Canadian Tire profit falls, but revenue and sales gain ground. 

Canadian Tire Corp. reported its first-quarter profit fell compared with a year ago as revenue moved higher. The retailer says it earned a profit attributable to shareholders of $69.7 million or $1.12 per share for the quarter ended March 30. That compared with a profit of $78 million or $1.18 per share a year earlier. Revenue totalled $2.89 billion, up from $2.81 billion in the first quarter of 2018. The increase in revenue came as retail sales at its Canadian Tire stores increased 7.4 per cent and comparable sales gained 7.1 per cent.

Source Financial Post

Walmart Rises After Strong Start to Year But Tariffs Still Loom. 

Walmart Inc. advanced after meeting sales estimates and indicating that shoppers will absorb some of the costs from President Donald Trump’s tariffs on Chinese imports. Comparable sales for Walmart stores in the U.S. climbed 3.4% in the first quarter, its best for the period in nine years. Sales of groceries — Walmart’s biggest business — fuelled the increase, and a later-than-usual U.S. flu season boosted health and wellness products. The shares rose as much as 4.1% May 16th in New York, the biggest intraday gain in almost three months. “This is a very good set of results,” Neil Saunders, an analyst at GlobalData Retail, said in a note. “The U.S. operation remains the star of the show.”

Walmart’s response to potential higher levies will likely set the tone for other discount retailers, and its decisions on whether to pass along or absorb the additional costs will have ripple effects on American consumers. In its favour, Walmart’s clout with suppliers gives it more room to maneuver, and much of its food comes from U.S. sources, easing the impact.

“We will do everything we can to keep prices low, but increased tariffs lead to increased prices,” Chief Financial Officer Brett Biggs said in a May 16th morning interview. “It’s very item- and category-specific. There are some places where as we get tariffs, we will take prices up.” Finding alternative manufacturers “is one of a number of actions that our merchants are considering.”

Tariffs, according to Evercore ISI analyst Greg Melich, are “the next key swing factor,” as they could “wipe out” earnings growth across the sector this year. It’s not a Walmart-specific issue: Macy’s Inc. said May 15th, that the latest tariffs, if implemented, would likely be reflected in its prices. Ralph Lauren Corp. also said after reporting results this week that consumer price-hikes could be an end result, though it’s first trying to work with Chinese suppliers to drive down costs and further diversify its supply chain out of China. “It is hard to do the math to find a path that gets you to a place where you don’t have a customer impact,” Macy’s Chief Executive Officer Jeff Gennette said on an earnings call Wednesday, May 15, 2019, describing the impact of the U.S.-China trade negotiations as a “stay tuned” situation.

Consumer Impact

While Walmart is reluctant to raise prices, such a move is “great for retailers,” according to Edward Jones analyst Brian Yarbrough. “The big concern, though, is whether those price increases will stick and will they slow down consumer spending.” Widespread increases in prices could push up inflation, something that’s consistently been weaker than the Federal Reserve’s 2% target. Economists currently project gains in inflation of between 0.1% to 0.3% points amid the Chinese tariffs and counter-levies by 2020. At the same time, Fed policymakers have continued highlighting patience when digesting data. Walmart said on May 16th that it witnessed a “modest increase” in inflation for non-food, everyday staple categories in the quarter.

Web Competition

Web sales in the U.S. increased 37%, slightly ahead of the company’s expected growth rate for the full year. Walmart and rival Inc. are locked in a fierce battle for internet shoppers, and both have recently pledged to speed up delivery times. While Amazon has the overall lead in e-commerce, raking in about 50 cents of every dollar spent, Walmart has the best-developed web grocery business with 2,450 stores offering curb side order pickup and nearly 1,000 providing home delivery. Walmart’s online growth has come at a cost to profitability, though. Gross margins of 24.3% were in line with analysts’ estimates but did mark a slight year-on-year contraction. That can be attributed to higher labor costs, price reductions and online sales that typically deliver lower margins than in-store sales. Transportation expenses, meanwhile, have eased somewhat this year, the company said. On the down side, Sam’s Club’s same-store sales fell short of estimates, dragged down by the elimination of tobacco from some stores.

Source Bloomberg 


Home Depot shares fall on sales miss, hurt by slow start to spring. Home Depot earnings beat despite wet start to spring 

Home Depot on Tuesday, May 21, 2019 reported fiscal first-quarter earnings that beat analysts’ expectations, despite record-breaking wet weather in February and falling lumber prices.

Sales performance came in below the company’s expectations, Home Depot’s CEO Craig Menear said on the company’s earnings call. He attributed this to the month of February being the second wettest on record in the U.S. and the decline in lumber prices, which hurt sales growth. However, Menear, was  “pleased” with the underlying performance of its core business. Home Depot shares were recently up less than 1% in afternoon trading.

Here’s how the company did, compared with what Wall Street expected, according to Refinitiv consensus estimates:

  • Earnings per share: $2.27, vs. $2.18 expected
  • Revenue: $26.381 billion, vs. $26.378 billion expected

Same-store sales growth has moderated for the nation’s largest home improvement retailer. Sales at stores open at least 12 months rose 2.5% on a global basis and were up 3% in the U.S. This was shy of the 4.2% estimate from Refinitiv, but it wasn’t immediately clear if the numbers were comparable due to an extra week in the year-ago quarter. “If you ignore the weather and lumber prices, comps would have been closer to 4.5%,” the retailer’s CFO Carol Tome said on the earnings call.

Tome said February 2019 was the only month of the quarter with negative same-store sales both globally and domestically. Globally, comparable sales were down 2% in February, up 5.6% in March and up 3.2% in April. In the U.S., comparable sales were down 1.9% in February, up 6.1% in March and up 4% in April. Seventeen of 19 regions in the U.S. reported negative same-store sales in February, while only two regions reported same-store sales declines for the quarter, said Tome. 

In the quarter ending May 5, net income rose to $2.5 billion, or $2.27 a share, from $2.4 billion, or $2.08 a diluted share, a year earlier. Analysts were predicting the company would earn $2.18 a share. Revenue climbed 5.7% to $26.381 billion, slightly above Refinitiv’s consensus estimate of $26.378 billion. Home Depot said customer transactions were up 3.8% during the quarter, while the average shopper’s ticket increased 2%, and sales per square foot were up 5.6%.

“While the economy generally played ball, the weather did not, and a very wet start to the year across many parts of the country meant that spending on items for outdoor projects was down considerably,” said Neil Saunders, managing director at GlobalData Retail. “However, as we have seen before, much of this spend is merely delayed and tends to get pushed into other periods. In any case, we believe that Home Depot managed to navigate this slip in demand far better than rivals, including Lowe’s. ” 

Oppenheimer’s Brian Nagel told CNBC’s  “Squawk Box ” that improving weather is a good sign for the stock. “As weather is turning more spring-like … sales in this category are picking up. With Home Depot, that’s going to imply a pretty strong second quarter,” he said. The company reaffirmed its guidance for fiscal 2019, which estimates earnings will rise 3.1% to $10.03 per share. Same-store sales are expected to grow 5%, while revenue increases 3.3%. “Our view on the U.S. economy and the drivers of home improvement spend are not fundamentally different from what we shared with you back in February,” said Menear.

Home Depot expects a roughly $1 billion impact on the company from a round of tariffs on $200 billion worth of Chinese goods, which were increased to 20% from 10%. However, it hadn’t yet estimated the impact from the latest round of 25% tariffs, and that impact wasn’t factored into its earnings forecast. Home Depot opened two new stores in the first quarter, bringing the company’s total to 2,289 stores. 

As of the Monday, May 21, 2019 market close, Home Depot market value was $210.6 billion, with shares up more than 11% this year and but less than 1% over the past 12 months. Lowe’s, which is set to report earnings before the bell Wednesday, May 22, 2019 is up 18% since January and 24% over the past 12 months. It has a market cap of $86.9 billion.

Source: CNBC


Lowe’s Reports First Quarter Sales And Earnings Results. 

Lowe’s Companies, Inc. today, May 22nd, reported net earnings of $1.0 billion and diluted earnings per share of $1.31 for the quarter ended May 3, 2019, compared to net earnings of $988 million and diluted earnings per share of $1.19 in the first quarter of 2018.  

The company previously announced its intention to exit its Mexico retail operations and had planned to sell the operating business. However, in the first quarter after an extensive market evaluation, the decision was made to instead sell the assets of the business.  That decision resulted in an $82 million tax benefit in the quarter.  The tax benefit offset $12 million of pre-tax operating costs for the Mexico retail operations in the quarter.

Excluding the tax benefit and operating costs associated with the Mexico retail operations, adjusted diluted earnings per share was $1.22. Sales for the first quarter increased 2.2% to $17.7 billion from $17.4 billion in the first quarter of 2018, and comparable sales increased 3.5%. Comparable sales for the U.S. home improvement business increased 4.2 %.

“Our first quarter comparable sales performance is a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction. Our commitment to improving in-stocks and customer service coupled with our focus on winning with the pro customer were integral to driving improved sales,” commented Marvin R. Ellison, Lowe’s president and CEO.  “However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings.  We are taking the necessary actions to more systematically analyze and implement retail price changes to mitigate cost pressure. Our recent acquisition of the Retail Analytics platform from Boomerang Commerce will also assist in modernizing and digitizing our approach to pricing.  We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year. “I would like to thank all of our associates for their commitment and dedication to serving our customers and the communities in which they live and work,” added Ellison.

Delivering on its commitment to return excess cash to shareholders, the company repurchased $818 million of stock under its share repurchase program and paid $385 million in dividends in the first quarter.  As of May 3, 2019, Lowe’s operated 2,002 home improvement and hardware stores in the United States and Canada representing 208.8 million square feet of retail selling space.

Adoption of Lease Accounting Standard 

During the first quarter, the company adopted ASU No. 2016-02, which pertains to accounting for leases. Under the standard, lessees are required to recognize lease right of use assets and lease liabilities on the balance sheet for all leases. The company adopted this standard and related amendments during the quarter using a prospective transition approach, which applies the provisions of the new standard at the effective date without adjusting the comparative periods. The adoption of the standard resulted in an increase in lease-related assets of $3.6 billion, and an increase in lease-related liabilities of $3.9 billion.

The difference between the increases in lease-related assets and liabilities, net of the deferred tax impact, was recorded as an adjustment to beginning retained earnings in fiscal 2019.  The standard had no impact on the company’s debt-covenant compliance under its current agreements.

Lowe’s Business Outlook

The company has updated its Fiscal Year 2019 Business Outlook to reflect the impact of the gross margin contraction identified in the first quarter.

Fiscal Year 2019 (comparisons to fiscal year 2018)

  • Total sales are expected to increase approximately 2%. 
  • Comparable sales are expected to increase approximately 3%. 
  • Operating income as a percentage of sales (operating margin) is expected to increase 310 to 340 basis points. 
  • Adjusted operating income as a percentage of sales (adjusted operating margin) is expected to increase 20 to 50 basis points.  
  • The effective income tax rate is expected to be approximately 24%. 
  • The target leverage ratio is 2.75x, therefore the company expects to repurchase approximately $4 billion of stock. 
  • Diluted earnings per share of $5.54 to $5.74 are expected for the fiscal year ending Jan. 31, 2020.
  • Adjusted diluted earnings per share of $5.45 to $5.65 are expected for the fiscal year ending Jan. 31, 2020.

Source Markets Insider