Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Higher Taxes: Who Cares? Not the Rich

Tuesday, April 2nd, 2013
By for Profit Confidential

Higher TaxesThere’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.

Below are my picks for the top luxury retailers that will continue to benefit from the luxury consumers who still have the inclination to spend in the retail sector.

At the top of the luxury chain is Michael Kors Holdings Limited (NYSE/KORS). The operating results point to a company that continues to be firing on all cylinders. In the fiscal third-quarter earnings season, the company blew away Wall Street’s expectations when it reported revenue growth of 70.4% to $636.8 million, well above the Thomson Financial consensus estimate of $540.3 million. And more staggering were a superlative 41.4% rise in the key comparable store sales and a 58% surge in comparable store sales in Europe.

On the high-end jewelry front, the top player is Tiffany & Co. (NYSE/TIF) in the retail sector. The company fell short of the Thomson Financial earnings-per-share (EPS) estimates in the last four quarters, but it came back with a slight outperformance in the fiscal fourth quarter. My concern is that the estimated revenue growth of 6.1% and 6.9% for fiscal 2014 and fiscal 2015 are weak, especially when compared to the 63.4% and 33.0% for Michael Kors in its fiscal 2013 and fiscal 2014.

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An interesting bottom-feeder luxury stock is high-end handbag-maker Coach, Inc. (NYSE/COH), which is trading just above its 52-week low, where I see a contrarian play in the retail sector.

Read my thoughts on the retail sector in “It’s a Screaming Buy for Retailers!

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  • john_rhodus

    This article is COMPLETE bull crap!!! The author's "statistics" are from the end of 2012…which is before the tax increases went into effect!!! I'm a low-income (actually "poverty class") single-mother of 2, and can see the "supposed upper-class/higher income" tax increases, on my payck stub!!! The "media-economists" live in a fantasy world (no disrespect), but you people "reporting" these falsies…should be ASHAMED!!! You and your "politician" counterparts are DESTROYING America, and especially, it's young people (our future leaders). By teaching and encouraging no work ethic… You don't need a degree from Harvard to understand the elementary concept that if one works hard to either create, (or, contributes to help make/sell/produce/manufacture etc.) a good, and or service (ie: a baker, a Dr, a cashier, or even a garbage collector…)that is wanted/needed/desired for others to purchase and or use for either personal benefit, or for others (ie: their business' customers or employees)…then, the result is such 1.)compensation 2.) a profit 3.) "potentional earned assets", because the monies earned are "real", not just "paper!!!" There's a HUGE difference, between what ONE has earned, ( especially, by the work of his own hand)…and, what ONE should/could/may have the "potential to earn", possess/acquire without any contribution of either production of goods and or a service for their fellow man!!! And, it's irresponsible, and totally ILLOWEDGECAL to continue to govern/educate America's, and future generations with the "low work-ethic" way of life!!!
    For human beings to have a "dependent" mentality, and their "so-called" mentors, or leaders "discourage" work-ethics!!!
    The success of a society, and its people stems from basic principles. Its people must all believe in "humane equality" (strive to live in favor of one's "Creator",and your personal religious views/practices are irrelivant to this…), and its people MUST have/obtain/desire strong/unrelentful individual "pertinacious" work-ethic!!!
    Because, it doesn't matter if life's placed you as a CEO of a corporation, or the janitor of the corporation…if a person has a strong work-ethic, earns his wage, by the work of his own hand, does the best to his ability, and doesn't measure his work to his co-workers, but only strives to do his "personal" best.
    Because, his "work" earns his wages, not his status, rank, or popularity…but, a persons hard work is what's actually the assess!!! And, if ALL whom are a part of the corporation strive for "personal" hard-work ethic, then THEY ALL will reep the success and benefits of "their" company!!! That's the "American Dream!!!" The dream started w/ strong work ethic…then, and only then, can America and its people (past, present, and future) maintain the foundation of this prosperous Nation!!! That WE ARE ALL SO BLESSED to live in!!! No other country on this earth has the freedoms (we once had, and were created on)…that's the reasoning behind so many different cultures, or other nations people immagrate here daily, hourly, by the minute!!! They want our countries freedoms, and wealth!!! Which is welcomed, if those people's want to work, and EARN their families personal/individual rewards for this Life!!!

    If One works, and contributes to this Nation…then, One is rewarded with this Nations fruits!! But, a person and their families wants/needs are to be EARNED, not "given"…that's the state of the countries most flee from, and they are in that "state of poverty, and turmoil", because of the people's ungodly principles of entitlement…and, they're governed by a dictatorship, or monarchy. NOT, a democracy w/ "persona"l freedoms!!! Look up the definition of "democracy"?!! We've moved so far "AWAY" from this founding "Americian"focal principle…and, not just our country, but the ENTIRE world has suffered!!

  • ijere

    Exactly,The Rich does not care about high payment in tax but the poor ones are the people suffering the mess. I think Mr President is gonna thing deeply about this issue of Tax in America…..www.alumni.unn.edu.ng

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles