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A recent report from Deloitte shows that retail holiday sales are expected to rise 4 - 4.5% compared to last year’s shopping season. Total holiday sales (seasonally adjusted and excluding autos and gas) are expected to reach $1.04 to $1.05 trillion in the November – January timeframe. This compares to retail sales of $1 trillion in the November 2016 – January 2017 timeframe (data as per the U.S. Commerce Department).

Meanwhile, e-commerce sales are expected to increase 18 - 21% in 2017 and reach $111 - $114 billion during this holiday season. This compares to e-commerce sales (seasonally adjusted and excluding autos, gas, food services and parts dealers) of $93.8 billion between November 2016 and January 2017.

Factors that will Drive the Increase

The retail sector has been showing signs of stabilizing with the industry performing better than the overall market year to date.

With the holiday season round the corner, retailers are gearing up to attract customers through promotions, early-store openings, heavy discounts, as well as free shipping on online purchases. Retailers like Macy’s (M - Free Report) and Target Corporation (TGT - Free Report) are hiring seasonal associates for the upcoming Christmas and holiday season.

As per Deloitte’s senior U.S. economist, one of the factors that will drive consumer spending is the strong growth in personal income that is expected this year – disposable personal income, which grew 2% over the year to the holiday period in 2016, is expected to grow to 3.8-4.2% this season. Other driving factors include high levels of consumer confidence, a strong labor market and a low level of personal savings.

How to Pick the Right Stocks

While things are looking up for the retail sector, there are still certain factors that could lead to lower-than-expected sales. These include the impact of the recent hurricanes which could affect spending as well as a tendency to save more that would lead to lower spending. Moreover, spending on essential services like healthcare could also curtail retail spending.

Given this scenario, it makes sense to zero in on stocks which carry a strong Zacks Rank – Zacks Rank #1(Strong Buy) or #2 (Buy).

We have picked four stocks from the Zacks Apparel and Shoes industry which enjoys a good Zacks Industry Rank (top 36% out of 256 industries).

Abercrombie & Fitch Co. (ANF - Free Report) : New Albany, OH-based Abercrombie & Fitch is a leading, global specialty retailer of apparel and accessories which markets its products under three renowned brands - the iconic Abercrombie & Fitch brand, the Hollister brand and abercrombie kids. The company has stores across North America, Europe, Asia and the Middle East, as well as an online presence.

The company reported strong second quarter results and should benefit from continued improvement in product assortment, higher levels of customer engagement, strategic investments in marketing and omnichannel, and ongoing efforts to optimize productivity across all channels.

Abercrombie & Fitch, a Zacks Rank #1 stock, also has a VGM Score of A - our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Abercrombie & Fitch are up 16.1% year to date, compared to the industry’s 26.8% decline.

Gap Inc. (GPS - Free Report) : San Francisco, CA-based Gap Inc. offers clothes, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, Intermix, and Weddington Way brands. The company’s earnings track record is good with earnings surpassing expectations in three of the last four quarters.  

The company is focusing on its growth brands with Old Navy sales expected to cross $10 billion and Athleta $1 billion in the next few years, driven by growth in online and mobile channels, U.S. store expansion, and continued market share leadership in loyalty categories. Gap Inc. has also expanded its investment in online and digital channels. The company plans to add about 70 net new stores over the next three years as well. Gap Inc. also guided towards $500 million savings over the next three years.  

Shares of the Zacks Rank #2 stock, which carries a VGM Score of A, are up 24.8% year to date. Gap Inc. is gearing up for the holiday season and recently announced its plans to hire seasonal associates for  its Gap, Banana Republic, Athleta and Old Navystores, as well as call centers and distribution centers.

Zumiez Inc. (ZUMZ - Free Report) : Lynnwood, WA-based Zumiez is a leading specialty retailer of apparel, footwear, accessories and hardgoods. The company has stores in the United States, Canada, Europe and Australia and also has an e-commerce presence.

The Zacks Rank #1 stock has a strong earnings track record having surpassed expectations in each of the last four quarters. Zumiez has seen the Zacks Consensus Estimate for current-year earnings being revised 10.8% upward over the last 30 days. Zumiez also has a VGM Score of A.

The Children’s Place, Inc. (PLCE - Free Report) : Secaucus, NJ-based The Children’s Place is the largest pure play children’s specialty apparel retailer in North America. The company’s proprietary brands include “The Children’s Place”, "Place" and "Baby Place".

Store fleet optimization, disciplined cost control, business transformation through technology and global growth through alternate channels of distribution are some of the steps being taken by the company to drive growth. The Children’s Place has surpassed earnings expectations in each of the last four quarters and has a VGM Score of A. Shares of the Zacks Rank #2 stock are up 10.3% year to date.

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