Stifel Comments On Winter Impact On Retail; Analysts Optimistic For First Half Of 2015

In a report published Tuesday, Stifel analysts Richard Jaffe, Megan Roesch and Samantha Shapiro Swerdlin commented on the softlines retail industry and how it will continue to be impacted by the blizzard of 2015.

According to the analysts, a solid January can be expected as “the positive sales trends experienced in the latter part of December has continued into January driving solid comp store sales in the month.”

They highlight the fact that January is typically a clearance month, not only vital for clearing holiday assortments, but also to gain “early insights into spring trends and setting the stage for 2015.”

This year, the persisting cold weather helped clear big amounts of winter apparel and accessories. “This will likely be partially offset by relatively lean inventory, which limited clearance sales somewhat but likely benefited sales of full price spring transitional merchandise, benefiting 4Q margins.”

The Blizzard And Its Impact

While average temperatures were pretty much the same as last year, “a severe snowstorm impacting the east coast will likely hold back the consumers’ ability and desire to shop in the final week of the month.” Stifel expects this to negatively impact on January comps, even in spite of last January’s (2014) severe cold “and the resulting easy comparison.”

The analysts also provided an outlook for the first half of 2015. Despite the blizzard, they remain optimistic, and expect “the fundamental strength in the sector, evident in the holiday season, to continue; driven by an improved economy, a more optimistic consumer, lean inventories and lower costs helping to lift sales and margins.”

Outlook: Optimistic For First Half Of 2015

In Stifel's view, “companies, coming off a solid holiday, will likely be cautiously optimistic regarding 1Q,” and will thus “provide earnings guidance increasing modestly from last year’s weak 1H results and essentially in line with consensus.” However, they believe this “will be sufficient to support the elevated stock multiples in our sector.”

The optimistic view regarding results will “prevail into 2Q when visibility for a more difficult 2H holiday comparison becomes clearer. We [the analysts] therefore believe stocks in our sector will likely remain elevated through the 1H15. In this environment, we continue to favor those retailers that offer the consumer broad and compelling assortments and prices that reflect excellent value.”

Amongst Stifel’s favorites we can count Buy-rated Kohl's Corporation KSS, Macy's, Inc. M, TJX Companies, Inc. (The) TJX and Urban Outfitters, Inc. URBN.