Baird Equity Research is encouraged by improving retail sales and is advocating for investors to maintain exposure to cold-weather brands and vendors — while steering clear of brick-and-mortar retailers.
With colder year-over-year weather in the Midwest and Northeast over the holidays continuing to spur better retail sales activity, Jonathan Komp of Baird said investors should keep cold weather brands that can benefit in the fourth quarter.
The set up is analogous to 2014, when the holiday/winter period started with a mid-November cold streak across much of the U.S. and, similar to this year, retail stocks reacted very positively, said analyst Jonathan Komp. The trend was not sustainable: hen weather reversed in December, so did stocks.
“We would maintain exposure to cold-weather driven brands/vendors that may be benefiting from stronger sales/margin across channels near-term and also could see a snapback in advanced order patterns during calendar 2018 following destocking that occurred during much of 2016-2017,” Komp said. (See Komp's track record here.)
Vans On Fire
The analyst preferred names include VF Corp VFC, with the company’s Vans footwear line ‘seemingly on fire’; Columbia Sportswear Company COLM, which the analyst said is seeing good outerwear performance; and Wolverine World Wide, Inc. WWW, which is expected to have strong Sperry weather boot sales.
Although several beat-down brick-and-mortar retailers saw a recent run-up, gains in brick-and-mortar retail should not be chased due to concerns that traffic may peak in November and sales gains may not be evenly distributed, Komp said.
With sentiment running low on athletic giants Under Armour Inc UAA and Nike Inc NKE, the analyst still prefer these names and believes they can still work over the near term, in light of mixed sentiment and a highly promotional holiday season.
NPD Group's Matt Powell said shoe companies are putting too much emphasis on limited editions.
“Black Friday is known for being a time for major shoe releases, but all the releases of scale appear to still be in stock. In the past, those releases would have been sold out in the first few hours. Brands are putting far too many pairs of ‘limited’ releases into the market,” Powell said in a new Black Friday recap.
Fitness: Strong Into New Year
Other growth names Komp said he likes heading into the holidays include Planet Fitness Inc PLNT, which is expected to maintain momentum regardless of retail traffic trends; Duluth Holdings Inc DLTH; and Boot Barn Holdings Inc BOOT, which is the analyst's only retail recommendation at the moment.
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