Sifting Through the Mixed Bag of Consumer Data

If you believe the headlines, U.S. consumers are out in full force spending one week—the next, they’re anxiously cutting coupons. And when it comes down to it, the latest data on the American consumer is a mixed bag. But one thing I’ve learned in my three decades in this business is that the consumer will say one thing and do something completely different. Spending will continue in select areas and we’ll continue to go where the sales numbers are strongest. So in today’s blog I’d like to cover the latest economic reports concerning the U.S. consumer then run down the biggest retail earnings announcements.

Let’s get to the lackluster news first: In June, American consumers didn’t spend any more in June than they did in May. This represented an uptick from the 0.1% dip in May but came below economists’ expectations of a 0.1% rise. Interestingly enough, consumers spent more on services while cutting their purchases of durable goods like cars.

However, that’s not to say that American consumers are completely in the dumps. The Commerce Department also announced that personal income rose 0.5%, with wages rising the most since March. Instead of blowing these gains immediately, many decided to sock away the extra income, so the savings rate rose to the highest level in 12 months.

On top of that the Conference Board’s Consumer Confidence Index rose for the first time in four months—up from 62.7 in June to 65.9 in July. The biggest change was that consumers are now more optimistic about economic growth in the next six months—the measure of future expectations increased from 73.4 to 79.1! This reading trumped the 61.0 consensus estimate, and it bodes well for consumer spending in July.

So consumption in the U.S. is clearly improving by fits and starts, but not all retailers are equal in this environment; the latest quarterly earnings data from several big retailers proved that this is a “sink or swim” environment. Let’s take a look at the biggest market-moving reports and see which big players are staying afloat and which have hit the bottom.

Aaron’s Inc. (AAN) is a lease-to-own retailer, specializing in furniture, appliances, electronics and computers. In the second quarter, the company’s profits surged 235% year-over-year to $36.2 million. Adjusted earnings weighed in at $0.47 per share, which matched analyst estimates. Total sales also advanced 12% to $539.5 million and topped the consensus estimate by 3%. AAN is a B-rated stock in my PortfolioGrader tool. Inc. (AMZN), while not a brick-and-mortar retailer, is a major play on the U.S. consumer’s increasing preference for online shopping. In the second quarter, the company’s profits plunged 96% to $7 million, or $0.01 per share due to massive costs associated with the company’s acquisition of Kiva Systems Inc. Because analysts forecast earnings of $0.02 per share, Amazon posted a 50% earnings miss. Net sales increased 29% year-over-year to $12.83 billion, but this missed the $12.89 billion consensus estimate. AMZN is a C-rated stock.

GNC Holdings Inc. (GNC) sells multivitamins and other nutritional supplements, and this retailer saw growth across all its business units in the second quarter. Compared with the same quarter last year, sales advanced 19% to $619.1 million while earnings boomed 85% to $66.7 million, or $0.62 per share. The consensus called for earnings of $0.52 per share so GNC posted a 19% earnings surprise! On top of this, GNC has increased its 2012 sales and guidance. GNC is an A-rated stock.

Goodyear Tire & Rubber Co. (GT) just wasn’t able to accelerate in the second quarter. Compared with the same quarter last year, sales declined 8% to $5.15 billion; this came in way below the $5.74 billion consensus estimate. The company’s bottom line did jump 115% to $85 million, or $0.33 per share, but this missed the $0.,45 per share consensus estimate by 27%. GT is a D-rated stock.

O’Reilly Automotive Inc. (ORLY) post solid second-quarter operating results thanks to the fact that Americans are keeping their cars on the road longer than ever. The company’s bottom line advanced 9% to $146.12 million, or $1.15 per share. Over the same period, the company’s sales rose 6% to $1.56 billion. Same-store sales for the second quarter rose 2.5%. ORLY is an A-rated stock.

We’re just about halfway through earnings season, but there’s still plenty to come! I’ll continue posting updates every trading day, so please check back in tomorrow.

Until then,

Louis Navellier

Louis Navellier

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