Wal-Mart, Five Below, Dollar Tree Among Winners Heading into Final Holiday Shopping Days

Heading into the final days of the holiday shopping season, MKM Partners analyst Patrick McKeever strikes a cheerful note for both traditional and e-commerce retailers, with Wal-Mart Stores Inc., Five Below Inc. and Dollar Tree Inc. among the traffic winners in recent pre-Christmas checks.

“Following a generally better-than-expected Q3 2017 for retail, the tone going into the final holiday stretch seems fairly upbeat and consistent with, or a bit better, than some industry forecasts, including the NRF’s call for 3.6%-to-4.0% growth over last year,” he wrote in a Friday note.

The National Retail Federation announced its forecast in October, anticipating a total of $678.8 billion to $682.0 billion in sales for the November-to-December period.

“And while sales continue to shift online at an accelerated pace – e-commerce is growing mid-to-high-teens – the buoyant economy appears to be lifting traditional retailers as well, from national chains to local independents,” McKeever wrote.

MKM says Wal-Mart WMT, “is looking good this year” owing to its fleet of U.S. supercenters, which number more than 3,550, and a focus on merchandising in major holiday categories like toys and electronics, which set the retail giant up for the holidays.

“We think Walmart is continuing to benefit from investments in wages and training that have weighed on profitability but are contributing to cleaner stores, higher in-stock levels, better customer service, and a faster checkout process,” McKeever said.

Discount teen retailer Five Below FIVE, has “some of the best traffic” with lines stretching 10-to-15 customers deep or more, according to MKM’s checks. And traffic was robust at Dollar Tree Inc. DLTR, while Family Dollar was lagging. Family Dollar is in the Dollar Tree portfolio of store chains.

MKM says Ollie’s Bargain Outlet Holdings Inc. OLLI, , Target Corp.TGT, , and Kohl’s Corp. KSS, are in the runner up column while traffic was challenged at Big Lots Inc. BIG, , Dick’s Sporting Goods Inc.DKS, and Cato Corp. CATO.

With relation to the newly signed tax bill, MKM thinks DSW Inc. DSW, and Hibbett Sports Inc. HIBB, could see the largest earnings per share lift of all the retailers it covers, with retail poised to “benefit more than most of corporate America given their high tax rates.”

Cowen & Company’s 2nd Annual Holiday Brand Survey found that athletic brands lead in shopping preference, with Nike Inc. NKE, -2.29% coming out on top with 34%. Under Armour Inc. UAA, and Adidas AG ADS, followed with 25% each. L Brands Inc.’s LB, Victoria’s Secret (23%) and The North Face (22%), a VF Corp. brand VFC, round out the top five.

Cowen analysts polled 2,500 adult consumers in the U.S.

“Positive signs for holiday 2018 continue from a macro standpoint as apparel traffic trends approach flat, promotions are on plan, consumers bought early, lowering the need for January through February markdowns, and Q1 comparisons are extremely easy,” Cowen analysts wrote in a Dec. 19 note.

According to Christina Boni, Moody’s vice president and senior analyst, retailers positioned their inventories well for the holidays, with retailers working out the best balance of online, bricks-and-mortar and the infrastructure to manage it all.

With retailers starting to find the right formula, prospects are starting to look up, though some experts say investors shouldn’t read too much into stock improvements.

“We don’t see something revolutionary happening in retail other than they’ve figured it out,” said Trip Miller, managing partner at Gullane Capital Partners, investment advisers focused on the long term. “It’s just one of those things that they’re prime to move on ‘not bad’ news.”

Wal-Mart shares are up 23.5% for the past three months, and more than 41% for the past year. Dollar Tree is up 38.2% for the past 12 months. And shares of Five Below are up more than 71% for the past year.

More trading info straight to your inbox...Daily