If you were to look only at the profit and stock performance of high-end, branded-goods companies like Apple (AAPL), Whole Foods (WFM), Tiffany (TIF), and Coach (COH), you’d have no idea that the U.S. is struggling with high unemployment rates and anemic income levels.
On July 19, Apple said its quarterly earnings soared 122 percent to $7.79 per share, crushing analysts’ average estimate of $5.85 per share. It’s no secret that Apple products price at the high end of their categories. Nevertheless, the company sold 20.34 million iPhones and 9.25 million iPads, which represented 142 percent and 183 percent year-over-year growth, respectively. Apple shares are up 22 percent since the beginning of the year, which compares with just 4 percent grow in the S&P 500.
Whole Foods shares have rocketed 32 percent since the beginning of the year. On Wednesday, the company said earnings in its latest quarter jumped 32 percent year-over-year to 50 cents per share, exceeding expectations by 2 cents per share. Sales in stores open for at least a year jumped 8.4 percent. “We continue to gain market share at a faster rate than most public food retailers,” said co-CEO Walter Robb. In other words, Whole Foods may actually be taking business from the lower-priced grocery retailers like Kroger, Safeway, Wal-Mart, and Costco. Management expects full-year profits to be higher than they previously projected.
High-end accessories makers Tiffany’s and Coach are scheduled to announce their second-quarter financial results in August. Year-to-date, their share prices are up 26 percent and 17 percent, respectively.
Despite economic headwinds, consumers are apparently keeping up with the Joneses. But how are people paying for this conspicuous consumption?
One explanation is that they’re charging it. In its most recent measure of consumer credit outstanding, the Federal Reserve said U.S. consumer credit increased $5 billion in May, which outpaced economists estimate for $4 billion growth. It also reflected eight straight months of increases. Leading the charge was a $3.4 billion jump in revolving credit, which includes credit cards. Recent earnings announcements from Visa, American Express, and Capital One reflect this trend: They reported 40 percent, 31 percent, and 50 percent growth in earnings, respectively.
The good news is that credit card delinquencies are at low levels. According to a recent FICO survey, bank risk professionals expect those delinquencies to remain low for the balance of the year. However, according to the American Bankers Association, credit card delinquencies ticked up slightly in the first quarter. How long before consumers start to hit their own debt ceilings?