It’s official: The American consumer is spending again… but heavy taxes threaten to squash this trend. Can Trump save the day?
The U.S. government reported that consumers spent 1% more in April than in March, while making income gains of only 0.4%. At the same time, Americans’ personal savings rate decreased by 0.5%.
Since last year, Americans are saving money at the gas pump and spending some of that windfall. Restaurants and entertainment venues are major beneficiaries of consumers’ largesse, even as Americans proclaim their desire to save rather than spend.
Americans’ tax burden threatens to crush this new tendency to spend more freely. A study by the Tax Foundation revealed that this year households will spend more in taxes than for necessities such as housing, food and clothing.
What if each household had an extra $1,000 to spend, as promised by Donald Trump’s tax reform plan?
These well-performing stocks might soar even higher if Trump prevails at the polls this November.
The restaurant business is booming, thanks to consumers’ willingness to splurge on dining out. The U.S. Commerce Department recently estimated that the industry has seen year-over-year sales increase by 3%.
Many restaurant chains are benefiting, and investors are taking notice. Darden Restaurants (NYSE:DRI), owner of Olive Garden, LongHorn Steakhouse, The Capital Grille and other eateries, is trading near its 52-weekhigh after showing strong growth across all its restaurant brands.
Panera Bread Company (NASDAQ:PNRA) is also riding high, recently reporting a whopping 6.2% rise in net bakery-café sales from the previous year.
Jack in The Box Inc. (NASDAQ:JACK) lost ground earlier this year with weaker-than-expected sales at its main restaurant and Qdoba Mexican Grill segment. The company saw a boost in late May when it announced plans to step up refranchising efforts. That move that would cut costs and increase profits over the next several years.
Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is feeling some investor love, having just delivered a good quarterly report and raising its guidance for the year. In addition, the company rewarded its stockholders with a quarterly dividend of $1.11 plus a special payment of $3.25 per share.
With the advent of DVD rental and streaming services, cinemas saw the need to change in order to survive. They reinvented themselves as entertainment centers, offering customers an enhanced big-screen experience with luxury seating and food and drink options that resemble restaurant fare more than concession treats.
The model works extremely well: So far, box-office tallies suggest the industry will have a blowout year.
Theater chains like AMC Entertainment Holdings (NYSE:AMC), Cinemark Holdings (NYSE:CNK) and Regal Entertainment Group (NYSE:RGC) all reported impressive year-over-year earnings increases recently.Regal specifically saw a boost from higher attendance and higher ticket prices.
For AMC, acquisitions fuel its earnings. It recently closed its $172 million deal with Starplex Cinemas. Currently, the giant cinema chain is acquiring Carmike Cinemas (NASDAQ:CKEC) for a rumored $1.1 billion.
Resorts and Casinos
Like movie theaters, casinos have also been transforming themselves in an effort to attract a younger, less gambling-oriented group of customers: Millennials. Casinos now house spas and gyms, tattoo parlors, restaurants, and bars, all in an effort to draw a new generation of gamblers who find slot machines boring.
MGM recently announced a $450 million renovation project involving New York-based Sydell Group. The partners plan to renovate MGM’s Monte Carlo Resort and Casino into two hotels: a Luxury Park MGM property and a Sydell NoMad Hotel, which features haute cuisine, Italian cafes, and local-produce vendors.
The company is also poised to purchase Boyd Gaming’s (NYSE:BYD) 50% interest in Atlantic City’s Borgata Hotel Casino and Spa. The $900 million deal will make MGM the sole owner of Borgata once the acquisition is complete.
The casino plans to sell Borgata’s real estate to MGM Growth Properties (NYSE:MGP), its real estate investment trust, for $1.2 billion. The casino will then rent it back from the REIT for $100 million annually.
At its April Investor Conference, Wynn Resorts outlined its plans for the future, which includes its Wynn Boston Harbor project. This resort plans to take advantage of 25 million gaming-age residents within 400 miles of Boston, and has an estimated opening date of 2019.
Wynn’s Encore Las Vegas, on the other hand, emphasizes the non-gaming experience with 99,000 square feet of high-end retailers, theatres, spas, nightclubs and an 18-hole golf course.
For its part, Eldorado has taken Millennials’ desire for interactive and mobile gaming seriously. With tech gaming company Scientific Games Corp. (NASDAQ:SGMS), the casino introduced a branded gaming network called SG Universe Play4Fun Network at seven of its locations. The available games are online versions of those offered on Eldorado’s casino floors.
Clouds on the Horizon
Each of these industries face some headwinds, despite the impending summer vacation season. Restaurants will be strongly affected if a $15 minimum wage is broadly enacted. So far, California and New York have passed laws phasing in such a wage hike. Washington, D.C. may do so soon.
However, the industry is already taking steps to decrease its need for workers by increasing its use of technology.
Theaters have two big issues on tap, each of which may impact profits. One is the growing movement against clearance, the practice that generally gives the large movie chains exclusive rights to show certain films, shutting out smaller film houses. So far, four studios announced that they’ll no longer honor such requests.
The other threat involves a new service, the Screening Room. Backed by Napster co-founder Sean Parker, the startup will bring newly-released films to viewers’ homes on the very day they premiere in theaters. Though the service proposes sharing some of its revenue with cinemas, some, like Regal, are dead set against the idea.
Since each of these sectors depend upon consumers having discretionary income to spend, it’s a good bet that each would be aided by tax reform that would put a little extra cash in everyone’s pocket.