- Holiday season spending is set to slow this year due to warmer weather, a shorter holiday, increased inventory, and trade-war tariffs, Bank of America Merrill Lynch analysts wrote Monday.
- The US consumer “remains strong” despite economic warning signs, they added.
- Aaron’s, Burlington, and Target should outperform the retail industry should spending slow through the fourth quarter, the analysts projected.
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Holiday season spending is poised to slow this year, according to Bank of America Merrill Lynch.
Tariffs, warmer weather, a shorter holiday season, and increased inventory would all be to blame for weaker sales, the bank’s analysts wrote in a Monday note. The bank projected same-store sales to grow by 2.7% in the fourth quarter, down from 3.8% last holiday season.
Online sales growth and weakening consumer demand also threaten retailers this holiday season, UBS analysts wrote in a September 23 note. E-commerce sales growth hit a six-year high in 2019 after surging 25%, according to the bank.
The US consumer “remains healthy” despite growing fears of economic recession, the team of BAML analysts said. Should the retail industry face a holiday headwind, certain value stores could benefit from discount-seeking customers, they added.
Here are the three companies BAML expects to outperform the retail industry this holiday season.
The analysts named Aaron’s their “Retail Hardlines top pick” for its acceleration in invoice volume growth and strong appeal among low-income consumers. Aaron’s Progressive Leasing business offers a lease-to-own financing option for customers, and has led to partnerships with large retailers like Best Buy.
Only a “low-mid single digit percentage” of Aaron’s products is imported from China, insulating the business from tariff-related profit squeezes, the team led by Lorraine Hutchinson wrote. Its lease contracts also help spread revenue over a longer period of time, making the shorter holiday season less of an issue.
Warmer weather should have a smaller impact as well, “since seasonal products represent a very small percentage of sales,” the BAML analysts said.
The bank rates Aaron’s stock “buy” with a $75 per share price objective.
Source: markets.businessinsider.com
