Brean Capital: 'Best Of Breed' Retailers Will Defend And Gain Market Share In 2015

In a note to clients on Monday, Liz Pierce of Brean Capital discussed why investors should be optimistic over retailers in the coming year.

“Although the strength in traffic and conversion we noted over the past weekend has given us reason to be more optimistic about fiscal 2015 especially given an improving employment picture and the lowest gas prices in five years, we believe our Best of Breed thesis is still the best way to play the retail sector right now as we have the most confidence that these companies can defend and gain market share in spite of sector and secular challenges,” Pierce wrote.

Pierce adds that the “Best of Breed” list includes Buy-rated Chico's FAS, Inc. CHS, Urban Outfitters, Inc. URBN and Zumiez Inc. ZUMZ. The analyst also favors turnaround names such as Christopher & Banks Corporation CBK and Destination XL Group Inc DXLG.

Pierce also states that electronics, games/toys, accessories, seasonal and home décor will prove to be category winners that carried the 2014 holiday season. The analyst also notes that margin concerns have improved based on the “surge in traffic and conversion” that was seen on Friday and Saturday and that retailers may have “made up for some lost ground” over the weekend.

Bottom line, Pierce states that “based on our read of post Christmas sales, we are more encouraged how the Holiday season will ultimately shake out, however, given the disappointing sales over the Black Friday weekend and the lull in sales between Thanksgiving and Super Saturday, we still believe the National Retail Federation's forecast of a 4.1 percent increase might be tough to attain.”