Forget the Stock Market; Good
Corporate News Still the Best Gauge

retail sectorA little stock market bounce-back is a welcome development. We likely won’t see any material new trend develop until second-quarter earnings season begins. Investment risk is still very high, but there is good news out there.

In the continuing story of a strong retail sector, Ralph Lauren Corporation (NYSE/RL) announced excellent financial growth in its fiscal fourth quarter and management also announced a doubling of its quarterly dividend. When I read news like this, it bolsters my view that the U.S. economy is stronger than the marketplace currently thinks. In a consumer-driven economy, what the retail sector reports is very important news.

According to Ralph Lauren, its fiscal fourth-quarter revenues, ended March 31, 2012, grew a solid 14% to $1.6 billion over revenues of $1.4 billion generated in the same quarter last year. The company experienced double-digit sales growth with particular strength at the retail level. Earnings in the latest quarter grew 29% to $94.0 million. For all of fiscal 2012, the company’s revenues grew 21% to $6.9 billion.

The stock market has been awfully kind to Ralph Lauren; the stock has been in a sustained uptrend since 2003. No doubt the doubling of its dividend will attract more institutional ownership. The stock market jumped on the news.

And other companies in the retail sector are experiencing solid sales growth. Macys, Inc. (NYSE/M) and Target Corporation (NYSE/TGT) have been on a stock market tear lately. Companies like Under Armour, Inc. (NYSE/UA), Nike, Inc. (NYSE/NKE), and lululemon athletica inc. (NASDAQ/LULU) have been really strong on the stock market since the beginning of the year.

On balance, I’d have to say that business activity in the retail sector is generally good and that’s a solid vote of confidence for the U.S. economy. Even Harley-Davidson, Inc. (NYSE/HOG) reported a very solid first quarter, saying that motorcycle sales are accelerating. (See Benchmark Stocks Reporting Great Earnings—But the Stock Market Bet on this Already.) In any recession, the first things to drop are non-essential luxury items like “Harleys.” If sales of Harleys are going up with a stronger U.S. dollar, then the world is definitely not falling apart.

I’ll be looking at the retail sector very closely this second-quarter earnings season. A lot of these companies have been stock market leaders for the last couple of years. If corporate visibility from the retail sector is mostly good, then I won’t worry too much about the rest of this year. As soon as management says that retail sector sales are going soft, we have our next recession.