Macy's, Foot Locker, Lululemon Are Merry This Holiday

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The odds favor a broad mix of retail segments to hit pay dirt during the holiday season's buying spree as shoppers spend more freely on clothing, footwear and sporting goods.

If analysts' forecasts are on the money, top-performing retailers of all stripes such as sporting goods chainDick's Sporting Goods ( DKS ), athletic footwear retailerFoot Locker ( FL ), women's clothierFrancesca's Holdings ( FRAN ) and giant department store operatorMacy's ( M ) should keep up their winning streak this Christmas period, with double-digit fourth-quarter earnings forecast by analysts polled by Thomson Reuters.

The recreation segment, which includes sporting goods stores, and teen apparel chains should see the biggest gain, with a 43% jump estimated for both segments, followed by footwear at 30% and apparel at 21%, says Ken Perkins, president of Retail Metrics. Analysts forecast an 11.2% gain for the industry in the fourth quarter, he says, which for most chains runs from November through January.

Sporting goods stores, apparel chains and shoe stores are also among the segments likely to outpace the industry's fourth-quarter same-store sales growth, says Michael Niemira, chief economist at the International Council of Shopping Centers.

He expects shoe stores to see a 5% jump in same-store sales vs. a year earlier, and sporting goods retailers to see a 4.5% gain compared with a 2.5% rise for the industry.

"Overall, the performance is likely to be healthy, but quite uneven," said Niemira. "There are pockets of strength by retailer. Those retailers that have been aggressively catering to the consumer's needs for freshness, financing alternatives and for good value will tend to garner a bigger market share this holiday season."

Hot Brands

Take Dick's, which Thomson Reuters analysts expect will see a 41% rise in fourth-quarter earnings.

The retailer features a wide variety of hot brands likeNike ( NKE ) andUnder Armour (UA), and it offers merchandise that's well differentiated from what you find at other stores, says Brian Sozzi, chief equities analyst at NBG Productions. That helps lure customers and enables Dick's to command higher prices.

Perkins says the sporting goods retail sector is in a "sweet spot" in a "sports-crazed" nation.

And specialty retailers in the segment such as Dick's have done a good job of marketing apparel and related, logo-branded merchandise, which range from mugs and sweat shirts to pillow coverings.

"Boys love this stuff for Christmas," he said.

Apparel is a traditionally strong holiday gift category, which watchers expect will sell well this holiday. Niemira says specialty apparel stores consistently have been good performers, with an average 3% rise in same-store sales for the group this year, a trend he sees continuing through the fourth quarter.

He calls that a "pretty healthy gain" for the segment.

Apparel chains should fare well this holiday and should benefit from lower input costs with the price of cotton down roughly 15% from last year, adds Keith Jelinek, director with consulting firm AlixPartners.

Lower cotton costs should help clothing stores run aggressive promotions without hurting margins, he says.

Women's clothing and accessories boutique operator Francesca's is among those retailers that should stay on the fast track through the holiday. It rang up a 71% jump in third-quarter earnings, and analysts see a 40% gain in the fourth quarter. Francesca's is very much a niche player, says Perkins, with a unique and trendy selection.

Yoga and workout clothes retailerLululemon Athletica (LULU) should also be a hot spot for holiday gifts, say followers. Analysts expect the upscale chain to see a 47% jump in fourth-quarter earnings following a 44% pop in the third quarter reported on Dec. 6.

"They're selling a very high-quality product that they're known for," said Sozzi. "Over the past two quarters, that product has gotten that much better with more technical aspects, better fabric and brighter colors, giving the consumer another reason to shop in the store and pay what is a very high competing price point."

Off-price retailersTJX (TJX), parent of T.J. Maxx, Home Goods and Marshalls, andRoss Stores (ROST) are well positioned for the holidays, with national brands at reasonable prices, says Perkins. Analysts see a 22% fourth-quarter earnings gain for Ross and a 23% rise for TJX.

Teen clothing retailersAmerican Eagle Outfitters (AEO) andRue21 (RUE) should continue the momentum they had for back-to-school into the Christmas holiday. Both offer prices that are more affordable for the middle-income consumer, says Perkins, and they're popular spots for gift cards.

Analysts expect American Eagle's fourth-quarter earnings to soar 60% and Rue21 to see a 21% rise.

Footwear retailers such asFoot Locker ( FL ) and off-price retailerDSW (DSW) are shoe-ins for a cheery fourth quarter.

Hot Sneakers

Sozzi says athletic footwear retailers are benefiting from strong product innovation from brands like Nike. And with sneakers a hot fashion item featuring bright colors, teens are making statements through their sneakers, Sozzi says.

Analysts expect footwear retailers to be big winners in the fourth quarter, with a 5% pop in same-store sales for the segment, as teens go in big for sneakers and women step up their boot buying, says Jharonne Martis, Thomson Reuters' director of research.

Department stores should be another hot spot for holiday gift buying. Thomson Reuters analysts expect the department store segment to see a solid 3.1% increase in fourth-quarter comps, says Martis.

Macy's will continue to be among the group's top performers, with an expected 4% rise in fourth-quarter same-store sales, analysts forecast.

Macy's has an attractive merchandise mix, says Perkins, and has done a good job integrating its online operation with its brick-and mortar stores.

Discounters' Strength

Dollar stores, which include retailers such asDollar Tree (DLTR),Family Dollar Stores (FDO) andDollar General (DG), top Niemira's list of strong fourth-quarter performers, with an estimated 5.5% gain in same-store sales.

Furniture and home furnishing stores such asEthan Allen (ETH) should also see a strong showing, with a 5.5% jump in fourth-quarter comps, Niemira says.

This group, says Martis, is benefiting from the improvement in housing.

Shoppers took advantage of earlier-than-ever store openings and sweet deals on Thanksgiving weekend. Total spending for the four-day period rose 13% from a year earlier to $59.1 billion, according to the National Retail Federation.

Overall, the consumer mood is generally one of "cautious optimism," said Perkins. Consumer confidence is near a five-year high, the housing market is improving and the unemployment rate is trickling down.

Niemira expects November-December same-store sales to increase 3% from last year, slightly less than last year's 3.3% rise.

"If things pan out and there's no implosion in sales resulting from the fiscal cliff talks, retailers should have a good holiday season, with total sales up 3% to 3.5%," added Perkins.

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

This article appears in: Investing , Investing Ideas
Referenced Symbols: DKS , FL , FRAN , M , NKE

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