Major retailers are about to dish out some mixed reads on the U.S. consumer amid depressing winter weather weighing on post-holiday sales.
But the health of the consumer isn't that mixed if one looks beneath the surface, which bodes well for the U.S. economy this spring. And these valuable, somewhat upbeat clues may partially explain the resilience in the Dow Transports against a backdrop of actual, and made-up, geopolitical pain, and the spike in the Philadelphia Semiconductor Index.
Here are several things I am seeing that point to a spring economic revival:
Fortune Brands (FBHS): Demand for doors and plumbing equipment have been relatively strong, in spite of the weather hampering construction sites. As the weather clears, these categories could indeed see momentum gain.
Masco (MAS): Cabinet and interior paint sales are strong, as well as faucets and shower hardware. Similar to Fortune Brands, this is a solid sign of the underlying momentum in the housing sector. Note that median prices for both new-home sales and existing homes gained by high-single-digit percentages to cap 2014. The incentive is there for builders and remodelers to invest, and sales of building products offer insight into the appetite by folks to invest to support future growth.
Norwegian Cruise Line (NCLH): Bookings for the summer cruises this year have been very strong. Not only that, but the company is exercising some pricing power in non-Caribbean itineraries (Caribbean has been beset with pricing challenges due to overcapacity). In doing the research over the weekend for a meeting with the company, I like what I see in terms of the new leadership, comments on pricing, and upbeat start to bookings for 2015 and, believe it or not, 2016 for the company's more upscale ships.
Royal Caribbean (RCL): Comparable to Norwegian, the company's "wave season," which is the post-winter booking period, has begun very nicely. The fact we are having consumers commit hundreds, if not thousands of dollars for a vacation months in advance is a positive macro indictor. Further, this may be a loose signal of these more financially sound consumers having a desire to spend more freely on apparel this spring.
Chart of the Morning: Sugar
I think restaurant companies are about to hike menu prices into the spring, in spite of inflation moderating. And the market knows this: The sector remains on fire, as consumers are opting for meals out instead of loading up on clothing with their gas savings. Price increases, like the more-than-5% one received from Buffalo Wild Wings (BWLD) last fall, are unlikely on the table -- but even 3% average hikes will bode well given declines in sugar (and chicken), for example.
Topic of the Morning: Abercrombie & Fitch
Brace for a dreadful quarter, and news, from Abercrombie & Fitch (ANF) when it announces earnings on March 4 pre-market. Do what you wish with that information. Based on my information gathering, I think the amount of details on the true state of the company will be limited. That means the ugly quarter and guidance will take a prominent position, much to the disbelief of those banking on a turnaround.
