Wall Street makes a list and checks it twice as shoppers go on their annual outing this weekend.
Walmart (WMT) and Costco (COST) are positioned to finish the year strong as consumers focus on necessities like groceries.
“Walmart has this combination… [of] food and groceries” at low prices, TD Cowen analyst Oliver Chen told Yahoo Finance by phone. “Plus, they have all the discretionary power [products] you can get.”
That combination is the key to “winning in retail,” Chen said. Likewise, Costco benefits from a robust grocery business and a stable apparel business, Chen noted. Shares of both major retailers hit record highs this week.
Retailers such as Abercrombie and Fitch (ANF), Crocs (CROX) and Dick’s Sporting Goods (DKS) are also expected to do well, while department stores such as Macy’s (M) and Kohl’s (KSS), in addition to brands such as Under Armor (UA). ) and American Eagle (AEO), are likely to be declining.
Scale is a big advantage for Walmart and Costco, especially with another round of tariffs on the horizon. Their size also gives them an advantage in collecting data and developing artificial intelligence tools, Chen said.
The holiday season is “off to a good start, in line with our expectations,” Walmart CFO John David Rainey told Yahoo Finance. Walmart expects fourth-quarter sales to grow 3% to 4%.
Specialty stores are also finding their way into Wall Street’s top picks.
Abercrombie has “done an extremely good job over the last two years” using social media to promote products with micro-influencers, CFRA analyst Zach Warring told Yahoo Finance.
“That marketing strategy really works,” Warring said. “Abercrombie will continue to do well this holiday season.”
Abercrombie and Fitch CEO Fran Horowitz told Yahoo Finance’s Brian Sozzi that the holiday season is off to a “strong start.”
Same-store sales grew 16% in the third quarter, marking the sixth consecutive quarter of double-digit percentage growth.
Crocs is another company that “spends the majority of its marketing dollars on digital marketing and newer marketing,” according to Warring.
While the company’s shares are up just 14% year to date, they have been impacted by the $2.5 billion acquisition of HEYDUDE, which put pressure on sales.
“They paid a lot of money for Heydude,” Warring noted. “Outside of the first six months after the takeover, you see quite large declines in turnover.”
In the third quarter, Crocs sales grew 7.4% to $858 million, while Heydude sales fell 17.4% to $204 million.
