Latest Retail Buzzwords: 'Polarization' & 'Replenishment Boom'

Despite unseasonably chilly temperatures—which should dampen demand for warm weather clothing—and rising gasoline prices—which should put a lid on spending—retail industry analysts see some pockets of strength in the retail landscape.

Victoria Secret
John Parra | FilmMagic
Victoria Secret

BMO Capital Markets analyst John Morris is summing up his prediction about first-quarter retail sales in one word: polarization.

Morris expects there to be very clear winners and losers as the first-quarter comes to a close for retailers, and lot of it depends on how well retailers are able to push through price increases.

Morris is betting that Children's Place , Limited , Abercrombie and Fitch and Lululemon are among the specialty apparel retailers that will be on the winning side, while Aeropostale, American Eagle Outfitters , Pacific Sunwear and Gap will be on the other side of the equation.

Scanning the stores, Morris saw an increase in mall traffic during the first two weeks of April, and his "Sales Rack Index" continues to be down about 5 percent from last year. Both are positive trends for the industry, but he's noticed that some retailers are benefiting more than others.

For example, shoppers continued to buy denim clothes for kids at Children's Place despite the fact that prices for these products rose to $19.50 from $16.50, according to Morris' sources.

Morris expects price increases like this one will translate into improved profit margins, and as a result, he increased his earnings estimate for the retailer's first quarter to $1.07 a share from $1.05. That's higher than the average analyst estimate of $1.04 published by Thomson Reuters.

Morris also raised his earnings estimate for Limited. The retailer's Victoria's Secret stores also have been able to push prices higher. The new "Gorgeous" bra sold out in several markets and prices have risen on items such as panties and the "Pink Wear Everywhere" bra, he said.

Morris now expects Limited to earn 40 cents a share during the first quarter, up from a prior estimate of 36 cents a share, which was in-line with the average analyst estimate, according to Thomson Reuters.

But the news wasn't as good for Aeropostale, American Eagle and Gap. Morris cut estimates for these three retailers as they struggle to find products that will resonate with consumers.

Other analysts also are expecting to see some fairly strong results coming from certain retailers despite the run-up in gasoline and clothing prices.

"What you're seeing right now is the ultimate replenishment boom," said Brian Sozzi, a retail industry analyst at Wall Street Strategies.

Sozzi said consumers are buying clothing to go back to work, but if higher prices persist into the summer some middle-income consumers will need to start trading back down as they did during the recession.

"I'm not looking for an outright decline, but for more realistic sales in the back half of the year," he said.

Strong First Quarter Online

Another area of surprising strength in the first quarter appears to be online shopping. According to data tracker Comscore, online sales were up an average of 12 percent in the first quarter compared with the same period a year ago.

Comscore Executive Chairman Gian Fulgoni told CNBC that this trend is more about improving consumer confidence rather than consumers shifting purchases online to save money on gasoline.

"I think the savings there is minimal related to the amount of money being sucked out of one's wallet," he said.

One thing that is happening is that the number of free shipping offers are up dramatically. Fulgoni estimates that about 50 percent of online orders receive free shipping compared with about 39 percent of the offers a year ago.

"So retailers are certainly responding, putting incentives in front of consumers, but what that will do to margins is a bit unclear," he said.

One trend Comscore has noticed is that consumers tend to buy more when they receive free shipping.

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