May turned out to be quite a month for consumer confidence, with the Consumer Sentiment Index rising to 84.5 from 76.4 in April 2013. The increase was the highest in the last five years and more consumers reported an improvement in their finances due to an increase in income.
The gains occurred across all income groups, but were most noticeable in households earning over $80,000. Rising share and home values are part of the positive economic outlook experienced by many consumers, and according to Thomson Reuters, their interest in purchasing goods and services is at its highest level since 2007. For example, buying attitudes for household durables and vehicles are at their highest levels since 2007 and 2005, respectively.
Retailers are poised to benefit from increasing consumer confidence, which translates into more people shopping at their local stores and online.
Wal-Mart Stores, Inc. (NYSE:WMT)‘s attractive low prices
Increasing consumer sentiment could spell trouble for low cost retailers such as Wal-Mart Stores, Inc. (NYSE:WMT), which may see sales slowing down as confident consumers flock to better and pricier stores. According to the company’s first-quarter results, diluted EPS increased 4.6% to $1.14 from last year’s first-quarter EPS of $1.09. U.S. comp sales decreased 1.4%. However, lower income gains, especially among households that earn less than $80,000, should keep Wal-Mart Stores, Inc. (NYSE:WMT)’s main customer base returning to its stores.
Wal-Mart Stores, Inc. (NYSE:WMT) U.S. expects comps during the second quarter to be flat to 2% higher and second-quarter EPS to be between $1.22 to $1.27, higher than last year’s $1.18 per share. The company’s investments in e-commerce are expected to increase EPS by $0.09 for the 2014 fiscal year. The impact on the second-quarter is expected to be $0.02 a share. A combination of rising consumer demand noted for household durables, such as mobile phones and electronics, and Wal-Mart Stores, Inc. (NYSE:WMT)’s low prices should drive the company’s sales.
Kohl’s Corporation (NYSE:KSS) opening new stores
Kohl’s Corporation (NYSE:KSS) customers were buying with caution earlier this year. The store’s first-quarter earnings for the period ended May 4, 2013 showed a drop of 1.9% in comp sales. First-quarter 2013 sales decreased 1% to $4.2 billion from the same period last year. Net income decreased 4% quarter to $147 million from $154 million last year, reflecting soft demand from its customers and earlier economic conditions.
The company’s second-quarter results are expected to show improving consumer demand — Kohl’s Corporation (NYSE:KSS) expects the second quarter to bring 1%-3% increase in total sales and 0%-2% rise in comparable store sales. The company provided an earnings guidance for the second-quarter of $1.00 to $1.08 per diluted share. During Fall 2013, Kohl’s Corporation (NYSE:KSS) expects to open three new stores to add to the nine stores opened during the Spring
Nordstrom, Inc. (NYSE:JWN) expected rise in sales
Soft sales numbers were also seen at Nordstrom, Inc. (NYSE:JWN) earlier this year, in line with a lower level of consumer sentiment. First-quarter 2013 results met the company’s lower end earnings expectations. Net earnings were $145 million compared to $149 million in the first-quarter of 2012. Diluted EPS quarter rose to $0.73 from last year’s figure of $0.70. Same store sales also rose 2.7% compared to last year, but were considered “flat.”
The 25% increase in household wealth noted in upper income households should benefit higher end retailers, like Nordstrom, Inc. (NYSE:JWN). The company’s current outlook is for an increase of 4%-6% in total sales and an increase of 3%-5% for same-store sales. Nordstrom, Inc. (NYSE:JWN) stood by its 2013 annual EPS guidance of $3.65 to $3.80 a share, which includes first-quarter results and incorporates the expected increase in 2013 same-store sales. The guidance also takes into account share repurchases that took place in the first-quarter, which can increase diluted EPS by $0.05.
Outlook
As the economy continues to show signs of improvement, consumer confidence and spending should continue to improve. Low cost retailers, such as Wal-Mart Stores, Inc. (NYSE:WMT) and Kohl’s Corporation (NYSE:KSS), should continue to attract consumers with their low prices and should maintain higher profitability if they manage to keep operating expenses low as a percentage of sales, also known as leveraging their expenses. Consumers in upper income levels are already showing signs of life, which will benefit retailers such as Nordstrom, Inc. (NYSE:JWN).
Investors should keep a close eye on continuing gains in future household income and improvements in the job market to drive greater consumer spending. These retailers can expect their sales to gradually bounce back.
The article 3 Retailers That Will Benefit From Improving Consumer Confidence originally appeared on Fool.com and is written by Eileen Rojas.
Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Eileen is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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