NEW YORK ( TheStreet) -- Back-to-school is poised to make or break the retail sector.
But while expectations for the season are high, it's best to resist the bullish hype. With retailers up against what were some of the worst fall numbers on record, there is, in truth, no place to go but up. Here's a look at which retailers are most likely to make the grade...
|Click here for a preview of the coming back-to-school season |
Aeropostale ( ARO) is poised to be the biggest winner for back-to-school, even as it is up against some of the toughest comparisons of the group. With disciplined inventory levels, Aeropostale doesn't need to resort to drastic markdowns, and as a result, keeps growing margins. It is also one of the few retailers that's actually increasing prices, according to Brean Murray's pricing study . The teen retailer has, in truth, evolved from a fashion follower into a fashion leader. Last year it struggled with an under-assortment of denim and knit juniors' tops, but it looks like it worked out the kinks in both of those categories. Its newer P.S. children's concept also continues to gain momentum, on track to add 30 stores this year, and is predicted to be a 500 store concept.
Department stores are still struggling, but Kohl's ( KSS) remains a stand-out amid the depleted sector. The value-priced department store is parent-friendly, and is offering exclusive fashion items for the fall like a Candies line designed by Britney Spears, designed to appeal to teens. It also helps that Kohl's is up against dismal second-quarter results from last year. The company could also peak investors' interest with a potential share buyback, Citi analyst Deb Weinswig said. After it reaches a credit agreement with JPMorgan Chase, which is expected to happen by early fall, Kohl's may have some excess cash on hand. Weinswig believes Kohl's will have about $3 billion in excess cash at the end of the year, which could be used toward "a sizable share repurchase program over the fourth quarter of 2010-to-2011 timeframe, a dividend program, or a combination of the two," she wrote in a note.
Urban Outfitters ( URBN) is one of the only retailers that is notably less promotional than last year, UBS analyst Roxanne Meyer wrote in a note. While it is too early to analyze how Urban Outfitters merchandise will fare, as it is still clearing out summer goods to make room for its first fall floorset, the company has done a good job at improving merchandise at namesake stores. "When Urban Outfitters gets the fashion right -- and they do more times than not -- people are willing to spend," said Majestic Research analyst Chandi Neubauer. Coupled with a solid management team and tradition of lean inventory levels, Urban Outfitters should continue on its winning streak. Regardless, Goldman Sachs downgraded the stock earlier in the month, citing overall challenges in the retail industry. The brokerage firm cut Urban to neutral from buy, saying that while it still has growth potentials and the stock is stronger than others in the sector, its share price could be at risk if the company misses earnings expectations in the short-term.
While Target ( TGT) lagged Wal-Mart ( WMT)throughout most of the recession, the discounter has significantly stepped up its game over the past six months. Target has seen particular strength in discretionary categories like apparel and home furnishing, and has been known for its fashion offerings -- with exclusive brands like Mossimo for juniors, collaborations with high-end designers, and a partnership with snowboarder Shaun White for an apparel and footwear line. Earlier in the month, Moody's Investor Service raised its ratings outlook to stable from negative, citing improved credit metrics. "Target has used its growing food business to drive additional foot traffic to its stores, and have capitalized on this traffic with a more value-oriented approach to its merchandise," Charlie O'Shea, senior analyst at Moody's, said in a statement. -- Reported by Jeanine Poggi in New York.
Twitter and become a fan on Facebook.
Twitter and become a fan on Facebook.