2 Companies Banking on Consumer Confidence

Consumer confidence rose to a six year high in March, giving retailers a reason to hope for a better tomorrow.

Mar 26, 2014 at 10:43AM

Maybe it's the long actual winter, maybe it's the long metaphoric winter, but either way, people are feeling good about the future. March's consumer confidence rose to the highest point that the index has seen in six years, according to the Conference Board. We're still worried about income growth, but jobs are still not looking great. Consumers are also hopeful about the next few months, believing that the economy might have a chance to "pick up a little steam," said the Conference Board. 

A bounce in outlook is good news for businesses because it means people who have been holding back might be more inclined to spend. On the other hand, the dry predictions for income growth might keep customers from whipping out their wallets until they're sure things are safer.

Two businesses that benefit from a bounce
While the whole retail sector is likely to see better results when consumers are happy, a few brands should get an extra boost. For the past year, retailers of non-essential goods have been suffering from household fiscal responsibility. Consumers have been holding off on new clothes, accessories, and non-sale items in general.

The 2013 holiday season was a bust for many retailers, and margins were hammered across the board. A return to some sort of confidence would help these companies push revenue and margins up, and could offer excellent opportunities for investors.

Looking at who can turn good news into good sales, my eye falls on Gap (NYSE:GPS) and Tiffany (NYSE:TIF). Both companies have clear strengths, strong brands, and rely on consumers who have "excess" cash that they feel like they can spend instead of saving.

The driving force behind aspirational purchasing
Let's start with Tiffany, the clearest example of a business that wins when consumers spend freely. Tiffany is an aspirational brand, appealing to broad swaths of the middle class because of its strong name recognition and high-but-not-too-high price points. Over fiscal 2013, the business's North American division had a 2% drop in comparable store sales as customers pulled back on purchases. That was coupled with a drop in margins as customers held back on the company's mid- and lower-range products that offer it higher margins.

Over fiscal 2014 -- ended Jan. 31 this year -- things started to turn around. As consumers got more confident, North American comparable sales rose, but the company is still suffering from a product mix problem. While it has no problem selling the higher priced items like diamonds, Tiffany is still working to bring back in aspirational middle-class shoppers. Those buyers drive sales of its higher margin goods, and a return to confidence would hopefully get them back in Tiffany's North American locations.

Mom, I need new clothes
For Gap, the problem has been less noticeable for most of the year. Back-to-school is the company's big chance to make good on a renewed sense of consumer confidence. Last year, the company's July and August sales were lackluster, especially in its Old Navy brand.

On the company's second-quarter results conference call, CEO Glenn Murphy said Old Navy was "really the only brand that participates in back-to-school." In the 2012, Old navy put up fantastic comparable store sales increases in both months. While 2011 was an easier comparison, Old Navy still should have done better in 2013.

This year, consumers are telling the market they're ready to spend again. Gap and other teen retailers might get a nice summer boost from that feeling, and they could even see a bump as we move into spring -- if we ever move into spring. It snowed yesterday.

The bottom line
Everyone is in a place to benefit if the hive-mind is right and things are starting to get better. Hopefully, as the year moves on, we'll also see an increase in incomes, which will be the real driver of changes in spending and savings habits down the road. For Tiffany and Gap, any good news for Americans is going to be good news for the business. Investors looking to capitalize on a rebound in the economy -- if this can be called a rebound -- should take a closer look at these kinds of consumer-driven brands.

The dead simple "tax-skipping" strategy
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Andrew Marder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers