Holiday Shopping May Gift Luxury Stores And Amazon

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The bets are in that a wide swath of retailers will share the winner's circle in the race to lure consumers this holiday season.

If analysts' forecasts are on the money, retailers that cater to the upper-income crowd -- such as fashion house and IBD 50 stockMichael Kors Holdings ( KORS ) and upscale jewelerTiffany & Co. ( TIF ) -- should keep up the fast pace for the holiday period. So should department stores such as strong third-quarter performerMacy's ( M ), home furnishings retailers such asHaverty Furniture Cos. ( HVT ) and sporting goods stores likeCabela's ( CAB )andBig 5 Sporting Goods (BGFV).

"It's going to be a bit mixed," said Ken Perkins, president of analysis firm Retail Metrics.

Third-quarter reports from major retailers in the last few days have given hints of how "mixed" the showing may be.

Macy's set a high bar, posting third-quarter earnings Wednesday that sailed past views and giving positive commentary on the outlook for the fourth quarter. It's clear from the comments of Macy's CEO Terry Lundgren that Macy's is in "good shape" for the holiday, Perkins says.

Who Can Spend?

But the next day, retail industry bellwetherWal-Mart Stores (WMT) posted results that raised concerns about spending by lower- to moderate-income consumers. The giant discounter beat analysts' earnings forecasts by 1 cent, but missed views on revenue and saw its third consecutive quarterly decline in same-store sales. It also gave a disappointing fourth-quarter earnings outlook that was slightly below consensus.

Value-priced department store operatorKohl's (KSS) also reported lackluster third-quarter results Thursday, missing earnings estimates by 5 cents. It cut its fourth-quarter outlook on prospects for softer holiday sales.

"The reports from Wal-Mart and Kohl's suggest the low- to moderate-income consumer is still feeling pressured," Perkins said. "It's going to be a barbell effect once again this holiday, with high-end retailers exposed to a higher-end consumer doing far better because their customers have more disposable income to spend on discretionary purchases."

Retailers head into the holiday season as worries over jobs, the economy and fiscal policy uncertainty have taken some of the cheer out of holiday gift-buying for many Americans, particularly low- to middle-income consumers.

That's sparked heated competition for a share of holiday spending.

"The holiday will be extremely competitive and very promotional with the potential for a modest upside, given that expectations are low and that gas prices have come down so much and are expected to come down more," Perkins said.

The lower gas prices are a "wild card" in terms of how that will impact spending, he adds. And the savings could be "significant."

The consumer mood is "cautious," adds Michael Niemira, chief economist for the International Council of Shopping Centers.

"Consumers are not so upbeat," he said. "But you've got to believe that with somewhat better employment, somewhat better economic numbers generally and lower gas prices, consumer confidence will march higher too and support holiday spending."

Holiday Outlook Tallies

Niemira forecasts a 3.4% gain from a year ago in GAFO (general merchandise, apparel and accessories, furniture and other) sales for November-December. That would be a "tad" stronger than last year's 3% increase, he says.

"For sales to be spectacular this holiday, it all depends on consumer sentiment, which now is rocky," said Jharonne Martis, director of consumer research for Thomson Reuters. "Consumers are very concerned about the government's leadership ability and job security. If they feel their jobs are being threatened, they're going to hold back on spending."

Analysts expect that the retail industry will see a 4% gain in fourth-quarter earnings from a year ago, according to Retail Metrics. For most chains, the fourth quarter runs November through January.

The forecast compares against an 8.2% gain in fourth-quarter earnings in 2012, Perkins says. But, he adds, then the industry was up against the easy comparison underlying a 2.5% rise in 2011.

The home furnishings segment and entertainment segments of retailing are expected to see the biggest gain in fourth-quarter earnings with a 13% rise for each, Perkins says. Both are projected to see the biggest sales increases among the categories, each with an 8% rise.

The home furnishings niche has stores like high-endRestoration Hardware Holdings (RH) plusBed Bath & Beyond (BBBY) and Haverty.

Home And Away

These players are benefiting from the housing recovery and rising home prices that have spurred consumers to spruce up with new furniture and home decor.

"A lot of analysts are commenting that because consumers have invested so much money in their houses, they might actually spend more on them at the holiday season," Martis said.

Home improvement chains such asHome Depot (HD) andLowe's Cos. (LOW) should fare well, she adds.

Analysts polled by Thomson Reuters expect fourth-quarter same-store sales for the home improvement segment to rise 4% vs. a year earlier, Martis notes. That compares with an estimated 1.9% rise for the industry overall, as of readings on Wednesday, and a 2.4% gain excluding Wal-Mart, she says.

The entertainment segment includes outdoor retailer Cabela's and sporting goods retailer Big 5 Sporting Goods, both of which are expected to see double-digit earnings gains in the fourth quarter.

Sporting goods stores are likely spots for holiday buying, as they "tend to offer what young adults and teens really like," with broad offerings of branded apparel and footwear, Perkins says.

The department store segment should be another top performer this holiday, with an estimated 12% rise in fourth-quarter earnings, Perkins says. The group includesJ.C. Penney (JCP), Macy's andDillard's (DDS).

"Much of the group's growth is expected to come from J.C. Penney, which is expected to cut last year's huge loss in half this year as it works hard to get back to its roots and discounts aggressively this holiday season," Perkins said.

Analysts polled by Thomson Reuters see J.C. Penney's fourth-quarter earnings rising 54% from a year earlier, while earnings at Macy's are expected to be up 5% and Dillard's is forecast to see a 7% rise.

'Wealth Effect' Felt

"The luxury markets remain strong," said Lawrence Creatura, portfolio manager for Federated Investors. "The more-affluent consumers are feeling a wealth effect from the stock market and other increases in asset value."

Among beneficiaries of the more flush high-end consumer's position are retailers such as department storeNordstrom (JWN), Michael Kors, Tiffany and Restoration Hardware, Perkins says.

"Kors has a brand that's on fire and its fashion has been received extremely well among high-end consumers," Perkins said.

He notes that it's expected to see a 34% increase in fiscal third-quarter earnings, its holiday quarter. Kors holds the No. 32 spot on the current IBD 50 list, a roster of top-rated growth stocks.

Niemira says the luxury segment has been performing better than the industry overall, and continues to do so. It's been seeing same-store sales growth of 4% year over year in recent months, a rate he sees continuing in the fourth quarter. That would be double the 2% increase in fourth-quarter comps that he projects for the industry.

Auto parts retailers are expected to see an 11% jump in fourth-quarter earnings, as consumers have revved up spending on new cars and also are sprucing up old ones. The segment includes retailers such asO'Reilly Automotive (ORL) andAutoZone (AZO).

Hipster and Bohemian-style apparel retailerUrban Outfitters (URBN) is expected to see a 14.5% jump in fourth-quarter comps at its Free People chain, making it the industry's best performer, says Martis.

"What analysts love about this company is their ability to sell unique merchandise at full price, and they're impressed with management's ability to control inventory."

Online retailerAmazon.com (AMZN) is expected to be piping hot this holiday season, too. Analysts polled by Thomson Reuters expect it to see a stunning 215.9% surge in fourth-quarter earnings, Martis says.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: CAB , HVT , KORS , M , TIF

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