Citigroup Names Dicks Sporting Goods, Foot Locker As Top Apparel And Footwear Picks

Kate McShane of Citigroup previewed the apparel and footwear segment ahead of the 2014 holiday shopping season and named Dicks Sporting Goods Inc DKS and Foot Locker, Inc. FL as top picks.

"Although we are still seeing mixed results from our companies from September and October, we are still cautiously optimistic for Holiday as positives in macro and comparisons look to outweigh the negatives," McShane wrote in a note to clients on Monday morning. "Although we could argue we are entering into the sixth year of strength in the athletic category, there is still solid momentum as consumers are down in by the innovation, which is translating to higher average selling prices."

According to McShane, athletic apparel and footwear companies are best positioned to gain a larger share of the consumers wallet due to a more innovative product offering compared to last year and an expanded youth and women's offerings.

Athletic apparel is cited as gaining market share at the expense of more traditional apparel.

Dicks Sporting Goods: Hot Retailer

Dicks Sporting Goods is a top pick given management's execution on a long-term strategy which includes focusing on higher margin, stronger performing categories along with growth in the form of new stores and e-commerce. The company is also seeing success in balancing investments in the business with returning capital to shareholders through share repurchases.

The third quarter will prove to be a catalyst for Dicks Sporting Goods as the company's momentum in youth and women's categories will continue. The fourth quarter is facing a difficult 6.3 percent comparison, and the company's success may be weather dependent, according to McShane.

Foot Locker: Basketball Shoes Selling Well

The other company named by McShane, Foot Locker, is a top pick due to its premium basketball offering and strong vendor relationships, especially with Nike. The basketball shoes category remains hot with quarter-to-date sales up approximately 14 percent, according to the analyst's findings.

Much like Dicks Sporting Goods, Foot Locker will also benefit stronger apparel sales, especially among women. In fact, McShane notes that Foot Locker is now being seen as an apparel destination, a trend the company embraces through in store displays such as mannequins featuring a head-to-toe product sampling.

Foot Locker continues to diversify itself outside of the U.S. which will offset slower domestic store growth, making the company's long-term thesis “under-appreciated.”