Consumer Confidence at Two-and-a-half-year Low, While Retail Sector Reports Record Results—What Gives?

While consumer confidence is at a two-and-a-half year low, the retail clothing sector is generating record financial results. What's going on?The stock market has done a good job boosting the S&P 500 Index out of its trading range. Corporate earnings are coming in solid and, while some large-cap companies are saying that their businesses are slowing, others are reporting that business is getting better. The stock market has taken note, but this is a market trading on the debt crisis in Europe. Sector-wise, the technology sector has shown some real leadership, which, so far this year, has been lacking. It’s a good sign for the economy, but, as we all know, the housing and employment numbers continue to be weak (see Lots of Companies Doing Well, But the Marketplace Isn’t Listening).This is what’s holding back consumer confidence, even in the face of retail industry strength. The stock market can go anywhere from here. Making predictions is unwise.

Right now, we’re seeing some solid strength in the retail clothing sector. The stock market is rewarding these companies; many of which are trading right at their 52-week highs.

One benchmark company that I always like to follow in retail is V.F. Corporation (NYSE/VFC). This $15.0-billion retail powerhouse just hit an all-time record high on the stock market and is up approximately 60% since the beginning of the year. There was a correction in the broader stock market, but this company certainly didn’t feel it.

V.F. operates around 30 retail brands, most of which are household names. Some of these include: “The North Face,” “Wrangler,” “Timberland,” “Vans,” “Lee,” and “Nautica,” “JanSport,” “Reef” and “Smartwool.” If there is a company trading on the stock market that is a benchmark for the retail clothing market, then V.F. is it.

The company just announced record third-quarter financial results, boosted its dividend payment to stockholders and increased its 2011 full-year guidance. Revenues in the third quarter of 2011 grew 23% to $2.75 billion. Earnings grew 24% to $300.7 million. The company’s total revenues for all of 2011 are now expected to grow between 22% and 23%, and management increased its quarterly cash dividend by 14%, marking the 39th consecutive year of increased dividend payments to shareholders. By any measure, this is a tremendous business accomplishment for such a mature, large-cap company in a slow economy. You certainly could argue that this is a business worth owning. The trouble is that the stock market never has this pick down for very long. This stock’s been going up steadily since 1991, with only a few blips during major stock market corrections.

Other players in the retail clothing market are also reporting solid financial results. Columbia Sportswear Company (NASDAQ/COLM) reported record third-quarter revenues that grew 12% to $567 million. Earnings grew 29% to $67.5 million and the company raised its full-year 2011 operating margin outlook to approximately eight percent and its outlook for full-year revenue growth to between 15% and 16%.

Under Armour, Inc. (NYSE/UA) generated third-quarter revenue growth of 42%. The company’s earnings grew 32% and management also increased its 2011 full-year revenue and earnings outlook. Both Columbia Sportswear and Under Armour saw the stock market reward their great results accordingly.

While consumer confidence is at a two-and-a-half year low, the retail clothing sector is generating record financial results. There is a disconnect in the stock market at this time and it all has to do with investor confidence. What we need is more momentum on solving the debt crisis in Europe. While corporations aren’t doing a lot of new hiring, most are doing their part on the earnings front. Stock market investors see the numbers, but, in large part, are afraid to act on the news.