Recent data suggest Germany’s notoriously stingy consumers are finally ready to open their wallets. May retail sales may have weakened from the previous month, which saw the fastest growth in four months, but consumer confidence climbed to a six-month high in June, with Germans’ assessment of the economic outlook just below a record high. And their willingness to make large purchases has risen for the fourth successive month. The upbeat mood is due to a slide in unemployment to a 12-year low. Consumers finally “trust that unemployment is coming down and real incomes will grow”, Sylvain Broyer of Nataxis told Bloomberg. “It’s a good time to buy retail stocks.”
Retailers finally have good news to report, says Wirtschaftswoche. Most have not only been able to pass on this year’s VAT increase, but also raise prices on top, according to one analyst. Experts expect prices in the sector to rise by 4%-5%, the first increases in years. It’s also interesting to see retailers who rarely discount doing well; people are again “paying up for quality”. Clothing retailer Gerry Weber grew earnings by over 13% in its first half and will probably top that in the second.
German stocks likely to profit from the consumption recovery, according to Wirtschaftswoche, include Leifheit (LEI,e21), a provider of household goods and bathroom furniture, whose earnings per share are tipped to grow by 38% this year; it is still on a 2007 p/e of 13. Also worth a look is Gerry Weber (GWI), whose earnings per share are expected to expand by 20%; it is deemed a buy by National Bank AG.