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WarmlyYours report projects floor heating growth in major metro markets

Screen Shot 2017-08-22 at 9.56.54 AMLake Zurich, Ill.—WarmlyYours Radiant Heating released its “2017 Second Quarter Industry Report” earlier this week. According to the report, sales of electric radiant heating products are expected to grow in several major metropolitan markets across the country in Q3 2017. One of the most significant findings in the report was the substantial sales growth in several major metro markets, including Chicago (12.7%), Los Angeles (19.1%), Seattle (66.8%) and Minneapolis (20.1%) in Q2 2017. The growth in these markets was largely fueled by sales of electric floor heating systems.

According to the report, “[WarmlyYours was] able to identify that all of these markets showed median home value increase of nearly 10% between June 2016 and June 2017, with each projecting varying degrees of growth in Q3 of this year. This tells us that these markets have not yet reached a point of price saturation (which could stall sales of existing homes). Because of this, we expect to see these markets continue to provide growth, particularly in floor heating sales.”

The projections in the report estimate continued growth in these metro markets. WarmlyYours expects to see Q3 in radiant heating sales of 10% in Seattle, 7% in Minneapolis, and 5% in both Chicago and Los Angeles.

In addition to these projections, the report also analyzed the performance of the remodeling, construction, and housing industries. With housing prices continuing a steak month-over-month increase, the sales of existing homes continue to wither. However, there is light at the end of the tunnel due to an increase in pending home sales, as identified by the National Association of Realtors. This, coupled with a June 2017 increase in new construction starts (2.1% from prior year period, according to a joint press release issued by the U.S. Census Bureau and the U.S. Dept. of Housing and Urban Development), could mean that the supply shortage in available housing could see some alleviation.

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Armstrong Flooring to close two wood floor facilities

Armstrong Logo 2016Lancaster, Pa.—Armstrong Flooring released its reported financial results for the second quarter, which ended June 30. The company also announced the planned closing of two wood floor facilities.

“Second quarter 2017 results were disappointing to us and fell short of our expectations, with the main driver soft demand in our legacy categories, primarily residential sheet and wood flooring,” said Don Maier, CEO. “Our LVT sales continued to grow at a double-digit rate, although they did not fully offset the declines in other areas. In response to the challenging results, which we expect to continue through year end, we are taking active steps to transition our company to deliver our medium term financial goals.”

Maier continued, “We are intensifying our efforts on innovation-based growth initiatives, taking a harder line on costs and rationalizing our manufacturing footprint. [For example] we have completed our previously announced organizational realignment, which we continue to expect to generate annualized SG&A savings of $6 million to $7 million. In June, we completed the acquisition of Mannington’s VCT assets, which improves our capacity utilization as we increase sales in this attractive category using our existing production facilities. Additionally, we have announced the planned closing of two wood flooring facilities, which we expect to improve our cost position in the future. These announced actions, along with other planned initiatives, reinforce our commitment to achieving a 10% EBITDA margin by 2020, under a range of growth scenarios.”

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Mid-year report: After dull half, dealers, distributors hope for rally

July 3/10: Volume 32, Issue 2

By Ken Ryan

 

Screen Shot 2017-07-10 at 2.40.40 PMFollowing a first half that some flooring retailers and distributors described as “fair at best” and “lackluster,” industry executives are hoping the second half will yield more robust activity. At the same time, however, they expressed concern that pent-up demand remains bottled up and could dampen what many hoped would be a strong 2017.

To be sure, some dealers reported healthy increases in the first half but there was clear consensus that the business climate today is uneven and lacking any discernible momentum.

The macro view of the economy would seem to bear that out. The Federal Reserve Bank of Atlanta’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 was 2.7% on July 6, down from 3% on July 3. The expectations have dipped amid fears of lackluster consumer spending.

These days encouraging news seems to be tempered. The Labor Department on July 7 reported the U.S. economy added 222,000 jobs in June, more than economists were expecting. However, wages grew 2.5%, well below the goal of 3.5% set by the Federal Reserve. Wages are one of the last indicators to take off since the recession ended in 2009, and economists suggest the paltry increases could be one reason why consumers are still hesitant to splurge for high-ticket items like flooring.

Retailers don’t need to read government reports to know that business on the retail side continues to underwhelm. “Retail floor covering remains relatively weak, and absent income tax reform and/or reduction, I don’t see legitimate cause for confidence in near-term improvement,” said Sam Roberts, president/owner of Roberts Carpet & Fine Floors, with 12 locations in the Houston area, echoing a sentiment shared by others. “We all have to persistently adjust to new realities.”

Olga Robertson, president of the FCA Network in Shorewood, Ill., sounded another familiar theme when she said there was no “rhyme or reason” to what is happening in the market today. She noted that retail has been dull, commercial is flat, and the builder business is either booming or non-existent. “If you go to states like Tennessee, South Dakota, Kansas, Iowa—the Corn Belt, so to speak—they are building 800-home subdivisions. Even in Illinois, a home doesn’t stay on the market for more than two weeks so inventory is down but not a lot of new homes are being built.”

Some flooring observers suggested that 2017 was going be the year when pent-up demand would finally be unleashed after years of tepid activity. However, dealers and distributors told FCNews that consumers still seem unwilling or hesitant to spend on flooring. “There is a lot of desire to do projects out there; it is just a question as to whether people will go through with them or not,” said Mike Foulk, owner of Foulk’s Flooring America, Meadville, Pa., who called the 2017 first half “a roller coaster.” He noticed there is no set pattern for when consumers shop. “They purchase when the mood strikes them, and they are not going to purchase unless it is on sale or some type of discount or incentive is being offered. My concern is people are on edge and may hold off on purchasing.”

Robertson wonders why consumers aren’t making the investment considering there is very encouraging data out there. “The stock market is up and everyone’s 401(k) has increased over 13% this year; the banks are lending with low rates on [refinancing] with no fees. Everyone should be spending money on their home—as that is your best investment—but for some reason they are not willing to pull the trigger.”

Screen Shot 2017-07-10 at 2.40.51 PMCarlton Billingsley, owner of Floors and More, Benton Ark., noted that while the consumer is cautious as a whole on the retail side “many of our older clientele are spending bigger dollars to upgrade for more luxurious items with walk-in showers, under floor heating, etc., to help offset some of the cautious consumer spending.”

What’s frustrating to flooring retailers and distributors is there have been pockets of decent activity in 2017, albeit with no carryover quarter-to-quarter or sometimes even month-to-month. Bob Eady, president of T&L Distributing in Houston, said 2017 has been a “month-to-month battle for business due to the softness in the economy. I believe that until our political leaders (both parties) improve consumer confidence with lower taxes, both personal and corporate, the healthcare reform debate, deregulation, etc., we will continue to find business very sluggish. I believe the news media has done a tremendous job of ruining consumer confidence.”

Scott Roy, president and CEO of Gilford-Johnson Flooring, Jeffersonville, Ind., observed that while the spring was slower than what had been forecast, he remains optimistic the market has or will turn. “June was better than May, and I’m seeing and hearing retailers are getting busier and commercial business for us is looking more optimistic. A lot of my optimism is based on what we are doing to generate more business.”

Allen Gage, president of Tri-West in Santa Fe Springs, Calif., said business has been “good but not great,” and that demand has been inconsistent in the West. He noted sales have not matched the enthusiasm shown in the stock market, especially in the commercial sector. As for the second half, “If people believe something is getting done on healthcare and taxes then things will take off nicely.” However, he is concerned that issues such as failure to pass legislation could put a damper on the second half.

The Vertical Connection Carpet One in Columbia, Md., enjoyed a stellar first half with double-digit sales increases driven primarily by the investment in new hires during the second half of 2016. For Adam Joss, co-owner, the concern isn’t so much today but the future. He is worried that the retail shopping environment is changing faster than ever and that the flooring industry is not insulated.

“E-commerce will become a more common way for consumers to purchase flooring online,” he said. “We all know, at this point, that homeowners begin their research online. That’s not good enough, though. More consumers want to complete the entire buying process online. I’m a firm believer that store traffic will never return to what it once was.”