Analysts are warming to the idea that select retailers' holiday sales might be a bit better than they had expected.
Both Citigroup and Deutsche Bank analysts Tuesday issued reports highlighting how some better back-to-school results may be a prelude to a stronger holiday shopping season at some chains.
Citigroup analysts did not change their overall forecast for holiday sales gains of 2 to 3 percent. But they tweaked their forecasts by category, with athletic footwear retailers doing better (up 7 percent from 6 percent) and toy retailers lower (to a decline of 1 to 3 percent from unchanged).
Citi analysts expect the overall 2011 holiday sales period to be moderately softer than last year and decelerating, as consumers face headwinds. The National Retail Federation expects holiday sales growth of 2.8 percent, down from last year's 5.2 percent gain.
Citi analyst Deb Weinswig raised her forecast for a holiday sales gain of 4 to 5 percent from 3 to 4 percent, for the drug stores and broadline retailers she follows. She wrote in a report that back-to-school was up 5.2 percent, despite financial market and economic concerns, and moderating gasoline prices may help holiday shoppers.
The $0.53 per gallon drop in gasoline from its May peak would translate to about $725 per year for a household, she notes. Her favorite holiday picks are Macy's and Target .
She also expects a 3.4 percent gain in drugstores' holiday same-store sales, from last year's 2.4 percent increase, up from her earlier 2.5 percent forecast. Club, discounter and dollar store sales should rise 6 percent from her prior forecast of 5.2 percent and last year's 4.3 percent.
But Weinswig's colleague analyst Jeff Black trimmed his holiday sales outlook for the softline retailers he follows, because overall back-to-school sales came in less than expected despite better comparable sales in September. He pared his outlook to a gain of 1 to 3 percent from his original projection of 2 to 4 percent. The 20- to 30-year old demographic is a bright spot, as is footwear, he notes.
DSW , Abercrombie & Fitch and Ann are his holiday favorites. He likes DSW for leverage to an improving footwear cycle. He sees Ann holiday sales growth of 15.1 percent, but that's below last year's 22.4 percent.
Abercrombie should see above average earnings growth, and he expects its holiday sales to grow by 18.4 percent, below last year's 25.7 percent gain. In the same category, Talbot's sales are expected to decline by 9.2 percent, and Aeropostale sales are expected to drop by 10.2 percent.
Deutsche Bank analyst Charles Grom, in a note, said better back-to-school sales could mean that some stocks he follows could see better holiday sales than he previously expected. His top picks are Nordstrom , Kohl's and Macy's.
He wrote that he has found a high correlation — 79 percent — between back-to-school and holiday sales for the department stores he follows. In the past five years, the correlation increased to 85 percent.
Using a calculation based on back-to-school sales (August/September) for holiday sales (November/December), he projects that Nordstrom, for instance, could see a sales gain of 7.1 percent, double his current forecast.
The stocks he rates a sell could see weaker sales, based on back-to-school. Saks , for instance, could see a decline of 1.3 percent, compare to his forecast of 1 percent.