Bigbox
Bunnings posts bumper profits
Wesfarmers MD John Goyder talks about the results, and the community role of the company
Wesfarmers
Comparison of Bunnings sales growth with overall sales growth for hardware retail in Australia.
Slide detail from Wesfarmers, showing the historical progression of Bunnings.
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Australian conglomerate Wesfarmers, owner of the Bunnings home improvement big box chain, has released its annual results for the 2013/14 financial year.

Bunnings performed very well, showing a store/store growth rate of 8.4%, against a background growth rate for hardware, garden and building supplies of 7.1% (according to figures from the Australian Bureau of Statistics). Overall revenue growth came in at 11.6%. Its revenue for the year came in at $8,546 million. EBIT came in at $979 million, an 8.3% increase on the number for FY2013.

Wesfarmers itself returned what the company's managing director, John Goyder, referred to as a "pleasing result". Total operating revenue was $62.3 billion, a 4.2% increase on the 2012/13 results. This resulted in EBIT of 4.15 billion, a 13.4% increase on the 2013/13 results.

The managing director of Bunnings, John Gillam, has affirmed that the retailer will continue to build out its store network. This includes both new stores in new locations, and the replacement of existing stores which are deemed to be inadequate. Mr Gillam is forecasting that 20 new stores will be built in 2014/15, followed by a further 20 stores in 2015/16. He stated that 19 stores are currently under construction, with a further eight to commence construction in the near future.

An element that Mr Gillam emphasised several times in speaking about the results was that Bunnings has extended and plans to continue to expand its brand reach, both in physical stores, and online. While digital retail activities were mentioned several times as a positive contributor to Bunnings earnings, it does not seem that this activity has been broken out from overall numbers, and thus is difficult to comment on.

He also mentioned that Bunnings was fully prepared to handle the "volatility" created by competitors. Questioned about this comment by a financial analyst, Mr Gillam said that Bunnings was experiencing competition from Costco and Aldi, with the latter entering the hardware sector through catalogue offers 12 to 13 times a year with, he said, significant results. Mr Gillam also mentioned a firm he referred to as "the new entrant" as another factor. This could be a reference to Masters Home Improvement, though no clarification of this point has been made.

Other analyst questions, directed both at Bunnings and other Wesfarmers retail operations - particularly Coles - pointed to some concern about the proliferation of stores. Mr Gillam answered a question about store cannibalisation by stating that Bunnings did extensive modelling, a process it had enhanced starting in the year 2000. He said that cannibalisation rates that reached between 25% and 30% were of concern, but added that in the end the most important metric was the overall profitability of the store network.

At one point Mr Goyder stepped in to answer the concerns voiced about store proliferation by pointing out that there was a process in place at board level to approve any new retail store openings.

Mr Gillam also pointed out a graph provided in a supplemental report, which illustrates the growth of Bunnings over the 20 years it has been in business (the first Melbourne warehouse store opened on 24 August 1994).
Analysis

The Bunnings result for FY2014 is exceptionally good. As the graph we have provided illustrates, the retailer managed to take a year with good overall sales growth in excess of 7%, and to return a same store figure for growth of over 8%.

No doubt this excellent figure was driven by the fact that Bunnings is optimised for sales in the states of New South Wales and Victoria, which recorded very high sales growth in 2014 year-to-date - but this is, of course, a reflection of the company's strategy in effective store placement.

Nonetheless, HNN would reiterate the statement we have made in the past about the Bunnings strategy. The scale of new store build-out represents a shift from past strategy, apparently triggered by the advent of competition from the Woolworths' owned Masters. It is occurring during a period when digital online shopping is set to increase. Thus it is exposed to risks from a number of directions.

One answer to those risks is Bunnings' announced intention to expand its brand reach. An example of a successful move in this direction is its expansion into lighting, which began in earnest around five years ago. We could see a geared up effort to enter profitable areas such as floor coverings and general appliances. Slightly paradoxically, the larger its store network becomes, the more it will need to enter into segments.
Regions
Healthy signs for Gladstone housing
The Tannum Sands development in Gladstone (QLD) will benefit from the region's growth
Gladstone Observer
The Sands will require $120 million investment over the life of the project
Current trends for housing approvals in Gladstone (QLD) are above historical levels
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Lyons Residential, developer of Tannum Sands residential community, The Sands, has welcomed signs of continuing growth in the Gladstone (QLD) housing market.

Recent research from property analyst Matt Gross at The National Property Research Co indicated that the rate of population gains in the area would provide demand for an additional 16,452 dwellings in the next 20 years.

Lyons Residential senior development manager Oliver Kent said current trends for housing approvals are above historical levels and comparable with the previous two years' higher levels. He told the Gladstone Observer:
All of the indicators from current rate of sale to outlooks from property researchers reveal that the forecast for the Gladstone market is very positive over the medium to long term.
The Sands will require $120 million investment over the life of the project. That's a significant commitment from Lyons Residential, however, we are very confident with the long-term prospects for the local property market.

Kent welcomed Gladstone Regional Council's recent budget which includes $8.8 million in funding for projects based in and around the Tannum Sands area. There is $3 million for sporting facilities, $2.2 million for the Boyne Island Water Treatment plant upgrade, $3.5 million for investigation and design of the Boyne Island second river crossing, and $100,000 for construction of a public amenity at Wyndham Park.

Kent also welcomed encouraging comments from Gladstone City Council chief executive officer Stuart Randle, who said housing approvals had progressively set records over the past three years. He said:
The rate of approval reduced in about October last year and since that time has settled back at pre-LNG (2011) levels. The outlook is positive from a construction point of view as pre-LNG levels of housing construction will be insufficient to satisfy the region's long-term population growth forecasts.

Kent said a report by the Centre for Environmental Management at Central Queensland University last year found that the impacts of all confirmed projects in the locality would see solid rental and sale prices increase over seven years or more. This was in contrast to previous booms of just two to three years.
Products
Efficient cutting for pro and DIY projects
The WTX Clamp Edge can reduce typical two-person cutting jobs down to a solo project
Woodworking Network
Designed to be versatile enough to use with circular saws, jig saws, router and other tools
BORA's WTX Clamp Edge is new to the precision cutting category
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Affinity Tool Works provides professional and consumer tools under the BORA, Portamate and HTC brands. It has launched BORA's latest product, the Wide Track Clamp Edge Saw Guide (WTX Clamp Edge).

The traditional channel bar has been removed, allowing for each of the rubberized soft grip clamping pads to self-clamp to the cutting surface. Built with rigid extrusion construction for no flex and superior strength, it is available in 24, 36 and 50-inch models. Designed to be versatile enough to use with circular saws, jig saws, router and other tools.

The WTX Clamp Edge can reduce typical two-person cutting jobs down to a solo project, increasing productivity and providing a more efficient use of labour. Additionally, it enhances worksite safety by allowing precise cutting to be achieved with a circular saw or jig saw, a safer alternative to an open-blade table saw. Todd Gluski, Affinity's brand manager said:
Having seen the need for a better precision cutting option, we took our existing Wide Track Clamp Edge design and improved upon it to bring our customers another best-in-class product.

It is built for a variety of applications, including woodworking, cabinet making, professional carpentry and DIY remodelling projects. The 24-inch model is most commonly used as a fence on table saws, router tables or drill presses, and is ideal for small cutting projects.

Suitable for trimming doors, the 36-inch Clamp Edge is able to handle slightly larger projects. The 50-inch Clamp Edge has been designed for 48-inch cuts and is primarily used for cross cutting sheets of plywood or other sheet goods and offers extra stability on smaller or mid-size projects.
Regions
Residential expansion in Warrnambool
Over 20% more residential permits were granted in Warrnambool (VIC) during the autumn quarter
The Standard
Figures from Warrnambool Council shows the region is growing steadily
A lot of new houses are under construction in the city's west
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Building activity in Warrnambool (VIC) is on the rise with over 130 residential permits granted during the autumn quarter. This represents an increase of more than 20% on the same period last year.

Overall, building activity worth $22.6 million was approved in the quarter, with $19.3 million coming from residential permits.

Commercial permits are also on the increase with 23 granted in autumn compared to 16 in the same period between March 1 and May 31 last year.

City council growth director Bill Millard said the figures show Warrnambool is growing steadily. He told The Standard:
What we're seeing is moderate growth at both a residential and commercial level but it's growth that's sustainable and planned for. A number of new neighbourhoods are under construction this year. This Aberline Road area obviously accounts for some of that growth but there's also a lot to be said about the growth seen in north Dennington and along Wangoom Road.

The latest figures follow on from a trend of sustained suburban growth in Warrnambool. Building activity worth $17.7 million was approved in the 2013 autumn quarter with roughly $15.3 million coming from residential and $2.4 million from commercial permits.

Cr Kylie Gaston said a range of people, including young couples, families and retirees, were choosing to live in Warrnambool due to its attractive location and modern amenities. She said:
Certainly we're seeing a lot of new houses under construction in the city's west - the gap between Warrnambool and Dennington is almost non-existent. There are challenges that come with growth but it's a good position to be in that Warrnambool is growing rather than having a static population or losing residents.

Millard said the building industry activity remained a key part of the region's economy, given roughly seven per cent of Warrnambool jobs derive from construction. He said:
There are obvious advantages for any regional city in having the steady growth Warrnambool has. It means there's not a radical ebb and flow of construction jobs. That once one project is complete, people can expect to start work on another almost immediately.
Reports
Prefab building gains traction
Industry leaders believe Australia is not keeping up with overseas trends in prefab building
HNN Sources
prefabAUS is Australia's first prefabricated building conference
Prebuilt builds commercial and residential projects to be installed on-site
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Around the world, the trend toward increasing levels of prefabrication is gaining momentum. However the building industry in Australia is not keeping up with overseas trends, where labour costs are being brought down by off-site manufacturing.

It needs to halve on-site construction times over the next decade or risk being left behind, according to industry leaders such as David Chandler OAM, best known for his role as construction director of Canberra's Parliament House.

A strong advocate for prefabricated building, Chandler said the local industry needs to reduce overall costs by up to 20% and develop its off-site construction sector to remain competitive.

He believes off-site construction will eventually represent between 10-15% of Australia's overall building sector by 2023, and that it could miss out on more than $30 billion dollars annually and employment for 75,000 people.

Chandler also suggests it needs to cut reliance on imported building materials by up to half and on-site labour costs by 30%, and says the development of a healthy prefabrication industry will help bring this about.
Prefab event

Sarah Backhouse, CEO of prefabAUS, agrees with Chandler's assessment and believes prefabrication is transforming both off-site work and on-site construction.

prefabAUS is Australia's first prefabricated building conference and was held in Melbourne recently.

Backhouse said overseas off-site manufacturers were already turning building into a global industry. She explains:
If Australia doesn't move to increase off-site capabilities now, we could lose a major slice of our construction industry off-shore.

Perhaps one of the best known local pre-fabricated buildings is the Docklands library in Melbourne, which opened in June. Made largely from cross-laminated timber, the core structure of the library was made off-site and put together by a small team of carpenters instead of a huge workforce of builders.

Its wood construction meant it was far lighter than concrete. The prefabricated nature of the structure also meant mobile cranes had been used, rather than more expensive tower cranes. Developer Lend Lease slashed months off construction schedules.

Rob Colquhoun, managing director of Prebuilt, has three factories in Bayswater (VIC) that build commercial and residential projects to be installed on-site. The company produces around 50 houses a year.

He estimates prefabricated homes account for around two per cent of the residential building market at the moment, and that it will grow.

Colquhoun said prefab housing is ''the dominant way of building a house in Japan. In northern European countries including Sweden, Norway and Germany. Prefab has had a much larger take up than in Australia''.

He expects the market to grow because there had been ''a change in paradigm'' in prefabricated homes, from granny flats and kit homes to well-designed houses. He said:
The people who buy our houses now are the early adopters; they've done their homework and are seeing a way for them to get good design and architecture without having to undertake the risk.
Industry hub

A hub dedicated to increasing the competitiveness of local prefabricated building products has just been launched. The PrefabAUS Hub is a partnership between the federally-funded Manufacturing Excellence Taskforce Australia (META) and PrefabAUS.

According to META, the construction industry makes up over a tenth of national GDP, or $150 billion annually. The prefabricated housing sector makes up only $4.6 billion of that, but is tipped to grow at over five per cent per annum. Zoran Angelkovski, META's managing director said:
The hub participants will grow prefabricated housing through development of new architectural design thinking, innovative techniques and processes, and work towards advanced manufacturing within the field.
Products
Making the switch
The Klein Tools Switch Drive Handle System has been released
Thomasnet
It allows users to switch between a power drill and hand tool
There is a patented quick release mechanism in the handle
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While power drills can make quick work of large fastening jobs, a screwdriver is still needed for those times when professionals and DIY enthusiasts need the finesse of a hand tool.

The Switch Drive Handle System[tm] from Klein Tools allows users to switch between a power drill and hand tool, minimising the number of tools and saving space.

The patented quick release mechanism in the handle secures any accessory with a ?" hex so users can move quickly from a power drill to a hand tool while maintaining strength and performance.

Available in two models, the Power Driver Set (SKU: 32700) features the Switch Drive handle plus #2 Phillips and #2 Square 6" (152 mm) power blades. The Power Nut Driver Set includes the handle and three 2" (51 mm) magnetic power nut drivers (1/4", 5/16", and 3/8").

While the use of power drills for fastening is on the rise, the ratio of hand tool versus power tool use is 50/50, according to Jon Ginsberg, product manager at Klein Tools. He said:
The Klein Tools Switch Drive Handle System offers a quick and easy way to alternate between the handle and the drill, without sacrificing the durability or performance demanded of Klein's professional tools.
Editorial
Woolworths, Masters, Goyder: the media fails
Matt Tyson, managing director, home improvement
Hardware News Network
Wesfarmers managing director and B20 chairman, Richard Goyder
Woolworths managing director Grant O'Brien
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While retail operations in Australia have been steadily "internationalising" to the extent that they are within touching distance of retailers in the UK and the US, the media has largely not kept pace.

Despite the disruptive influence of the internet, business reporting in Australia seems locked into a 1990s style "crash and burn" philosophy, where news just isn't news unless it sizzles. Added to this is a lack of any kind of depth to research, poor historical knowledge and frequently an inability to analyse facts.

It remains a mystery how this kind of reporting can continue when there are many fine examples of business reporting in the world, including the Wall Street Journal, the Financial Times, and the business pages of newspapers such as the New York Times and The Guardian.

The past two weeks in particular have given us a couple of examples in the home improvement industry of just how bad some of the reporting is.
Woolworths and Masters

The announcement by Woolworths, several weeks ahead of its formal announcement of performance during 2013/14, that Masters had lost more money than was previously forecast hopefully did not take anyone in the industry by surprise.

That is, except for business journalists at most major media services, who used the "confession" as an opportunity to bash Woolworths in various ways from various different directions.

I'm not going to bother to link to any of these items, because it is likely you have seen them already, and I'm not inclined to lend them any more credence.

In HNN's view, and perhaps in the view of most in the industry, what Woolworths and Masters have done is to confess to some of the troubles they have been having up until recently, and to outline a plan and strategy to do better in the future.

It is a very good plan, and it flies in the face of many of the previous strategies, which indicates a high degree of determination. Far from being some kind of a "back down" or a "last ditch effort", it is reasonable, well-thought through, and will very likely succeed.

In fact, it is just difficult, given the actual circumstances, to see what Woolworths and Masters could have done that would have been any better.

If you want a clear and simple statement of what Masters is up to, I highly recommend watching the video that Woolworths and Masters have obviously gone to some extent to produce, and which is available through YouTube.

In the video the managing director of Masters, Matt Tyson, clearly explains the new strategy. I don't think any other media outlet has spotted this, let alone mentioned it (though I could be wrong). Click below to see it:
Matt Tyson explains the new Masters strategy

To be fair, some reporting was better, such as Sue Mitchell's piece in the Australian Financial Review, which indicated that major shareholders in Woolworths had actually responded positively to the announcement.

In fact, this brings up one of the major points about this area of reporting. If anyone deserves the real credit for exploring this story, and sheeting its consequences home to Woolworths over the past two years, it is actually the financial analysts.

In particular at the most recent conference call on Woolworths quarterly earnings, they really worked hard to bring the reality home to both the Woolworths managing director Grant O'Brien and Mr Tyson. That can't have been easy - analysts much prefer to have cordial relations with the companies they cover. It's just that it was important enough an issue that they were willing to break that cordiality.
Richard Goyder's address at the National Press Club

The second example of poor coverage concerns Richard Goyder's speech at the National Press Club, where he appeared as the chairman of the "B20", a business advisory group to the G20, which is set to meet in Brisbane in November.

Virtually every press report chose to emphasise what were really two very minor points to his speech: his suggestion that Amazon could become a considerable competitive force in Australia, and around eight words or so with which he supported the extension of the GST to personal imports worth less than $1000.

I would be the first to say that I am uneasy with a number of the suggestions made in this speech. However, as I (of course) respect Mr Goyder, I would have welcomed a more public debate about these issues. Instead, the media reported a few side issues of little importance.

I would strongly encourage people to at least glance through the transcript of the speech that has been provided by the B20. At the very least, it offers some clear insights into the business thinking of Mr Goyder, who is an important figure in our industry. Click below to see it:
Transcript of Richard Goyder's speech to the National Press Club, prepared by iSentia
Better communications

While the above examples are not going to provide the home improvement industry with a lot of confidence when it comes to press relations, the truth is that the industry itself often bears some of the blame for the poor coverage it receives.

Communication with media outlets is not something that can simply be summoned up at will. If you want to get fair and accurate coverage you need to build some kind of a relationship, however slight, with media outlets.

In this day and age you must also be prepared, sadly, to educate the media whenever you want anything understood. You need to provide the industry context, the history of your past actions, how your new actions fit into that context, and how you see these actions affecting the future of your business.

Until next time,

Betty

For any feedback, comments or story tips, you can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

PS. The HNN team has been on the road recently and one of its first stops was the ITW Proline's offices in Wetherill Park (NSW). We met with Jason Wheatley, national marketing manager - hardware & fasteners. We hope to see some of you in your natural habitats soon. (l-r) Ray Quek, Jason Wheatley and Betty Tanddo
(l-r) Ray Quek (HNN), Jason Wheatley (ITW Proline) and Betty Tanddo (HNN)
Bigbox
Big box update
Shoalhaven Council has approved a development application for a new Masters store
HNN Sources
A decision on the proposed Bunnings development at Hillsdale (NSW) has been postponed
US big box chain Costco is to open a third Victorian store
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A new Masters store in South Nowra (NSW) has been approved. In other news, the decision on a development proposal for a Bunnings outlet in the Sydney suburb of Hillside has been placed on hold for now. Victoria will also get its third Costco store.
South Nowra, home to Masters

According to local radio station 949 Power FM, Shoalhaven Council has approved a development application for a new $12 million Masters Home Improvement centre at South Nowra. In addition to the 13,000sqm Masters store, there will be bulky goods tenancies, a service station, and a 72 seat Hungry Jacks fast food restaurant. Parking should accommodate almost 400 vehicles.

Before work begins on the structure, Masters will have to submit a management plan for endangered Green and Golden Frogs, which are known to inhabit nearby areas. At one stage, the discovery of the amphibians led to a stop work on the duplication of the Princes Highway through South Nowra. It forced the state government to spend a million dollars on the construction of six frog ponds.
Bunnings plan for Hillside

The Joint Regional Planning Panel's decision on the proposed $26 million Bunnings development at Hillsdale (NSW) has been postponed until the release of the NSW Department of Planning's final draft report. The big box store is expected to create over 600 retail and construction jobs if it is approved.

Chief operating officer Peter Davis told the Southern Courier: "The new Bunnings Warehouse Eastgardens will employ approximately 250 residents and will provide strong employment and on-the-job training opportunities for all team members. Additionally, approximately 370 construction jobs will be created through the construction process."

The proposed 14,000sqm warehouse was initially recommended for refusal by Botany Bay Council last August on the grounds it did not adequately address traffic, risk and noise impacts. Davis said: "The development of a new Bunnings Warehouse in Eastgardens is permitted in the zone. We have worked closely with the Botany Bay Council throughout the application process and have responded to and addressed relevant issues relating to this development."

In his report to Botany Council, the director of planning and development Rodger Dowsett said Bunnings did not sufficiently address issues relating to land contamination, traffic, noise, risk and economics in its application.
Another Costo for Victoria

US big box chain Costco is to open a third Victorian store after winning federal planning approval. Costco will set up shop at Moorabbin Airport next year after launching at Docklands and Ringwood. State Planning Minister Matthew Guy said the project would create about 400 jobs as part of the airport's master plan. He told the Herald Sun: "It is great news for Melbourne's south and east and it again shows that Victoria is doing exceedingly well in confidence and economic growth ... this section of our economy is booming ahead."

Costco's Moorabbin development recently won support from Kingston Council, despite some councillors fearing it would hurt other traders in the area. As the airport is on federal land, final approval has been given by Infrastructure and Regional Development Minister Warren Truss. A store is also planned for Epping in Melbourne's north.
Companies
James Hardie issues warning about earnings
James Hardie's profit in the three months to June 30 dropped 80% from a year earlier
The Bull
Jamed Hardie chief executive Louis Gries
Gross profit, which excludes asbestos liabilities, rose 11% to US$140 million
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James Hardie has warned its full year earnings are likely to fall short of expectations as the US housing market recovery proves less promising than anticipated.

The building products manufacturer expects to achieve a net operating profit of between US$205 million and US$235 million in the year to March 2015, up from the previous year's US$197 million. But that is below the range of US$226 million to US$261 million forecast by analysts.

The profit warning impacted James Hardie's shares which has been down more than seven per cent.

Chief executive Louis Gries said the company had prepared for a stronger recovery in the US housing market, pouring extra cash into increasing production capacity, but has been disappointed. He told AAP:
Our problem isn't that the market is not good enough, the problem is that we planned for the market to be a little better than it was. Most people thought the market would be up 15 to 18% this year and it's looking more like six to eight per cent.

Gries said net sales from the Australian business were forecast to improve, in line with expected growth in the detached housing market, as well as the repair and renovation market.

OptionsXpress market analyst Ben Le Brun said the slower than expected US housing recovery had disappointed investors, who had held very high hopes for the company. Le Brun said:
There's been a very large premium applied to James Hardie's share price on the belief that the housing recovery story is going to continue in the US and that it's yet to hit full gear in Australia. There had been some very, very rosy assumptions for James Hardie moving forward so even a little blip on the radar can see their shares punished quite heavily.

James Hardie's profit in the three months to June 30 dropped 80% from a year earlier, chiefly due to the impact of foreign exchange movements on the value of its asbestos-related liabilities.

Gross profit, which excludes asbestos liabilities, rose 11% to US$140 million. Gries said he believed the second quarter would be better than the first.
There are some things in that first quarter that dampen that first quarter result that aren't going to repeat in the next three quarters.

James Hardie Q1 at a glance:
  • First quarter net profit of $28.9m, down 80% from $142.2m in 2013/14
  • Gross profit of $140.2m, up 11% from $126.3m
  • Sales of $416.8m, up 12% from $372.2m
  • Reports
    $761m retail spend expected for Father's Day
    Father's Day cookies in the shape of tools
    Fairfax Media
    Tools, hardware and electronics have the second-biggest share of the spending, according to IBISWorld
    ABS data shows retail turnover for the June quarter was high despite despite poor consumer sentiment since the budget
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    Spending on gifts such as hardware tools and skincare for Father's Day is tipped to increase by 3%, according to research firm IBISWorld - despite consumer sentiment still suffering post-budget. The biggest increases will be in the personal care, footwear, clothing and accessories categories.

    Most of the money spent this Father's Day will be on lunch and dinners, with restaurants set to receive a $176.7 million boost. Tools, hardware and electronics have the second-biggest share of the spending.

    IBISWorld Australia general manager Daniel Ruthven said Australians would spend $731.7 million on Father's Day this year, with the average person spending $51.60 on their dad. He told Fairfax Media:
    Male grooming products have become increasingly popular, as dads become more comfortable looking after their appearance. Cosmetic and grooming product manufacturers are working hard to penetrate the previously untapped, but sizeable, male market.

    But Westpac Melbourne Institute consumer sentiment figures from August revealed sentiment was still suffering post-budget, despite some improvements. Sentiment remained 1.2% below its level prior to the May 14 federal budget, and was still 10.8% below its 2013 post-election peak.

    However, falls in consumer sentiment may not reflect spending changes. The latest Australian Bureau of Statistics figures revealed that despite poor consumer sentiment since the budget, retail turnover for the June 2014 quarter was significantly higher than in the previous corresponding period.
    Companies
    Product initiatives boost Valspar's Q3 results
    Valspar announced an improved 2014 forecast with its third-quarter earnings report
    Durability and Design
    The company rolled out Valspar-branded paint at more than 3,000 Ace Hardware stores
    Valspar chairman and CEO Gary E. Hendrickson
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    Two paint rollouts helped deliver success in Valspar Corp.'s third quarter, the company announced recently.

    Boosted by a double-digit increase in coating sales, the global paint and coatings company announced an improved 2014 forecast with its third-quarter earnings report, forecasting 9% sales growth for the year.

    On the paint side, the quarter featured a new brand and distribution network. On the coatings side, net sales increased by 16% over the prior-year quarter, reflecting improvement across all product lines.

    Overall, Valspar reported third-quarter 2014 net sales of US$1.2 billion, an increase of 10% over the prior-year period. Chairman and CEO Gary E. Hendrickson credited a "diverse business portfolio" for delivering "strong results". He said:
    These results were driven by the successful integration of acquisitions; strong performance from China and Europe; improved sales and profitability in our coatings segment; benefits of new growth initiatives; investments in innovative products; and the positive impact of productivity initiatives.
    Paint growth

    Net sales in the paints segment increased by 4% to US$474 million in the third quarter, led by growth in China and Australia. Overall volume increased in the high single digits.

    Sales in the US increased by the low single digits, impacted by second-quarter shipments to support the introduction of new retail programs in both the home improvement and hardware channels, Valspar said.

    The company launched its Valspar Reserve premium paint at Lowe's and rolled out Valspar-branded paint at more than 3,000 Ace Hardware stores. However advertising and marketing costs from those launches, took 16% from third-quarter EBIT (earnings before interest and taxes) of US$44 million, when compared to the prior-year period.
    Coatings boom

    Valspar's coatings segment showed volume and sales increases across all product lines. Excluding acquisitions, sales in the segment increased 6% to US$666 million, and volumes were up by the mid-single digits.

    Adjusted EBIT of US$122 million increased 21% as a result of acquisitions, increased volume, improved sales mix and additional programs. Hendrickson explains:
    We realised the highest growth was in the general industrial product line, which benefited from the impact of the Inver acquisition and modestly improving end-market demand.

    The general industrial portfolio includes protective, off-road equipment, container, transportation, general industry and other coatings. Valspar announced in 2013 that it planned to acquire Italy-based Inver Holdings, a leading industrial coatings supplier in Europe.

    Hendrickson also reported growth in the packaging product line, "driven by market share gains" and momentum of its non-BPA products. Valspar is the leading global supplier of metal packaging coatings. Volumes were up in all geographic regions.
    Looking ahead

    Based on its 2014 performance to date and its outlook for the fourth quarter, Valspar updated its fiscal 2014 sales guidance to 9%. This compares to its previous guidance range of 7% to 9% growth.
    Retailers
    Record Q2 results for Ace Hardware
    Ace Hardware achieves record revenues of US$1.33 billion in the second quarter of 2014
    Business Wire
    Ace CEO John Venhuizen discusses the company's retail strategy on WSJ.com
    The new Paint Studio initiative which contributed to record retail sales in May
    Give to Amnesty International
    Investments made by Ace Hardware in the past 12 months have led the retailer-owned co-operative to achieve record revenues of US$1.33 billion in the second quarter of 2014. This is an increase of US$157 million or 13.4%, from the second quarter of 2013.

    Net income was US$66.5 million for the second quarter of 2014, an increase of US$24.2 million or 57.2% from the second quarter of 2013. Ace president and chief executive officer, John Venhuizen said:
    Companies our size and age do not grow double digits by accident. It's only through a thousand points of disciplined execution from great people that results like this occur.

    The 3,100 Ace retailers who transmit daily retail POS data enjoyed a strong quarter with increased customer count and average transaction size which contributed to a 3.6% same-store-sales increase. For the first half of 2014, same-store-sales at these stores are up 4.2%.
    Revenues

    Total wholesale revenues were US$1.25 billion, an increase of US$155.0 million, or 14.1%, as compared to the prior year quarter. Increases were noted in virtually every department with the paint, electrical, and lawn and garden categories showing the largest increases.

    The retail co-op also remodelled and re-equipped over 3,300 stores as part of the new Paint Studio initiative which contributed to second quarter wholesale revenues and record retail sales in May.

    Ace added 43 new stores and cancelled 44 stores in the second quarter of 2014 for a net decrease in store count of one. This brought the company's total global store count to 4,877 at the end of the second quarter of 2014, an increase of 136 stores from the second quarter of 2013.
    Gross profit

    Wholesale gross profit for the three months ended June 28, 2014 was US$175.4 million, an increase of US$33.9 million from the second quarter of 2013. Wholesale gross margin percentage was 14% of wholesale revenues in the second quarter of 2014, an increase from 2013's second quarter wholesale gross margin percentage of 12.9%.

    The increase in the wholesale gross margin percentage was primarily driven by improved cash discounts and an increase in income received from vendors.

    Retail gross profit for the second quarter of 2014 was US$35.3 million, an increase of US$2.4 million from the second quarter of 2013. Retail gross margin percentage was 44.3% of retail revenues in the second quarter of 2014, up from 42.3% in the prior year quarter.

    The increase in the retail gross margin percentage was primarily the result of a larger percentage of ARH's (Ace Retail Holdings) retail sales being product that was purchased at Ace's wholesale cost following the acquisition of Westlake Ace Hardware retail locations in December 2012.
    Expenses

    Wholesale operating expenses increased US$16.1 million, or 16.3%, for the three months ended June 28, 2014 as compared to the second quarter of 2013. The increase was primarily driven by additional operating expenses from the new Ace Wholesale Holdings (AWH) subsidiary and the timing of planned advertising expenditures.

    As a percentage of wholesale revenues, wholesale operating expenses increased from 8.9% of revenues in 2013 to 9.2% of revenues in 2014.

    Retail operating expenses of US$23.8 million increased US$0.3 million, or 1.3%, in the second quarter of 2014 as compared to the second quarter of 2013. However, retail operating expenses as a percentage of retail revenues decreased from 30.2% of revenues in the second quarter of 2013 to 29.9% of revenues in the second quarter of 2014.
    Balance sheet

    Receivables increased US$115.9 million from the second quarter of 2013 as a result of increased revenues and AWH's acquisition of Emery-Waterhouse in the first quarter of 2014, which contributed US$24.5 million towards the increase.

    Inventories increased US$72.5 million from the second quarter of 2013 to support the higher sales revenues and as a result of the Emery-Waterhouse purchase, which contributed US$29.1 million towards the increase.

    Ace also added Valspar-branded inventories to all of its Retail Support Centers. The increase in inventories was partially funded by a US$33.2 million increase in accounts payable.

    As a result of these and other factors, and consistent with the company's operating plan to make investments in its retail stores and grow the paint business, its outstanding debt increased US$91.4 million versus the second quarter of 2013. In addition, the investments made by Ace since the second quarter of 2013 have also led to an increase in equity of US$60.6 million.
    Products
    Two-in-one safety vests
    The 2-in-1 reversible, high visibility vests from DuoGlow have a wide range of applications
    DuoGlow
    They come with an extra long tail for additional visibility
    The company currently supplies "on demand"
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    The 2-in-1 reversible, high visibility vests from DuoGlow have a wide range of applications for both day and night safety wear.

    It suits workers in traffic and road construction, tradies, builders, rail workers, transport drivers/operators, warehousing, bike couriers and aviation ground crew, to name a few.

    The vests are manufactured to a high standard. They come with an extra long tail for additional visibility and exceeds all relevant safety standards in Australia and New Zealand.

    The garment does not have any tags that can be irritating for the wearer. Instead DuoGlow has printed all relevant label information on one side of the vest only. The fabric has the highest UPF rating of 50+ and suitable for harsh Australian conditions.

    Made from lightweight polyester, it is also breathable which makes it comfortable for the user. Double-stitching and an industrial strength metal, reversible zip helps to ensure some longevity.

    Bright fluorescent colours are suitable for daytime use while the reflective tape is ideal for visibility in low light and night work environments. The tape catches the light of oncoming headlights, making the wearer more visible and providing more protection.

    The company currently supplies "on demand" and believes its unique two-sided vests can save help save money. For added customisation, DuoGlow can also print company logos on both sides of the vest.
    Retailers
    Cost-cutting lifts profit at Canada's Rona
    Rona reported C$42 million of net profit in the second quarter
    Reuters
    Chief executive Robert Sawyer said the company's turnaround is well underway
    Lower costs at Rona helped offset a drop in sales due to tough competition in the home renovation market
    Give to Amnesty International
    Canadian home improvement retailer and distributor Rona Inc. is in turnaround mode after reporting a stronger-than-expected quarterly profit.

    It reported C$42 million of net profit in the second quarter. This compares with a net loss of C$38.7 million in the same quarter last year.

    Last year's second quarter included a C$106 million loss from discontinued operations, which took Rona's total net loss for the three month period to C$141.04 million. Discontinued operations didn't have an impact on this year's second quarter.

    Lower costs at Rona helped offset a drop in sales due to tough competition in the home renovation market. It reduced annual costs by C$110 million (US$100.5 million) in 2013 by cutting jobs, closing stores and selling assets, as part of a program to improve its operating efficiency.

    It has also been lowering prices, cutting the number of available products and introducing new categories of products to attract more customers to the stores. Rona said the net cost savings achieved by its plan added C$10.5 million to earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter and C$27.9 million year-to-date. Chief executive Robert Sawyer said in statement:
    These savings directly contributed to a 25% increase in adjusted net income in the second quarter and 80% increase year-to-date.

    However, arduous competition and a slowdown in some markets, notably in the province of Quebec, squeezed sales in the 13-week period ended July 29. Same-store sales declined 0.7% but this is an improvement compared with a decline of 3.4% a year earlier. Overall revenue dropped by 4.4%.

    The company blamed the drop in store sales on lower housing starts, cold and snowy weather, along with the closure of poorly performing stores and the renovation of other stores. Revenue fell to C$1.19 billion from C$1.25 billion.

    Rona operates a network of more than 500 corporate, franchise and affiliate stores under several different banners.

    In 2012, it rebuffed a US$1.76 billion takeover overture from US-based Lowe's. Eventually Lowe's abandoned its bid amid opposition from Rona's board and Quebec politicians, which objected to a foreign takeover of such a large Quebec-based retailer and employer.
    Products
    Neutral paving options
    Boral's Adobe is a fashionable and affordable line of pavers for alfresco settings
    Boral
    Boral Abode paver in Charcoal
    Boral Stoneworks Travertine in Bluestone
    Subscribe to HNN weekly e-newsletter
    Boral has added two new colours to its concrete paver range, providing landscapers, architects and builders a bigger choice in neutral pavers for landscaping projects. Boral Abode(r) pavers are now available in Charcoal and Stoneworks (tm) Travertine in Bluestone.

    Made for those working with grey-based schemes, the Charcoal and Bluestone pavers are a bolder alternative to cream and beige tones. They can create a sleek, neutral look that can makes a statement in homes.

    Both pavers are available in standard and bullnose format, making them suitable for steps, paths, courtyards and pool-side applications. Paula Shuggi, product manager Boral Masonry explains:
    The addition of grey toned colours to the range reflects a growing interest in darker neutrals. The seasonal introduction of these new colours provides a contemporary solution for landscaping ahead of the spring renovation season.

    The Abode pavers, measuring 450mm x 450mm, are now available in four colours: Charcoal, Latte, Linen and Biscotti.

    The Stoneworks[tm] Travertine range now includes three colours: Bluestone, Chalk and Smoke. The pavers measure 500mm x 500mm.
    Products
    StrongBOLT, improved and extended
    Professionals can benefit from the extended StrongBOLT range
    Source Security
    StrongBOLT locks have an easily reversible radius latch, using UNION's unique SwitchLatch technology
    The UNION brand is part of ASSA ABLOY
    Subscribe to HNN weekly e-newsletter
    UNION is improving ease of installation for a wider range of jobs across its new, enhanced StrongBOLT(r) range.

    Known for its superior strength and exceeding the requirements of BS3621:2007, the StrongBOLT(r) British Standard 5 lever mortice lock can fulfill the security needs of home insurance policies. Professionals can benefit from the time saving properties of the 5 lever, 3 lever, bathroom locks and Euro and Oval profile cylinder lockcases.

    The range is designed using the same common footprint, allowing for quick and easy door preparation, as each door can be prepared in exactly the same way. Plus the unique chamfered dead bolt design with hardened rollers for increased side load resistance, provides increased strength and durability.

    StrongBOLT locks also have an easily reversible radius latch, using UNION's unique SwitchLatch technology. This allows installers to simply pull, twist and turn to adjust the lock, so it is suited for the handing of the door. Professional installers can complete jobs faster, and improve profitability.

    The latest StrongBOLT line features an anti-rattle adjustable strike, which allows on site fine-tuning once installed, to eliminate snagging. It is also supplied with radius splinter guards to ease installation further, requiring only a drill bit to provide a professional finish. Tina Hughan, UK-based marketing director of ASSA ABLOY said:
    The original StrongBOLT mortice lock is known in the market for its quality, durability and value for money. A number of installers fed back to us that they would benefit from having these features across a wider range of products. So, we extended the range, and further developed StrongBOLT to save them time when fitting locks to all projects, from bathrooms to front doors.
    The extended StrongBOLT range is an example of why UNION is the first choice for the trade...With this complete offering, it shows how UNION is helping installers prepare for any kind of call, from new builds to emergency repair and retrofit jobs.
    Companies
    ITW reports continued improvement in results
    Left to right: Thomas J. Hansen, E. Scott Santi, David B. Speer and David C. Parry
    Zacks
    Revenue trend for ITW
    Revenue comparison
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    The US diversified conglomerate Illinois Tool Works (ITW) has reported its second-quarter earnings for 2014.

    ITW reported profits of US$1.49 billion, a significant advance over profits of US$456 million from the same quarter in 2013. Operating margin increased by 3.0% to 20.5%.

    ITW operating revenue rose to US$3.719 billion, an increase of 3.5% over earnings for second-quarter 2013. International revenue performed well, but revenue was partially offset by internal ITW strategies aimed at restructuring the company on its "80/20" principle of focusing on the most profitable markets in the future.

    Further comments on this matter were made in an earnings call with financial analysts (transcript supplied by seeking alpha: http://seekingalpha.com/article/2355965-illinois-tool-works-itw-ceo-scott-santi-on-q2-2014-results-earnings-call-transcript?part=single).

    Michael M. Larsen, chief financial officer of ITW pointed out in an earnings call for financial analysts that:
    An integral part of our 80/20 process and our enterprise strategy is to focus on quality of revenue and not quantity. And through product line and customer base simplification, our segments are eliminating the complexity and overhead costs associated with smaller product lines and customers and focusing their businesses on supporting and growing with their largest customers and product lines.

    Areas in which revenue increased included Test & Measurement and Electronics, Automotive OEM, Food Equipment, and Specialty Products. Business areas which recorded a decline included Polymers & Fluids as well as Welding.

    Construction Products recorded a small decline of 0.4%. However, John L. Brooklier, ITW's vice president of investor relations, expressed the company's overall satisfaction with this sector:
    We continue to be very pleased with the dramatically improving profitability metrics in our Construction Products segment despite some uneven organic revenue performance. Segment top line reflected geographic variability as Asia Pacific's organic revenues grew 8%, thanks to our residential and commercial construction growth in Australia and New Zealand. You'll recall, we also had good performance in Australia and New Zealand in the first quarter.

    Other global areas did not match this performance, according to Mr Brooklier:
    Our North American Construction-related organic revenues declined 2% as our residential business was moderately negative, thanks in part to some ongoing PLS activity, while our renovation and commercial construction business showed modest growth. In Europe, organic revenues declined 4% as commercial construction activity was especially soft in France.

    However, he affirmed that ITW's approach to this segment was bringing dividends:
    As we have consistently communicated with our investors, at this point in time, we are chiefly focused on improving the profit profile of this segment through both business structure simplification and PLS initiatives. We are clearly on the right path as Construction Products' operating margins of 18.2% were 450 basis points higher than the year-ago period.

    In response to a question from a financial analyst, ITW's CEO E. Scott Santi commented further on the company's approach to its Construction businesses:
    I think what we've been saying for the last year for our business in the Construction or in our focus, that we had a business that had the potential to generate a significantly greater level of earnings at the current revenue base than what we have been performing to. So our focus for the last 4 to 6 quarters has largely been on getting our Construction business up to margins and profitability levels that we could see in terms of their potential.
    JV for Stanley Black & Decker, RF Controls
    Stanley Black & Decker in a joint venture company that will offer software products to track objects
    Biz Journals
    Stanley Black & Decker has formed a joint venture with RF Controls LLC, a US-based company that designs and produces radio frequency identification (RFID) applications. The new company is called View Technologies and it will be headquartered in Marietta, Georgia. Essentially, it will produce software systems that will track parts, tools, electronics and anything else for clients. RF Controls will supply scientific development and its licensed fixed antenna systems, which enable the tracking. Stanley Black & Decker will provide manufacturing, sales, marketing, installation, software and administrative services through its industrial and automotive repair division. RF Controls commercialises "smart antenna" systems that have a range of wireless communications uses. Those antennas can read passive RFID tags from great distances. Larry Harper, who has previously served as president of Stanley Black & Decker's CribMaster company will be View Technologies' CEO.
    Home Depot's Blinds.com boosts video engagement
    Home Depot's Blinds.com achieved increases in revenue and orders using Livehacker's video product
    PR Web
    Liveclicker Inc. says Blinds.com experienced significant gains using its VideoCommerce solution. Over a one-year period, Blinds.com achieved a 99% increase in video engagement, a 92% increase in revenue and a 68% increase in orders. In 2006, Blinds.com started using online videos to address concerns consumers had about measuring and installation. Over time, the company found it increasingly difficult to update and change video content due to the growing complexity of the site. Manual changes were becoming extremely time consuming for its design staff. By 2012, Blinds.com selected Liveclicker's VideoCommerce product as a dedicated platform for automated management of video content. In addition to enabling easy changes to videos, Liveclicker allows Blinds.com to measure video effectiveness based on average viewing time. VideoCommerce has saved Blinds.com time and created greater efficiency for posting and updating videos.
    Easy tile makeovers
    Tile Transformations makes it simple to introduce new colour trends in tiled rooms
    Rust-Oleum
    Designed for the budget-conscious DIYer, Tile Transformations adheres to ceramic surfaces that can deliver a dramatic aesthetic change in a single weekend. It is straightforward process that enables users to easily transform outdated tile into an attractive finish. From bathroom walls to kitchen splashbacks, Rust-Oleum makes it simple to introduce new colour trends and add value to these rooms that are popular to renovate. Using the same breakthrough technology of Tile Transformations in popular Aspen White, Rust-Oleum's Tint Base Kit offers homeowners a palette of 40 contemporary colour options, including Blue Haze, Cool Mint and Seaglass. Tile Transformations Tint Base Kit covers up to five square metres and contains almost everything required for a successful renovation without the expense, mess or inconvenience of demolition.

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