FINANCE

MasterCard Spending Pulse: April’s total retail sales up 8.8% year-over year

BY CSA STAFF

Purchase, N.Y. — Excluding auto sales, total retail sales in April 2011 grew by 8.8% year-over-year, stronger than March’s growth rate, and substantially higher than the average 7.1% year-to-year growth rate of the previous quarter, according to MasterCard Advisors’ SpendingPulse, a macroeconomic report tracking national retail and service sales.

While spending on gasoline has helped drive overall sales figures to some extent, retail sales ex-gasoline show few signs of abating. Seasonally adjusted retail sales excluding both autos and gasoline were up by 1.4% in April, the fourth straight month of growth.

“We have not seen this sort of sustained growth in retail sales since late 2005/early 2006, when the economy was in much better shape and the unemployment rate was more than 4% below its current level,” said. Kamalesh Rao, director of economic research for MasterCard Advisors SpendingPulse. “Today, the general state of the labor market and a mixed economic environment suggests that the current rate of retail expansion could be vulnerable, especially given the weight of higher fuel costs on discretionary spending. Additional momentum in the labor market could offset that uncertainty.”

Sectors showing positive results in April included e-commerce, luxury, apparel, groceries and travel. Weaker segments included furniture and furnishings, hardware, electronics and department stores.

Spending grew in every part of the country, with the best unadjusted year-over-year results in the Pacific and Southwest regions, respectively posting 13.2% and 12.2% growth.

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Supervalu banners introduce Colors in Your Carriage education initiative

BY CSA STAFF

MALVERN, Pa., and VIRGINIA BEACH, Va. — Building on the successful introduction of the nutrition iQ program to stores, two Supervalu banners announced that they will implement an education initiative designed to help grocery shoppers navigate the aisles with great-tasting foods that meet their nutritional needs.

Acme and Farm Fresh Food & Pharmacy said the Colors in Your Carriage initiative shoppers find quick-to-prepare, good-tasting solutions to fill the nutrient gaps highlighted in the 2010 Dietary Guidelines.

Both supermarket chains have extended the nutrition iQ program to include signage in the fresh produce, meats, bakery and seafood sections.

“Our shoppers are looking for information they can trust when it comes to which foods they should include as part of a healthy diet. We know how important it is to provide straight talk on what to eat to help clear the confusion,” said Acme and Farm Fresh registered dietitian Jennifer Shea. “Nutrition iQ can help people more easily achieve the 2010 Dietary Guidelines. Our goal is to make good eating enjoyable and to help consumers really understand how to shop, what to buy and how to prepare quick meals their family will enjoy. Customers count on [Acme and Farm Fresh] for that.”

Acme operates 117 stores in Pennsylvania, New Jersey, Delaware and Maryland, while Farm Fresh operates 43 stores in the Virginia market.

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Credit Suisse bullish on GNC

BY CSA STAFF

NEW YORK — Credit Suisse on Wednesday initiated coverage of General Nutrition Centers, the specialty retailer of supplement and nutritional products and partner with Rite Aid in a store-within-a-store program across more than 1,000 drug store locations.

Credit Suisse characterized the GNC stock with an “outperform” rating and a $24 price target, noting that the retailers evolution into multichannel retailing along with a strong management team bodes well for the future of the specialty retailer. The fact that GNC is part of the vitamins/supplements industry — projected to grow 6% over the next five years — doesn’t hurt, either.

“Since [Joe] Fortunato’s ascension, the company-owned domestic store base has grown 10% while net income has quintupled,” Credit Suisse research analyst Gary Balter said. Fortunato assumed the GNC CEO position in 2005. “Annual square footage growth will likely be in the 3% to 4% range for domestic stores, which, when combined with our expectation of low single-digit same-store sales growth, equates to high single-digit top-line growth.”

GNC, however, is not without risk. The product mix still skews heavily against diet aids and sports nutrition, and any disparaging news around one of those products could prove devastating. In the fall of 2002, for example, when criticism around the diet aid ephedra was at its height, GNC (then owned by Royal Numico) same-store sales dropped an estimated 7% across its entire store base. Numico reported a $1.45 billion loss that fall.

That loss prompted Numico to sell GNC to Apollo Management in 2003 for $750 million, a deep discount to the $1.8 billion Numico originally paid to acquire GNC. Apollo again sold GNC to Ares Management in 2007 to the tune of $1.7 billion, an indication that the specialty retailer had successfully recovered its corporate value. Rite Aid also could become a negative factor, Balter noted. “Although GNC has predetermined volume and expansion agreements with Rite Aid, the drug store chain has a high debt load and is relatively poorly positioned in the segment,” he wrote. “Rite Aid accounted for 3.5% of GNC’s total sales in 2010. In a worst case scenario in which all of that revenue is eliminated, we estimate GNC’s EPS hit may be 10 cents (assuming a 25% contribution EBIT margin).”

And retail mall traffic may become a risk given that GNC operates approximately 1,000 mall locations, Balter added. “During the economic downturn, mall stores were hit harder than non-mall stores due to declining mall traffic. We view inflation/deflation as a minor threat, as the company has proven adept at managing the business in volatile pricing environments.”

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