The bets are in that a wide swath of retailers will share the
winner's circle in the race to lure consumers this holiday
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 (
) and upscale jewelerTiffany & Co. (
) -- should keep up the fast pace for the holiday period. So
should department stores such as strong third-quarter
), home furnishings retailers such asHaverty Furniture Cos. (
) and sporting goods stores likeCabela's (
)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
"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
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
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
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
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
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
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
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
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
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,
"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.