December 5, 2019

Home Depot Earnings Jump 17%, Fueled by Housing Recovery

The chief financial officer, Carol Tomé, said the company projected that “we are in the early stages of housing recovery” as Home Depot reported a 17 percent increase in earnings, to $1.8 billion. Sales in the second quarter grew 9.5 percent, to $22.5 billion.

Yet not all retailers saw lively home departments. J. C. Penney, which also reported earnings on Tuesday, said revenue had dropped almost 12 percent for the quarter, in part because of lackluster sales in its recently revamped home departments. Its loss came in at $2.66 a share, far worse than analyst estimates for a $1.22 loss a share.

The home departments at Penney are left over from the former chief executive Ron Johnson, who was terminated in April. Penney went ahead with his plans for upscale home boutiques, unveiling them in June, but said on Tuesday that they had performed quite badly. Costly items like a $2,895 Jonathan Adler sofa and $72 Michael Graves wine decanters failed to provide a draw to the specially designed areas.

“The merchandising strategy was not resonating well with our core customer and performance has been weaker than we had hoped,” the chief executive Myron E. Ullman III told investors on Tuesday. Sales at stores open at least a year, a key performance indicator, slid 11.9 percent in the quarter; Mr. Ullman said they would have declined only 9.5 percent were it not for the home stores. “We expected home to improve, obviously, when the new store shops had opened and quite the opposite happened. We actually have less productivity in the new home stores than we do in the stores that didn’t get a home store,” he said.

At Home Depot, meanwhile, every department posted positive comparable sales in the quarter, from gardening to maintenance to decor to kitchens.

Both professionals — Home Depot’s term for contractors — and consumers seemed to increase spending at the same rate, Ms. Tomé said.

“With home prices up, people are starting to view their homes as more of an investment and not an expense,” she said.

Some economists have suggested that only middle- and higher-income consumers, and investors buying properties, are experiencing the lift in the housing market, and Ms. Tomé said that Home Depot’s customers tended to be wealthier by dint of the fact that they are homeowners.

She noted that investors, too, were probably spending at Home Depot. “If you’re an investor group, be it a private-equity firm or someone coming in from outside the United States, you’re not buying that property to sit on it, you’re buying that property to rent it — and you can’t rent it if it’s not in good shape.”

To that point, Home Depot’s installation business grew in the double digits in the quarter, she said; while that was not all investors, “the blanket comment that these investor groups wouldn’t spend money at Home Depot isn’t true.”

She said that one indicator — the number of items bought per visit — also increased, which suggested confidence.

“Items in a basket suggest a couple of things: one, that you’re not just living hand to mouth if you’re a pro, because we saw pros coming in and getting exactly what they need” in quarters past, she said. “For consumers, it means a bigger project, so I’m not just going to paint my room, but I’m going to paint my room and refloor my room.”

Penney executives vowed that they were moving on from the Ron Johnson era.

“We know where the problems are,” Mr. Ullman said. “There are no quick fixes to correct the errors of the past.”

While he said there were promising signs in back-to-school sales, Penney’s traffic was down 5.5 percent compared with the same quarter a year ago, which suggests that Mr. Ullman’s early efforts in the last few months at restoring private labels and promotions are still not attracting customers.

The company has been leaning heavily on promotions. It increased circular counts by 150 percent in the first six weeks of the back-to-school period (defined as June 30 through Aug. 10) this year versus last year, and increased the number of products promoted via e-mail by about the same amount, according to the advertising-analysis firm Market Track.

Another faltering retailer, Best Buy, turned in better-than-expected results on Tuesday, which were attributed to aggressive cost-cutting. Earnings came in at $266 million, up from $12 million a year earlier. Same-store sales were down 0.6 percent in the United States, and Best Buy said those would have been flat to slightly up were it not for the construction and introduction of specialized Samsung and Windows shops.

Revenue decreased slightly, to $9.3 billion, from $9.4 billion in the same quarter last year. And online sales grew 10.5 percent from a year ago, which analysts said was encouraging. “The ongoing increases in online sales signal to us that the investments Best Buy has made are driving better performance,” Alan M. Rifkin, a Barclays analyst, wrote in a note to clients.

Article source: http://www.nytimes.com/2013/08/21/business/home-depot-earnings-jump-17-fueled-by-housing-recovery.html?partner=rss&emc=rss

Common Sense: The Headache in Housewares for J. C. Penney

Yet that didn’t stop him from signing a deal with Martha Stewart — his “new best friend,” according to an e-mail — even though she already had an exclusive deal with Macy’s. “Macy’s deal is key. We need to find a way to break the renewal right in spring 2013,” he wrote in one message. “The ball is in her court now to talk to Macy’s about a break in a tight, exclusive agreement they have with her,” he said in another.

The e-mails emerged this week in a New York courtroom, where Macy’s has accused J. C. Penney of inducing Martha Stewart to breach her contract and is trying to block its rival from carrying out its plan to open Martha Stewart boutiques inside J. C. Penney stores. J. C. Penney has been floundering — it recently reported a staggering $4.28 billion loss in sales for the year since Mr. Johnson became chief executive, announced the layoff of 2,200 workers this week, and its shares have dropped more than 60 percent. So the star-crossed Martha Stewart deal may not be its biggest problem. But it’s a purely self-inflicted one. With calls mounting for Mr. Johnson’s ouster, the deal is also a window into his judgment, experience and management skills.

“I’m very concerned that this could be a fatal blow to J. C. Penney,” said Walter Loeb, a veteran retail analyst, referring to the lawsuit. That Mr. Johnson “would talk about ‘breaking’ a deal between Martha Stewart and Macy’s is simply incredible. Ron Johnson has never been a chief executive, and I can only assume this reflects his naïveté and lack of experience.”

Much of the coverage of the trial has focused on the appearance in court of Ms. Stewart, nine years since her conviction and sentencing on federal felony charges of false statements regarding her sale of shares in ImClone Systems (she also settled civil insider trading charges without admitting or denying them).

At one point this week she told the presiding judge, Justice Jeffrey K. Oing of New York State Supreme Court, “I keep looking at this entire episode of this lawsuit wondering why it isn’t — it’s a contract dispute, an understanding of what is written on the page, and it just boggles my mind that we’re here sitting in front of you.”

Justice Oing seemed to agree, and on Thursday ordered the parties to pursue mediation to resolve the matter. Legal experts I spoke to also expressed incredulity that the costly and time-consuming dispute has ended up in court, since the contract itself seems straightforward, with numerous clauses giving Macy’s exclusive rights to Martha Stewart products in various categories, including “soft home,” like sheets and towels, as well as housewares, home décor and cookware, and specifically limits her rights to distribute her products through any other “department store.”

J. C. Penney is undeniably a department store and one of Macy’s major competitors. So the only issue is whether a Martha Stewart boutique within a J. C. Penney store would qualify as a separate Martha Stewart store, since the contract states that the restrictions “shall not apply” to products “marketed or promoted” through the MSLO Web site “or MSLO store.” (MSLO is the often-used acronym for Martha Stewart Living Omnimedia.)

Even that shouldn’t be hard to determine. Charles Fried, a noted professor of contracts at Harvard Law School, told me that the law is well settled that contracts should be interpreted according to the plain meaning of their words, should reflect the intent of the parties, and that technical or specialized terms should be interpreted according to trade usage. While he said he didn’t want to comment on the Macy’s contract itself, he said, “Whether a boutique inside J. C. Penney qualifies as a Martha Stewart store shouldn’t be difficult to determine based on prevailing standards in the retail industry.”

In that regard, Mr. Johnson testified that J. C. Penney, and not Martha Stewart Living Omnmedia, would set prices of the merchandise, decide when it would be promoted, employ the people who sold the goods, own the goods, source the goods, book the sales, bear the risk and own the shop. No space would be leased to Martha Stewart’s company. J. C. Penney contended nonetheless that any space displaying the Martha Stewart mark and containing Martha Stewart merchandise qualified as a store.

Article source: http://www.nytimes.com/2013/03/09/business/the-headache-in-housewares-for-j-c-penney.html?partner=rss&emc=rss