The next several hours will bring a handful of important consumer names that may give investors some idea of the progress the consumer economy is making. This only works as a barometer to some degree. Sales at S&P 500 companies far outpace the growth of the overall economy, which in part explains why the market itself is doing as well as it is (we’re in the 1980s now on the S&P, so crank up the Def Leppard) and the rest of the economy is lagging behind.
And mass market consumer-facing names like McDonald’s and Coca-Cola disappointed investors with their results on Tuesday, so it will be interesting to see whether others, like Whirlpool – which has tended to buck the general trend – will fare a bit better with their results. (Whirlpool, for its part, cut its outlook amid weak results, but North American sales were up 4 percent excluding currency effects, so score that one on the positive side of the ledger.)
Another consumer name that would lend some credence to the idea that Container Store and Lumber Liquidators put forth – that the U.S. economy remains in a funk – would be Ethan Allen Interiors. The furniture retailer actually comes in as undervalued, per StarMine expectations for growth in the coming decade, and it, too, has managed to steadily increase profit margins.
The company’s valuations compare favorably with those of its competitors: A lower forward price-to-earnings ratio than the likes of Haverty Furniture, Laz-E-Boy, and Leggett & Platt – and while it’s not the biggest of bellwethers (it’s a $659 million company, putting it in the S&P small caps), it has a certain cachet that puts it squarely in the mass market luxury area.
Again, it’s not a perfect barometer, but if it’s doing well along with the cable companies, media names that supply premium content, it points to higher-end retailer outperformance (though nobody has told Harley-Davidson or Michael Kors, both high-end companies that have struggled). If it sinks, it validates the “we’re in a funk” thesis.
The S&P’s global luxury retail index has posted annualized returns of about 25.5 percent in the last five years, outdoing the overall retail index (averaging 25.1 percent annualized in the last five years) and the consumer staples stocks (+16.7 percent).
The auto companies come a day later – Ford and General Motors – but the two U.S. automaking giants are buried under a lot of issues involving recalls, particularly GM.
Notably June auto sales came in at their best levels in about eight years, with GM showing a 1 percent increase in sales while Ford sales were down 5 percent for the month, though still ahead of forecasts.
Either way, the overall level of sales suggested some strength in the second quarter, with the primary questions being how much those companies will be hit by further recall-linked issues.