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Snowmobiles and makeup: Consumers are buying again

Today's Financial News - Posted October 29, 2009

Snowmobiles and makeup: Consumers are buying once againUnemployment may be on the rise, but Americans are buying once again. The news out of Artic Cat (NASDAQ:ACAT) and Revlon (NYSE:REV) show the situation is not all that bad.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Who says consumers are not spending these days? A look at some of the day’s big movers proves that markets misjudged the savings capabilities (or the lack thereof) of American shoppers.

Sarah Palin and her sled-riding husband, Todd, will be glad to hear that shares of Artic Cat (NASDAQ:ACAT) are surging today.

According to the snowmobile and ATV producer’s second-quarter figures, sales are down, but they are not as horrific as they could be. During the last three months, Artic Cat recorded $166 million worth of sales. Down about 18% from last year’s corresponding period’s figure of $204 million.

But the sales figure is not the catalyst for today’s 15% up-tick. It is the bottom line that is getting the investors’ attention.

Thanks to cost control and capital restructuring initiatives, the company managed to increase its margins and post a profit that was just 12% below year-ago figures.

The $14.8 million profit looks even better when compared to the past three quarters, all of which were deeply negative. Just six months ago, Artic Cat shareholders were forced to stomach a $16.7 million quarterly loss.

Today’s news is proof that consumer spending is down, but has made strong recoveries.

Lipstick on a pig

To prove that the spending was done by more folks than single guys buying fast toys, take a look at the action from Revlon (NYSE:REV). Shares of the cosmetics manufacturer are flat-out soaring today after the company posted strong quarterly earnings.

Over the past three months, sold $326.2 million worth of its products. When you adjust the figure for unfavorable currency exchanges, it turns into a top line of $332 million, just 0.7% below year-ago figures.

Even with a decline in sales, however, the company managed to pull itself away from a quarterly loss of $15.2 million to a profit of $23.1 million.

The news helps to prove that makeup and other cosmetics are nearly recession-proof products.

From here, however, I would not expect much share price appreciation, unless you are planning on holding for more than twelve or eighteen months. After today’s awe-inspiring 40% gains, share price is very close to yearly highs recorded last November.

Makeup sales will increase over the next few quarters, but not at a pace like we just saw and, more importantly, margins will likely suffer as Revlon and its competitors work to draw the buying attention of the increasingly large population of financially downtrodden Americans.

So far, mainstream consumers have not felt the full impact of surging unemployment. But soon enough it will trickle throughout the economy.

Take advantage of the action now, because soon enough growth will level off and turnaround plays will be tough to find.


Next Article: Will China Unicom (CHU) gain when Apple Inc.’s (AAPL) new iPhone goes on sale in China?

Posted by Andrew Snyder · Filed Under Featuring..., Investment Strategies 

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