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U.S. Holiday Sales to Cross $1 Trillion: 4 Apparel Picks

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The holiday season has kicked off, and how! Consumers across the United States have been generous in spending in the last quarter. Even though spending showed signs of cooling off last month, industry experts believe that overall spending would cross the $1 trillion mark this season.

Further, U.S. retail sales gathered steam in October. Notably, U.S. apparel spending hit a 13-year high last month. Strong economic fundamentals and high consumer confidence are likely to shape up this holiday season into a record-breaking event. Under such circumstances, it is prudent to add apparel stocks to one’s portfolio.

Record Shattering Holiday Season Ahead

Per a report published by eMarketer — a leading market research firm, on Nov 5, Americans are likely to spend more than $1 trillion this holiday season. The report states that consumers in the United States would spend approximately $1.002 trillion during the Nov 1 through Dec 31 this year.

Further, the report estimates that e-commerce sales would surge 16.6% to $123.73 billion, representing about 12.3% of the total retail sales this holiday season and would be the primary catalyst for growth in retail sales. Notably, though brick-and-mortar retailers still eat up approximately 87.7% of the pie, their share is gradually declining.

Meanwhile, traditional retailers are continuously trying to up their game. Retail giant Target (TGT - Free Report) has already released its Black Friday ad for 2018. Online retailers are not far behind in the game. Amazon (AMZN - Free Report) announced on Nov 5 that all its members from the United States and not only Prime members would be eligible for free shipping this holiday season.

U.S. Apparel Spending Highest Since 2005

Per the Commerce Department’s GDP data released on Oct 26, consumer spending on clothing and footwear rose 11.7% year over year last quarter. This marked its biggest increase since 2005. Moreover, this helped boost consumption of non-durable goods to its fastest pace in about five years. Notably, apparel spending accounts for about 3% of consumer spending.

Such healthy developments indicate that the upcoming holiday season is set to witness record-shattering holiday shopping. A robust labor market, higher wages and soaring levels of consumer confidence are encouraging households to spend more.

Householding Spending to Nudge Up

Deloitte expects that average household spending to increase 25% from last year to $1,536 this holiday season. Further, the National Retail Federation (NRF) forecast on Oct 3 that retail sales in the months of November and December would grow by 4.8% from 2017. This estimate also beats the five-year average of 3.9% in the period. Notably, U.S. retail sales rose sharply at the pace of 0.8% in October.

The NRF also expects that consumers would spend $1,007.24 on average, reflecting an increase of 4.1% from last year. Notably, Adobe Analytics reported that U.S. consumers spent $18.1 billion online in the first 12 days of November. Earlier this month, Adobe had also predicted that online sales would touch $124 billion this holiday season.

4 Best Choices

A robust labor market, steadily rising wages and strong household finances resulted in a surge in household spending across the United States. Further, clothing remains the preferred gift items ahead of what is expected to be a record-breaking holiday shopping season.

In this context, we have selected four apparel stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lululemon Athletica Inc. (LULU - Free Report) is a designer, distributor and retailer of athletic apparel and accessories for women, men and female youth.

The company sports a Zacks Rank #1 and is based out of Vancouver, Canada. The expected earnings growth rate for the current year is 38.29%. The Zacks Consensus Estimate for the current year has improved 1.7% over the past 60 days.

Nordstrom, Inc. (JWN - Free Report) is a provider of apparel, shoes, cosmetics, and accessories for women, men, young adults as well as children.

This Zacks Rank #2 company is based out of Seattle, WA. The expected earnings growth rate for the current year is 21.15%. The Zacks Consensus Estimate for the current year has improved 0.6% over the past 60 days.

Urban Outfitters, Inc. (URBN - Free Report) is a lifestyle products and services company, involved in the retail and wholesale of general consumer products.

The company is based in Philadelphia, PA, and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 59.62%. The Zacks Consensus Estimate for the current year has improved 0.4% over the past 60 days.

Burlington Stores, Inc. (BURL - Free Report) provides branded apparel products in the United States.

The company is based out of Burlington, NJ and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 42.59%. The Zacks Consensus Estimate for the current year has improved 0.5% over the past 60 days.

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