Economic Update – Merging Homebuilders Look to Survive

Only a few years ago, it would have been just another bit of the M&A torrent, but these days the acquisition of homebuilder Centex by the even larger homebuilder Pulte Homes in a $1.3 billion stock-for-stock deal is considered a survival gambit. Small wonder: as separate entities, Centex lost $664 million in the quarter ended in December, while Pulte lost $338.2 million in its most recent quarter. One day, perhaps, the combined strengths of the two–somewhat different demographics in somewhat different parts of the country–might help the larger entity back to profitability. “By acting decisively now, we’re creating unrivaled firepower to capitalize on the opportunities in homebuilding that are now becoming visible on the horizon,” Pulte said breathlessly in a statement regarding the acquisition, though it didn’t specify what kind of telescope it was using to see that far on the horizon. Then again, according to the Mortgage Bankers Association, mortgage applications were up 4.7 percent last week from a week earlier, and remarkably enough, most of those were applications were for home purchases, rather than refinancing. It seems that buyers with the wherewithal are taking advantage of reduced prices and historically low mortgage interest rates. File this under “whatever works”: In a time when few retailers are posting same-store sales increases, teen-clothier Hot Topic Inc. has reported a 7.1 percent average rise in March same-store sales across its 679 Hot Topic stores and 158 Torrid stores nationwide. That demographic is notoriously fickle, so what did Hot Topic do to pump up sales? Carry the wildly popular teen vampire movie Twlight DVD, which accounted for about half of the same-store sales rise last month, according to the company. Family Dollar Stores Inc. needed no such gimmick to drive sales in its most recent quarter, ended Feb. 28. Same-store sales for the quarter were up 6 percent compared with the same period a year ago, “driven primarily by increased sales for consumables,” said CEO Howard Levine in a conference call on Wednesday. Levine didn’t specify how many stores the chain plans to open in the near future. Currently it has more than 6,600 locations. But he did say the company is eying real estate quite closely, with the intention to pounce when the time is right. “We do see opportunities growing in the real estate market as it is becoming a more tenant-friendly market, and look to take advantage of those opportunities as they arise,” he noted. “But in the near term, we continue to focus on improving the profitability of existing stores.” After Tuesday’s sharp market decline, Wall Street wandered around Wednesday mostly in positive territory, with the Dow Jones Industrial Average ending the day with an uptick of 47.55 points, or 0.61 percent. The S&P 500 was up 1.18 percent and the Nasdaq was up 1.86 percent.