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Stock Strategist Industry Reports

Will Holiday Retail Cheer Spill Over to the New Year?

Morningstar's take on trends that will impact specialty retailers in 2011.

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Based on early readings of better-than-expected 2010 holiday retail sales, specialty apparel retailers will likely be upbeat heading into the new year. Though we still harbor some concerns about discretionary spending amid elevated unemployment rates in the United States and economic uncertainty in a number of overseas markets, we believe post-holiday commentary from specialty apparel retailers will call for continued sales and earnings momentum in early 2011 (likely driving much of the momentum we've seen in retail stocks the past several weeks). However, the road to fundamental improvements could have a different feel in the coming year. Much of the record earnings retailers saw in 2010 could be chalked up to steadily improving consumer demand following 2009's depressed levels, a benign inflationary environment, fixed cost reductions, and lean inventories. Though some of these will likely contribute to results again in 2011, there are a number of other topics investors should have their eyes on.

We will be attending the ICR XChange retail conference in Dana Point, Calif., on Jan. 11-13, 2011, where executives from over 120 consumer-related companies will share their takes on industry trends and/or state their financial goals for the year. Among the companies in our retail coverage universe presenting at the conference are  American Eagle (AEO),  Abercrombie & Fitch (ANF),  Aeropostale (ARO),  Guess (GES),  J. Crew Group (JCG),  Limited Brands (LTD),  lululemon athletica (LULU),  Collective Brands (PSS),  Urban Outfitters (URBN),  VF Corporation (VFC), and  Vera Bradley (VRA). In this report, we provide our thoughts on the key themes driving results for specialty retailers heading into 2011 and our outlook for management teams' primary discussion points at the conference.

Zoe Tan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.