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Want to Pick a Winner in Retail? 3 Brands for The Long Haul

It's becoming more difficult to determine which apparel retailers have the most room to the upside, as Thursday's same-store sales gains—the strongest in a decade—were spread across department stores, discounters, luxury and premium brands alike.

Woman shopping for clothing
UpperCut Images | Getty Images
Woman shopping for clothing

But as fear loosens its grip over consumers, premium retailers that maintained their brand equity through an era of heavy discounting will have an easier time sustaining comparable sales growth, as shoppers will be less reluctant to pay full-price for their items.

"The customer continues to be less price resistant making purchases for differentiated and unique fashion items that enhance what she already has in her closet," said Needham & Co. analyst Christine Chen in a research note.

Such retailers as Urban Outfitters , J. Crew and Guess stood out to analysts as maintaining their reputation as premium brands, and training shoppers that if they didn't snap up new fashions when they saw them, they might not be there the next time.

Though a flood of inventory initially caused J. Crew's margins to struggle with massive markdowns at the end of 2008, these three retailers quickly got their inventories under control and came out with fashionable products, driving demand for premium goods in a value-oriented period.

"I don't think they really lost very much [pricing power] to be honest," said Brean Murray, Carret & Co. analyst Eric Beder. "They've come back very quickly."

Chen placed a $45 dollar 12-month price target on Urban Outfitters—up from Thursday's close at $38.29. She has a $59 target on Guess, which ended the session at $46.51.

And although she said she is confident in the strength of J. Crew's brand, she's maintained a hold rating on the stock until it offers a more compelling valuation. It ended Thursday's session at $46.75.

Chen owns shares of J. Crew, Urban Outfitters, and Guess.

The newness in these companies' brands is what has set them apart from retailers such as Abercrombie & Fitch , which has failed to abandon its preppy, casual look despite lower demand, analysts said.

The teen retailer on Thursday missed a consensus forecast of 6.6 percent same-store sales growth, instead posting a 5 percent increase. It was the latest of Abercrombie's woes and a significant miss, since the teen lifestyle brand was up against such easy comparisons from March 2009, said Wall Street Strategies analyst Brian Sozzi.

From a brand equity standpoint, Abercrombie's was among the hardest hit in the specialty sector during the recession, in part due to premium pricing, Morgan Stanley analyst Michelle Clark said.

Its average price points are down about 14 percent from a year ago, and they could continue falling until they're 20 percent lower year-over-year, she said.

"I think the only way they can come close to recapturing the prices they had historically is if they have a dominant fashion trend that they hit on, and I frankly don't see that on the horizon," she said.

Sozzi on Wednesday downgraded his rating on Abercrombie's stock to "sell," reiterating a $39 price target—down from its current level around $46.

Analysts had mixed opinions on Bebe , which hinted at renewed pricing power by raising its average unit retail price 6.5 percent in March, according to Beder.

He said the company has infused more "color and sexy styling" into its spring collection, and pointed to the success of its new line, designed in collaboration with reality TV's Kardashian sisters, which has nearly sold out.

Though Sozzi said the company's fashion-forward approach may afford it a quick turnaround once it finds its rhythm, he maintains a "sell" rating on the company, which he said has lost its brand equity among style-driven shoppers.

"They've been disappointing consumers for awhile," he said.

More from Consumer Nation:

Questions? Comments? Email us at consumernation@cnbc.com

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