Holiday Central

Holidays to separate retail winners from the losers

There are two sides to every story.

And in the retail world, it's becoming more apparent with each passing week.

On one side, the ', Kate Spades and L Brands' of the world. During this past week, each reported solid sales figures for the quarter, with experts listing them as top performers for the holiday.

On the other: Companies like Sears, Abercrombie & Fitch, Ann Inc and Gap, which showed that despite forecasts for 4 percent-plus sales growth this Christmas, things aren't looking so rosy for everyone.

Shoppers browse sale merchandise at a Sears store in Peoria, Illinois.
Daniel Acker | Bloomberg | Getty Images

Welcome to holiday 2014, which is shaping up to be a season that separates the strong from the weak.

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"The barbell is back in play again this year," said Ken Perkins, president of research firm Retail Metrics.

Sears, again, gunning for cash

First up, Sears. On Friday, the company announced that it considering converting hundreds of its stores into a real estate investment trust (REIT), in order to shore up its finances.

Although Sears shares shot nearly 30 percent higher on the news, Perkins said the strategy is just "one more step that they are taking to delay the inevitable." He said the company's retail business will not be viable in the long-term unless it decides to scale back on its store base and invest in a core group of locations.

"They've shed 35 to 40 percent of their revenue over the last eight years," he said. In 2006, when the company was at its best, Sears achieved more than $16 billion in fourth-quarter revenue; this year, it's expected to do $9.8 billion in the fourth quarter.

"[The strategy] doesn't solve the underlying problem that it's a money-losing retailer," said Craig Johnson, president of Customer Growth Partners. "It buys time."

Bullish Christmas selling season

As of Nov. 1, Sears had approximately $330 million in cash with $234 million available under its credit facility. According to the company's SEC filing, it expects to post an adjusted loss for the third quarter between $275 million and $325 million. But Belus Capital Advisors analyst Brian Sozzi called this "crafty accounting" saying in a research note that the company's actual net loss could be as large as $630 million.

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"It's a critical point that makes it vital Sears secures additional forms of liquidity rather quickly," Sozzi said.

Sears will report its third-quarter earnings Dec. 4.

Apparel fails to attract shoppers

Specialty apparel stores also delivered a batch of bad news this week. On Thursday, the struggling Gap Inc. said its October comparable-store sales fell 3 percent, and its third-quarter sales for stores open at least a year fell 2 percent. They were driven lower by continued weakness at its namesake and Banana Republic labels.

Also Thursday, Ann Inc. updated its third- and fourth-quarter outlooks, saying its third-quarter results at Ann Taylor and the LOFT brand fell short of expectations, "reflecting lower mall traffic and a highly promotional retail environment."

And on Friday, Abercrombie & Fitch said that its third-quarter sales came in below expectations.

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"Apparel will lag, and obviously Abercrombie & Fitch is one of the people that's causing it to lag," Customer Growth Partners' Johnson said.

Johnson's firm, which is calling for 3.4 percent holiday sales growth, accounted for apparel weakness when modeling out its forecast. He said in that forecast that he expects apparel sales will "lag the already sluggish overall growth pace," posting year-over-year growth of 2.4 percent. Consumer electronics sales, however, should grow 4.2 percent, which should result in a strong holiday from Best Buy, he said.

Analysts attribute much of the weakness in apparel to the fact that, save for the "athleisure" movement, the category has failed to latch onto any major trends that drive consumers to spend.

Squeezed in the middle

With predictions calling for a very bifurcated Christmas—the majority of the gains are expected to come from upper-income households—Perkins said midtier department stores and specialty stores are likely to have a tough holiday.

Brands that appeal to higher-income consumers, such as Vince, Tiffany and Nordstrom, should have a pretty good Christmas, Perkins said. On the other end of the spectrum, value plays—including off-price destinations such as TJX, as well as the dollar stores—should also fare well, Perkins said.

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Johnson listed Costco and Tory Burch as two other players who should see solid sales growth.

Another retailer that's drawn praise from analysts is L Brands. The parent company of Victoria's Secret and Bath & Body Works posted same-store sales gains of 5 percent in the third quarter, and is expecting similar results for the fourth quarter.

"There's going to be very few people who do really well," he said. "There'll be a bunch of people that do mediocre, and there'll be several people who are totally in the ditch."