On Monday, a Bernstein analyst provided insights into the U.S. Apparel & Specialty Retail sector's performance following the third-quarter earnings reports. The analysis highlighted a strong start to the holiday quarter, largely attributed to a drop in temperatures later than expected. This weather change has been beneficial for early fourth-quarter comparisons, especially for brands with higher average unit retail (AUR) and higher-margin seasonal categories.
Notable companies like TJX Companies Inc (NYSE:TJX)., Canada Goose Holdings Inc (NYSE:GOOS)., Macy's Inc. (NYSE:M), Abercrombie & Fitch Co., and Five Below Inc (NASDAQ:FIVE). have all experienced a robust beginning to the fourth quarter.
The report also indicated a recovery in spending among higher-income U.S. consumers, despite a continued trend of trade-downs suggesting overall negative consumer sentiment. Retailers and brands such as Macy's, Nordstrom Inc . (NYSE:JWN), Tapestry (NYSE:TPR) Inc., and Gap Inc (NYSE:GAP). have cited strength in this demographic as a driver for growth this quarter.
Internationally, growth has often surpassed that in the Americas, with companies like Tapestry, Ralph Lauren Corp (NYSE:RL)., TJX, Canada Goose, and PVH Corp (NYSE:PVH). seeing their strongest performance in the EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific) regions. Luxury brands, in particular, have been increasing their presence in China, leading to substantial growth in the APAC market.
Concerning the potential impact of tariffs on China, the analysis suggested that the largest brands and retailers are less likely to be affected due to their diversified supply chains and ability to pivot away from Chinese manufacturing.
Many of these brands have reduced their exposure to China following the tariffs post-2019. Off-price retailers, with minimal direct international exposure, could potentially benefit from inventory advancements. However, smaller and mid-size brands that rely heavily on China could face more significant challenges.
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