Holiday sales surge not likely in the cards - Wells Fargo
Chip Somodevilla

Wells Fargo dampened hopes of a late surge in last-minute Christmas shopping after channel checks suggested deceleration from Black Friday.

A team of analysts led by Ike Boruchow published research on Wednesday that showed that consumers were not eager to chase last minute bargains despite continued discounts late in the season. Instead, a typical post-Black Friday lull in sales was observed, likely putting pressure on numerous softlines retailers both in terms of sales and inventory.

âThe key issue we see today is that a potentially weak holiday will lead to much greater investor caution entering 2023 due to elevated 4Q EPS risk, a very challenging 1Q setup looming (compares don't ease until 2Q/3Q) and the fact that companies will likely take a more conservative approach to initial guidance,â he advised. That said, the bull case on 2023 remains centered on clean post-holiday inventory levels and margin visibility (freight and markdown recapture); however, absent a surge in demand over the next 1-2 weeks, it's difficult to see where upside in the group will come from.â

As such, Boruchow told clients to remain selective with stocks and take a more defensive orientation. Capri Holdings (NYSE:CPRI), Lululemon Athletica (NASDAQ:LULU) and Ulta Beauty (NASDAQ:ULTA) were cited as retailers where trends remain healthy. Meanwhile,off-price retailers TJX Companies (NYSE:TJX), Ross Stores (ROST), and Burlington Companies (BURL) were highlighted as strong defensive names. 

Dovetailing with Boruchowâs focus on defense, data provider Placer.ai said that discount stores and off-price retailers were strong performers on the final Saturday of shopping before Christmas Eve. Both Dollar Tree (DLTR) and Dollar General (DG) saw significant foot traffic increases as compared to 2019, while the TJX-owned TJ Maxx and Marshalls notched 2.4% and 2.9% jumps in traffic, respectively. Overall, the data analytics firm said Ulta Beauty (ULTA) was âSuper Saturdayâs winnerâ with visits up 7.4% from 2021 and 2.7% as compared to 2019.

Boruchow was less bullish on HanesBrands (HBI), Bath & Body Works (BBWI), Tapestry (TPR), and Signet Jewelers (SIG). He voiced concern that each is likely seeing below-consensus sales into the late holiday sales season. Boruchow added that the buy side is most pessimistic on HanesBrands.
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