing, the U.S. leading indicator, money supply, stock market, average workweek in manufacturing and new orders for durable goods.
Dropped because they no longer reflect significant lead times are retail sales of furniture and appliances, retail sales of other durable goods, service sector employment and ratio of sales to inventory in manufacturing, MLI said.
The MLI index adds commodity prices, employment insurance claims and the spread between government and private sector interest rates.
“Altogether, these nine components cover all the major cyclical parts of the economy, including financial markets, the labour market, exports, housing, and manufacturing,” Mr. Cross said.
Time will be needed to assess the accuracy of the new index or whether economists will put much stock in it. However, it comes amid considerable uncertainty about the direction of the economy.
Canadians’ Debt Levels Higher Than Previously Estimated
The household debt of Canadians, a worrying number for the Federal Government and the Bank of Canada, was even higher than originally thought last year, according to revisions by Statistics Canada announced on Monday.
In 2011, the ratio of household debt to income was 161.7%, up from 150.6%, under a new system of economic accounting adopted by the agency. And that rate has continued to rise in the first half of 2012.
The debt-to-income ratio rose to 163.4% in the second quarter of this year from 161.8% in the first quarter.
The adjustments, using new international standards, were due to an upward revision of household credit market debt, to $1.61 trillion from $1.59 trillion, Statscan said. Also affecting the household debt number was a redefinition of household disposable income, as well as the removal of non-profit groups serving households from the calculations.
Meanwhile, household net worth was also revised to $6.6 trillion last year, from $6.3 trillion calculated under the old system. On a per capita basis, net worth rose to $190,800 from $182,900. The majority of this increase was due to improved valuation of unlisted shares – which are now recorded at market value rather than book value – Statistics Canada said.
In the second quarter of 2012, national net worth rose 1.2% to $6.8 trillion, from $6.7 trillion in the first quarter. Among households, net worth rose 0.9%, largely on rising house prices.
Canadian Companies Less Positive Amid Global Uncertainty
Canadian companies are scaling back on their business and investment plans because of weak global growth and uncertain demand, according to a Bank of Canada survey.
In its autumn Business Outlook Survey released on Monday, the central bank said that Canadian companies “have tempered their expectations for business activity.”
“Firms are generally more circumspect about near-term investment decisions and are focusing on minimizing costs,” the bank said, adding that companies expect little change in the pace of sales growth over the next 12 months.
The survey found 40% of businesses said the pace of sales growth increased over that past 12 months, while 34% said growth had slowed. The other respondents saw no change. In the bank’s summer survey, 53% said sales growth had increased over the past 12 months.
For the next 12 months, most businesses are evenly split at 35% between faster and slower sales growth expectations. The previous July survey showed 47% expected sales to grow.
“Amid further indications that the global economic outlook will remain subdued, the moderation in future sales expectations was concentrated among firms most exposed to global demand, particularly those in the manufacturing sector,” the bank said. “Commodity demand and steady, albeit modest, domestic momentum are still among the main factors generally providing positive support for firms’ sales outlooks.”
The bank reported that “the balance of opinion on investment remains positive but has declined, as many firms report shifting their focus toward more intensive use of existing capital over the near term.”
In regards to investment, 37% of companies said they plan to increase spending over the next 12 months, compared with 29% that said investments would be lower. The previous survey showed 43% had planned to make investments.
Hiring plans were “also less widespread” than indicated in the previous survey.
Results showed that 44% of companies plan to increase employment levels over the next 12 months, down from 59% in July, while 18% said those levels would decline.
“A number of firms cited productivity gains from recent capital projects, efforts to reduce costs or demand conditions as factors influencing their hiring decisions,” the bank said.
Pressures on productivity capacity was mainly unchanged in the autumn survey, while companies expect input prices to rise at the same pace over the next 12 months and output prices to accelerate, indicating “a desire to improve profit margins.”
The survey showed companies see little threat from inflation. Some 95% of respondents said they expect inflation would remain between 1% and 3% over the next two years.
On balance, firms reported that credit conditions eased over the past three months.
Meanwhile, Bank of Canada Governor Mark Carney said in a speech on Monday to the Vancouver Island Economic Alliance that his quarterly economic forecast, due out next Wednesday (Oct. 24) one day after the next interest rate decision announcement, will reflect a prolonged global recovery, suggesting he may reduce his outlook and delay raising interest rates.
“Elevated global uncertainty is holding back global economic growth and, thus, the demand for Canadian exports,” Mr. Carney said. “There is some evidence that global uncertainty is affecting domestic activity.”
Global demand is being curtailed due to uncertainty created by the eurozone debt crisis over the past two years and by the impending so-called U.S. fiscal cliff (the $607 million in U.S. spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts), Carney said.
The central bank’s new forecast “will take into account the impact of uncertainty,” Carney added. He has said since April that tighter policy “may become appropriate” as the economy moves toward full output, a phrase he did not use on Monday.
The Bank of Canada will drop its rate guidance in next week’s statement and Monetary Policy Report, or at least water it down enough to negate its usefulness, according to Scotiabank economist Derek Holt. “Gone will be the hawkish paragraph pointing to hikes at some point,” he said in a research note regarding Mr. Carney’s speech.
“Markets have virtually completely wrung out any hiking expectations during the next year in the wake of the speech – and may carry sentiment further, given the shift – though we would suggest the BOC is far from seriously considering a rate cut,” said Marc Chandler, fixed income and currency strategist at RBC Capital Markets.
As Canadians continue to pile on debt at a record pace, Mr. Carney however did say that the Bank of Canada would be ready to act in a worst-case scenario and that he would be quite clear about his intentions if they were forced to raised interest rates to quell borrowing growth.
