Can Apparel Retailers Sustain the Holiday Season Run in '18?

The holiday season breathed a new life into retailers, raising hopes for a spectacular 2018. Improved economic scenario with a low unemployment rate resulted in sturdy holiday sales growth since the end of the Great Recession. Per National Retail Federation, retail sales during the November/December period increased 5.5% to $691.9 billion. Moreover, online shopping sales this holiday season increased 14.7% to $108.2 billion, per Adobe Analytics.

Our today’s article revolves around four apparel store stocks — Nordstrom, Inc. JWN, Lululemon Athletica Inc. LULU, Urban Outfitters, Inc. URBN and American Eagle Outfitters, Inc. AEO — as to how the holiday season has unfolded for them. Promising holiday sales numbers have not only helped the industry to rally 24.7% in the past three months but also outperform the S&P 500’s growth of 9.6%. We noted that the industry occupies a space in the top 18% of the Zacks Classified industries (49 out of the 265). Further, the broader Retail And Wholesale sector of which they are part of, is also placed at top 13% of the Zacks Classified sectors (2 out of 16). Let’s take a closer look at the performances of the four apparel retailers.

Nordstrom Witnesses Rise in Holiday Sales

Nordstrom has concluded 2017 on a strong note, reporting improvement in sales and comparable store sales (comps) for the combined months of November and December.  The company recorded 2.5% increase in net sales for the nine weeks ended Dec 30, 2017, while comps for the period rose 1.2%. The solid holiday show was primarily driven by growth in Nordstrom’s full-line and Rack stores, compared with the year-to-date sales performance, as well as persistent strength in e-commerce at Nordstrom.com and Nordstromrack.com/HauteLook.

The strength of the Zacks Rank #2 (Buy) company’s full-line and Rack was evident from sales growth of 0.7% and 8.2%, respectively, at these formats. Additionally, comps were up 1% for Nordstrom full-line and increased 2.9% for Nordstrom Rack. Results at Nordstrom full-line stores mainly include the United States and Canada full-line stores, and Nordstrom.com as well as Trunk Club.

Lululemon Lifts Guidance Post Impressive Holiday Season

Lululemon Athletica was also among the retailers that emerged strong this holiday season driven by accelerating trends witnessed across its businesses. This prompted management to raise fiscal 2017 guidance. This Zacks Rank #3 (Hold) company now expects adjusted earnings per share in the band of $1.25-$1.27, up from the earlier guided range of $1.19-$1.22.

Urban Outfitters Holiday Sales Fail to Impress Investors

Urban Outfitters revealed holiday sales numbers, wherein comparable retail segment net sales, including the comparable direct-to-consumer channel, gained 2%. For the month of November and December comparable retail segment net sales rose 1% at Urban Outfitters, 5% at Free People and 2% at the Anthropologie Group. Gain in comparable retail sales were driven by double-digit growth in the direct-to-consumer channel. Despite reporting year-over-year increase in holiday sales, the stock came under pressure primarily due to lower-than-expected comps. In early December, the company in a filing stated that “Thus far during the fourth quarter of fiscal 2018, comparable Retail segment net sales are mid-single-digit positive”. However, comps for the November and December increased by low-single digit, which is an indication that the company failed to sustain its initial momentum in the latter part of holiday season.

However, we believe new store openings, increase in direct penetration, growing wholesale operations and merchandising improvements bode well for the long term. Management is also making all possible efforts to enhance the performance of brands through store refurbishment and by bringing in more compelling assortments. The company currently carries a Zacks Rank #2.

American Eagle Outfitters Posts Robust Holiday Sales

American Eagle Outfitters delivered comps growth of 8% for the holiday period and reiterated outlook for the fourth quarter. The company continues to expect earnings per share of 42-44 cents compared with 39 cents earned in the prior-year quarter. Comps for the period gained from solid online and in-store traffic as customers responded positively to the company’s merchandising offerings. Also, record sales and strong momentum at its AE and Aerie brands aided comps growth. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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