The first few months of 2013 have been rough on consumers. Shoppers were saddled with higher taxes, lower paychecks, and a record spike in gas prices since ringing in the new year. Even the IRS joined in the game by delaying the kickoff of the income tax refund season, contributing to the chilly winter retailing environment. Things look so bad in retailing that The Wall Street Journal just asked if it was time for investors to "rethink consumer resilience."
I think that's an overreaction. Sure, some companies are feeling the pain from a consumer pullback. But others are holding up fine in the face of these headwinds. Here's a closer look at three bright spots in consumer retailing:
Go for a ride
You might think that spiking gas prices would be a big drag on new car sales. But that hasn't been the case so far. Instead, Ford (NYSE: F) just closed the books on its best February in years. In what was one of the worst months on record for gas prices, the company reported a 9% boost in sales while announcing plans to increase vehicle production in the second quarter. And domestic rival GM (NYSE: GM) had a solid month, too. Sales rose by a healthy 7% in February.
Both carmakers celebrated the fact that they succeeded in moving more of their profitable pickup trucks out of showrooms. Ford's F-Series sales were up by 15%. GM pointed to the rebounding housing market as a driver of increasing sales, saying, "[T]he recovery in new home construction is reinforcing the underlying improvement in auto buying conditions, especially for pickups." Ford's stock is underperforming the S&P 500 by about 7% this year, while GM is trailing the market by 12%.
Head out for lunch
Eating out is usually one of the first areas that consumers cut from their budgets in the face of a shock to paychecks. For evidence of that, just look to the latest results from Darden Restaurants (NYSE: DRI). The owner of the Olive Garden and Red Lobster chains saw customer traffic fall sharply last month as its customers felt pinched by rising gas prices and increased payroll taxes.
But Panera Bread (PNRA +0.00%) isn't in the same boat. While Darden has had to shift its focus to "enhancing affordability" and goosing promotions, Panera has been able to raise prices and expand its menu. The company is rolling out a new menu category this quarter, pastas. Panera has more room to expand menu options like that in part because its customer demographic skews toward the higher income levels. Average income clocks in at $75,000 a year for Panera regulars, much more than its competitors in the casual-dining sector can claim. The company's stock is trailing the market by about 5% so far this year.
Take a trip to the mall
While other department stores were warning about soft sales, Macy's (NYSE: M) was managing what it described as an "outstanding" January, with comparable sales up by nearly 12%. The department store went on to report one of the best holiday quarters among major retailers.
Adjusted earnings rose by 20% in the quarter, while comp sales were up by almost 4%. Key to that sales growth was a big boost in online orders. Shopping at Macys.com and Bloomingdales.com jumped by 48% over the holidays, and 41% for the full year. And thanks to a smart strategy of retrofitting stores to act as online fulfillment centers too, profitability is on the rise. Macy's EBITDA margin is no longer stuck in the single digits, but is now on par with competitors Kohl's and Nordstrom. Macy's stock is running about even with the market so far this year.
Foolish bottom line
There's no denying the tough retail environment facing consumer companies right now. But that's been the case more or less for years. And just like in any sector, there will be winners and losers. The challenge for investors isn't to write off all businesses that have a consumer focus, but to choose the strongest ones with the best prospects for future growth. Ford, Panera, and Macy's all depend on consumers to fuel their results. And yet they have found a way to keep their customers coming back for more, even while times are tough.
