It may still be the dog days of summer for most school-aged children, but the back-to-school season is here. Which retailers are best poised to win share?
Despite the decline in brick-and-mortar store retail, back-to-school, retail's second-biggest shopping season, is projected to see a 9.6% rise in consumer spending to $27.3 billion compared with last year, according to the National Retail Federation. Add in spending for college-age students and that figure is projected to rise to $75.8 billion, up from $68 billion in 2015.
Consumers will be spending on average $673.57 to buy school supplies, sneakers, electronics, on-trend apparel and other necessities for their K-12-aged children, up from $630.36 in 2015, the NRF said.
The retail association attributes the rise in spending to families who are less worried about the economy this year -- though they are still looking for bargains.
Already several retailers during second-quarter earnings have called out positive early reads on back-to-school sales.
"We are encouraged by the start of the back-to-school season," Macy's (M - Get Report) CFO Karen Hoguet said in an earnings call with analysts on Thursday. "We are seeing strength in all categories, but are most excited by the strong trend in denim."
An emerging denim trend could benefit the whole apparel sector, said Robert Samuels, senior consumer discretionary sector strategist at UBS Wealth Management Research. "We haven't seen any kind of denim trend in several years. That means that people will start to replace their wardrobe with some of the newer styles," adding that consumers tend to buy new tops with new bottoms, Samuels said.
"Denim could potentially be a strong driver for apparel not only for back-to-school, but into holiday as well," he added.
Other trends that are also likely to benefit select retailers this season include sales of Athleticwear, boots and sneakers, specifically basketball shoes.
"It's all about innovation" with sneakers, Samuels said. "If there's good innovation and newness at the right price point -- kids will want that."
So which retailers are best primed to take advantage of this year's back-to-school season? Here are six of the best.
According to the NRF's survey, 46% of respondents plan to shop for supplies and gear online, up from 36% last year. Which online giant will be the primary beneficiary of those dollars? Why, Amazon (AMZN - Get Report) , of course, to the detriment of such other retailers as Staples (SPLS) , Office Depot (ODP - Get Report) and Bed, Bath & Beyond (BBBY - Get Report) .
"It's literally a one-stop shop for everything -- clothing, shoes (Zappos), school supplies, anything to outfit a dorm room," David Tawil, president of event-driven, distressed-focused hedge fund Maglan Capital, wrote in an email. Maglan Capital does not own shares of Amazon.
Shares of Amazon hit a new record high on Thursday, but analysts believe the company is still primed for further growth. The stock is up 14.3% this year.
Earlier this month, the company also debuted plans for "Prime Air," its branded air cargo plane and air transportation network. Amazon plans to lease 40 cargo airplanes to speed customer deliveries.
Rallying on the denim trend, American Eagle is a top denim destination for teens, analysts say.
"American Eagle has, in our opinion, one of the most compelling and broad early fall assortments -- with the greatest breadth and depth and newness in denim bottoms, which is the foundation of the [back-to-school] wardrobe," Adrienne Yih, managing director at Wolfe Research, told TheStreet. "They set an early transition BTS flow in mid-July which was very 'wear now.'"
Yih has an outperform rating and a price target of $21 on American Eagle.
American Eagle also stands to benefit from the troubles of competitor Aeropostale, which filed Chapter 11 in May. Aeropostale plans to close more than 100 stores and exit the Canadian market this year, leaving an opening for American Eagle to grab share.
As well, American Eagle "has focused on improving its sourcing, product cost, and supply chain throughout 2016, with the biggest average unit cost reductions to come in 2H16 during the BTS/fall season," Yih added.
Wunderlich Securities analyst Eric Beder agrees. Beder upgraded his rating on American Eagle in a note to clients on Thursday to buy from hold. He also raised his target price by $9 to $22.
"We believe American Eagle continues to build on its heritage of denim (with stretch now in all models for back-to-school) and real people-focused marketing to capture market share from its competitors, who are either out of fashion or trying to find some sustainable niche in the specialty apparel segment," Beder wrote in the note. "Frankly, we view American Eagle as among the best players in the specialty retailing segment and well-disposed to garner further market share."
American Eagle shares are up 22.1% this year.
For starters, athleticwear and athleisure is hot right now, and kids will always need new sneakers for their growing feet and gear for school sports.
In June, Dick's Sporting Goods beat out British retailer Sports Direct International with a bid of $15 million for ownership of Sports Authority's brand name and intellectual property during a bankruptcy auction. It also won 31 store leases for $8 million at the auction, according to the Wall Street Journal
Canaccord Genuity analyst Camilo Lyon estimates that Dick's Sporting Goods has the potential to capture $1 billion or more in retail sales from Sports Authority's bankruptcy and liquidation.
Big 5 Sporting Goods (BGFV - Get Report) Chairman and CEO Steve Miller said in a recent earnings call with analysts that the chain is seeing "high mid-single-digit range" same-store sales for the third quarter on the back of "numerous competitor store closures in our markets."
Lyon believes Dick's will see a similar boost in traffic, boding well for both back-to-school and holiday sales. "Not only should BTS be less promotional, it should be less competitive and holiday should be even better against an easy comparison," Lyon wrote.
Lyon reiterated a buy rating on the stock and raised his price target by $12 to $64 in an Aug. 10 note to clients. Lyon also raised 2017 EPS estimates by 49 cents to $4.04 a share.
Shares of Dick's Sporting Goods are up 54.7% this year.
"Footwear is a great business to be in," Terry said. "They are a family footwear retailer, where the average price is $30-to-$40 per shoe range. It's not competing with DSW or Foot Locker or Finish Line, although you can go in there and get Nike, Sketchers, Adidas" and other sneaker brands.
"Typically, when mom goes in to shop for kids, she may buy a pair for herself as well," he added.
Its customer base is also a lower income consumer. "We like that," he said.
Terry also expects the Evansville, Ind.-based chain to re-accelerate store unit growth in 2017.
"They were probably a high-single-digit grower up until a few years ago and slowed that down dramatically to about 1% in 2015," Terry said. "They weren't using the best site selection tools and brought in a new guy to the real estate team."
Shoe Carnival is now evaluating markets better and optimizing real estate a lot better. "That's new to the story," Terry said.
Shoe Carnival shares are up roughly 14.2% this year.
The Plano, Texas-based company reported on Friday better-than-expected second-quarter results (though still an adjusted loss) and said that it expects same-store sales to strengthen in the back half of the year as the once-nearly-extinct store has now come back, despite the declines in the brick-and-mortar stores.
"Every single division [had] positive comp[s] in the month of July and we had positive customer traffic," J.C. Penney CEO Marvin Ellison said on Friday's earnings call with analysts. "We had strength across the board. We had strength in home. We had strength in Sephora. We had strength in our custom deck business category, which we don't talk a lot about, and we had strength in apparel."
"The trajectory coming out of July is going to be positive for us and hopefully maintain us for the rest of the quarter," Ellison said -- and that includes back-to-school merchandise.
Seizing on business in its active business, J.C. Penney has launched a valued-priced sneaker for kids under its private brand Xersion. Nike merchandise is also faring well for the department store. The company added Nike girls merchandise in time for school. (It says it will re-launch the Nike brand in its stores next spring to include expanded assortment and an updated, designated area for the brand.)
In addition, to give customers a "better checkout experience," J.C. Penney will be deploying employees with mobile devices as back-to-school traffic picks up in the next few weeks and into the holiday season, Ellison added.
While J.C. Penney had given up a lot of business to other department stores, the company is winning customers back, says Hodges Funds' Terry.
A strong private label business, store remodels, the addition of appliances all adds to a positive J.C. Penney story. "We think they ultimately get up to $2 a share earnings over the next two years," Terry said. Hodges Funds owns shares of J.C. Penney.
J.C. Penney shares are up 58.4% this year.
The off-price trend is hot, and that isn't slowing anytime soon. Consumers , while less worried about the economy, are still budget-conscious and have gotten used to finding deals.
"In the current macro-economic environment, we believe the consumer continues to turn to offprice for her shopping needs attracted to the channel's value priced, trend-right merchandise," Stifel's Richard Jaffe wrote in a note to clients on Friday. "Additionally, the company's improved marketing campaign, growing loyalty program and store remodels are successfully driving comps and traffic in our opinion. We also believe that the company's business model sufficiently insulates TJX from Amazon."
The company should also benefit from Macy's plan to close 100 of its stores.
"Some of that inventory needs to go somewhere," UBS' Samuels said. For off-price retailers, "it's probably a positive for them."
TJX shares are up 16.8% this year.