Pity the poor American consumer, beset by high gas prices, 8.2% unemployment, no real income growth, and the mathematical inevitability of tax hikes.
It’s hard to cope with so much fear and woe…except by getting out to the superstore to add to one’s collection of garden furniture.
Shoppers were out in force again last month, continuing to surprise economists. March retail rose 0.8% from February’s total, and 6.5% year-over-year.
The monthly gain was way ahead of the consensus forecast calling for a 0.3% increase, aided by an unexpected rise in auto sales. But sales excluding autos perked up as much as the headline number, and the three-month totals comparing the last quarter to a year ago were even more impressive than that.
Year-over-year, building materials and garden equipment and supplier have seen a gain of 13.7%, furniture and home furnishings stores grew sales 10.7%, and clothing merchants did 10.5% more business.
Where is the money coming from? From savings, as well as increased borrowing. For many demographic segments and professions, employment prospects are almost back to where they stood before the Great Recession, and so spending has bounced back as families replace aging autos and fraying couches.
Traders briefly cheered the good news yesterday, then got distracted by the drubbing of Apple (AAPL), Priceline (PCLN), and Google (GOOG). Fast money is fleeing the large-cap growth leaders on the assumption that the stock market will, at best, be treading water for a while.
A dip in the index of homebuilder confidence didn’t help, and neither did the explanation that the sales to date have failed to match the rising expectations.
But while Americans are still having a hard time qualifying for mortgages and finding jobs, they’re clearly crowding stores, based on the nationwide sales data as well as the chain stores’ impressive tallies. They’re crowding them to an extent that can’t simply be explained by the mild winter and early spring, but does suggest a “back to normal” dividend, as consumers who cut back for precautionary reasons in recent years relax the purse strings once again.
One name to bargain hunt while traders are distracted is Pier 1 (PIR), the home furnishings chain that nearly went bankrupt three years ago, but has emerged from that crucible stronger than ever, to the point where it’s growing comp sales (up 10.3% in the latest quarter) much faster that category leader Bed Bath & Beyond (BBBY), which could only manage 6.8% for the same period.
Pier 1 also boosted its gross margin above Bed Bath & Beyond’s, which dipped. Pier 1 has also pulled ahead in e-commerce. And while the stock is up 26% year-to-date, versus 20% for Bed Bath & Beyond, it’s outgained its larger competitor by a 3:1 margin since last fall to wipe out its historic discount.
The two companies are now similarly valued at roughly 15 times the current year’s estimated earnings per share, but of course Pier 1 is growing faster. At nine times trailing cash flow, Pier 1 is also cheaper than many apparel chains that aren’t growing as fast and are less leveraged to the eventual pickup in home sales.
It’s a strong stock in a strong sector of a strong market…and it’s headed higher.