With Black Friday flooding the recent headlines, it is clear that the holiday shopping season is about to kick off. This is the make-or-break time for consumer goods companies, and retailers have led the way by extending hours or opening all day on Thanksgiving. This is uncharted territory in the retail environment, so it is more important than ever to choose investments wisely. Let's take a look at three companies set to dominate the hearts and wallets of consumers this holiday season.
Luxurious, but affordable goods
Michael Kors (NYSE:CPRI) is home to one of the most fashionable lines of women's and men's apparel and accessories. Its most popular products have been watches and handbags, but it has been gaining ground in clothing, footwear, sunglasses, and other categories. There are not many brands that cater to the taste of both women and men, but Michael Kors has found the recipe for success.
In its latest earnings report, Michael Kors raised its third quarter guidance and it now expects to earn $0.83-$0.85 per share on revenue of $845 million-$855 million; this would project comparable-store sales rising 15%-20%. The upcoming holiday season was a major factor in this outlook; in fact, this is what Kors' Chief Executive Officer, John Idol, had to say:
We have solid momentum as we head into the holiday selling season in the back half of the year. We believe that 2014 will be another record year for the company as we continue to expand the Michael Kors luxury lifestyle brand globally.
This has been one of the hottest stocks since it went public in December of 2011, rising over 235%. It is up roughly 60% year-to-date, but it is still vastly undervalued based on forward estimates. Investors should consider buying this luxury-goods giant on any weakness provided by the market.
The Fossil Group (NASDAQ:FOSL) designs, develops, markets, and distributes consumer fashion products and accessories worldwide; these products include watches, handbags, jewelry, and clothing. On top of its own product mix, Fossil also manufactures for many other brands, including Michael Kors, Burberry, Emporio Armani, DKNY, and Marc by Marc Jacobs.
Fossil's large brand portfolio gives it major upside going into the holiday season. Jewelry and accessories is always a hot category for gift giving, and Fossil has arguably the largest exposure to the category. Fossil's management has been cautious in giving guidance for the upcoming quarter, but they did have this to say:
As we approach the important holiday season, we have confidence in our assortments and the inventory position behind it.
The strength Fossil has shown year-to-date indicates the consumer demand it will experience this holiday season. I believe the company will post similar results in the fourth quarter as it did in the third quarter, when earnings per share increased 25% and net sales rose 18%. Fossil currently sits about 4.5% below its 52-week high, so waiting for a little weakness provided by the market may be the best way to play this name.
Macy's (NYSE:M) is one of the largest retailers in the United States. It operates both Macy's and Bloomingdale's stores, along with a large online presence. It currently operates about 840 department stores and 13 outlet stores in 45 states, Puerto Rico, and Guam.
Macy's was the first major retailer to announce that it would be opening its doors on Thanksgiving day this year, rather than waiting until Black Friday. This initially caused outrage with the public because it was like "killing Thanksgiving," but Macy's was simply listening to the demands of the consumer and keeping pace with the competitive environment. With Macy's plan released, most major retailers have followed suit and they will also open on Thanksgiving, including Wal-Mart, Best Buy, Kohl's, and J.C. Penney.
As for holiday season expectations, Macy's management said:
We have curated an outstanding offering of the best gifts, fashion, value and service for our customers throughout the holiday season. .... Our success in the fourth quarter will be driven by a wide selection of exclusive products from the most-wanted brands and designers. We will bring them to our customers, whether they shop in our stores, online, via mobile – or all three.
Macy's is arguably the best retailer to own this holiday season. It is home to the most in-demand brands, including the aforementioned Michael Kors and Fossil, making it easy for consumers to get all of their shopping done under one roof. Macy's recently spiked after an earnings beat, so it would be smart to wait for it to cool down before initiating a position.
The Foolish bottom line
Michael Kors, Fossil, and Macy's are three of the top companies to own this holiday season. Michael Kors is my favorite of the three, but all would make great long-term additions to any portfolio. All three have outperformed the overall market year-to-date, so I would wait for weakness before initiating a position.