With the start of the baseball playoffs and football season, investors are starting to look past Halloween to the December holidays. So far, they are liking what they are seeing.
Retail sales rose in September for a thirteenth straight month, helped by a surprisingly strong Back to School season. Bloomberg News noted same-store sales grew 2.7 percent, surpassing a 2.3 percent aggregate of analysts’ estimates for 30 chains. Among the winners were Abercrombie & Fitch Co. (NYSE: ANF), The Limited Brands Inc. (NYSE: LTD) and American Eagle Outfitters (NYSE: AEO), each of whom beat analysts’ expecations. This continues a trend seen last month when Best Buy Co. (NYSE:BBY), reported better-than-expected second quarter profit and found that consumers were spending more on each purchase. Wal-Mart Stores Inc. (NYSE:WMT) and Costco Wholesale Corp. (NYSE:CSCO) also had strong results.
But before people start getting visions of shoppers with carts making a mad holiday dash for bargains, there is an important caveat with this good news and that’s consumer credit. People are worried about their financial futures with 9.6 percent unemployment, a rocky housing market and stock market which is gaining but nowhere near the levels where it was before the economy went sour.
Data released today by the Federal Reserve showed that consumer credit fell by $3.34 billion in August. It dropped by a revised $4.09 billion in July. Economists surveyed by Bloomberg News expected a drop-off of $3.5 billion.
“People are spending cautiously and getting their debts down,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis, in an interview with the news service. “It’s holding back the economy, but it’s good for the long-run.”
Maybe so, but in the short run it will be a tough road ahead for retailers. Consumers seem interested in buying but not going into debt they can’t afford to do it. That means that parents of teenagers may be willing to splurge on modestly priced clothes instead of pricey electronics. Husbands may be willing to buy their wives perfume instead of jewelry. Gone are the days when people waited months to pay off their holiday shopping bills.
Luxury, though, is not taking a backseat to practicality. Shares of Tiffany & Co. (NYSE:TIF) are up more than 11 percent this year as Wall Street bet that its wealthy customers both in the U.S. and abroad will be feeling the holiday spirit. Luxottica Group S.p.A. (NYSE: LUX), a maker of luxury goods, is up about 8 percent. Coach Inc. (NYSE:COH) is up 20 percent.
Shares of companies that serve the great unwashed masses such as Wal-Mart, Target Corp. (NYSE:TGT) and Kohl’s Corp. (NYSE:KSS) all are either down this year or have barely budged.
Perhaps Wall Street is double-checking Santa’s list of whose been naughty and nice.
-Jonathan Berr
Top Gaining Stocks
Top Losing Stocks