The U.S. retail sector is that segment of the U.S. economy related to consumer purchases at the retail level. In the simplest form, the retail sector consists of Americans buying goods and services at retail establishments…stores. The retail sector accounts for about 10% of U.S. gross domestic product (GDP).
We all know that consumer spending and the performance of the retail sector dictates the direction of economic renewal in the U.S. It’s quite simple—if consumers spend, the economy and the retail sector will grow.
Now, with home prices nationwide continuing to rise and the jobs creation picture showing signs of improvement (though it is still slogging along), the end result has been a rise in consumer spending, which has helped to drive the retail sector.
Spending on durable goods is a good indicator on how positive consumers are in the retail sector, as this spending is on nonessential goods. So when consumers spend on this group, you know there’s some confidence in the overall economy. In April, durable goods surged 3.3%, which was well above both the Briefing.com estimate calling for a 1.5% decline and the 5.9% decline in March. On an ex-transportation basis, durable goods increased 1.3%.
Retail sales edged up 0.1% in April, which was above both the Briefing.com estimate calling for a 10.7% drop and the 0.5% decline in March.
In May so far, 10 U.S. retail chains have reported, and the results have been good, with the key same-store sales surging up 3.9% versus the 3.7% estimate. (Source: Wahba, P., “Retailers’ sales rise in May, spending stays moderate,” Reuters, June 6, 2013.)
Results from the big-box stores continue to be healthy in the retail sector.
Market leader Costco Wholesale Corporation (NASDAQ/COST) reported sales growth of seven percent in May, while its key same-store sales increased by five percent.
A big surprise was delivered by American Apparel, Inc (NYSE/APP), which reported an impressive 10% surge in … Read More
Never mind the higher taxes on the rich and those earning over $400,000 annually; the more affluent members of our society appear to be spending lavishly in the retail sector.
Recall a recent discussion I had about the Shullman Luxury and Affluence Monthly Pulse and the fact that a majority of the luxury and affluent spenders are not influenced by the tax increases. (Read “Higher Taxes: Who Cares? Not the Rich.”)
Well, guess what? Based on the results, high-end handbag maker Coach, Inc. (NYSE/COH) delivered strong numbers to shareholders, resulting in a surge in the stock’s price.
For the readers of Profit Confidential, I advised looking at Coach as a contrarian play in the retail sector after the stock fell to near its 52-week low.
The spike in the share price confirms this.
Take a look at Coach’s stock chart below. Notice the downside trading gap in January, when the stock plummeted to a low of $45.87 on February 24. The opening gap on Tuesday, as indicated by the blue oval in the chart, shows the jump and the move back toward the $60.00 level, according to my technical analysis.
Chart courtesy of www.StockCharts.com
The thing about stocks like Coach and why I was intrigued by the prior valuation is the company’s strong global brand awareness in the luxury retail sector, which is critical. Companies, especially retailers, will always have bumps in the road, but as long as the brand is strong, buying on weakness when the masses of investors are dumping makes … Read More
There’s a belief that the rich become richer because they are frugal and know how to save. The budget cuts and tax increases at the beginning of the year saw higher income taxes for those earning over $400,000 annually. President Obama had hoped to place higher taxes on those making over $250,000 annually but had to settle for $400,000 as a compromise.
With the higher taxes, there was widespread fear that the affluent would halt their spending, which would ultimately impact consumer spending in the retail sector and gross domestic product (GDP) growth.
Well, here we are, four months into the year with higher taxes, and it appears that the affluent have continued to spend in the retail sector. The Shullman Luxury and Affluence Monthly Pulse is an excellent metric, detailing the spending habits of the wealthy in the retail sector. The research focuses on the luxury consumer group who spends on luxury goods, comprising of those households with income levels in excess of $500,000. The “affluent” group is defined as those households where the income is between $250,000 and $499,000.
The Shullman research indicated that 55% of the luxury consumers polled said the advent of higher taxes has not impacted their spending pattern in the retail sector. Moreover, about 61% of the affluent group offered a similar response. (Source: Frank, R., “Wealthy Say Higher Taxes Don’t Hurt Spending,” CNBC, March 27, 2013.) According to the research, less than 25% of luxury consumers said they would change their spending pattern this year.
Given the findings, it appears the luxury brand stocks will continue to fare well in the retail sector…. Read More
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