On the heels of Wal-Mart's dismissal of the "great" jobs report, The Container Store CEO yesterday explained how Q1 weakness was "not just the weather" but an overall 'funk' in consumer spending. Last night we had a second firm - the much more integrated into the housing recovery, Lumber Liquidators - come out with some heresy about Q2 bounce backs and the weather..."demand strengthened for 30 days beginning in mid-March. But in May demand slowed and further weakened in June. We were somewhat surprised by the magnitude of the continued weakness in the stores designated as impacted by weather in the first quarter." There goes Q2 GDP...
Q2 was worse that Q1!!
As we discussed on our first quarter earnings call customer demand strengthened for 30 days beginning in mid-March. But in May demand slowed and further weakened in June. We were somewhat surprised by the magnitude of the continued weakness in the stores designated as impacted by weather in the first quarter, particularly relative to all other stores.
When weather impacted comparable stores, net sale decreased 12.9% driven by both a 9.6% decrease in the number of customers invoiced and a 3.3% decrease in the average sale. In all other comparable stores net sales decreased 2.1%, nearly all due to a lower number of customers invoiced.
Forget the idea of "pent-Up" demand - once it's gone, it's gone
The impact that weather can have on a flooring purchase is very different compared to other large ticket purchases. A flooring purchase is generally a large ticket discretionary purchase that most residential homeowners make infrequently. It is disruptive to the household and can be a complex undertaking for the customer. Our research indicates that the average length for the entire process from interest, initial interest to sale is approximately 100 days.
Wood flooring is a product that must acclimate to the house and room before being installed. As a result our customers typically plan well in advance for the inconvenience of removing old flooring and installing new flooring. Once the window of opportunity to complete the flooring purchase has closed finding a new opening in the calendar may be difficult and take some time.
...customers' discretionary, large-ticket home improvement projects is likely to be delayed for some into the fall flooring season, and for others, into spring of 2015.
It's not the weather - it's a macro problem...
Our reduced customer traffic coincides with weakness in certain macroeconomic indicators related to residential remodeling. As most of you are aware existing single-family home sales have been down 6% to 8% each month since November of 2013. We believe the flooring market generally has been weaker in the first portion of the current year as compared to the corresponding period in 2013 resulting in tough comparisons we are experiencing from a housing recovery that has been building since the summer of 2011.
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It's not the weather... it's the economy, stupid... and Q2 is not looking so good...
As WSJ adds [4], a number of [retailers] have warned that their customers are delaying purchases amid economic uncertainty.
Improving weather helped drive mall traffic into June from May, according to Thomson Reuters, which administers an index that tracks retail sales.
[BUT] June is typically a tough month as companies ramp up discounts and promotions to clear through inventory ahead of the back-to-school season.
"That's what's driving the traffic," said BlueFin Research Partners retail analyst Rebecca Duval of the higher promotional levels. "The Fourth of July isn't usually a big shopping holiday, but this year there were big discounts."
Even though sales "are coming in relatively in line or slightly better than expected, it's not without cost, and that cost is lower margins," Ms. Duval warned.
Seems like we are going to need more job cuts and more buybacks.
