Hidden Opportunity at the End of 2012


While September sales figures haven't been released yet, so far signs are pointing to a strong year-end for retail. Estimates from the National Retail Federation see retail sales rising 4% over the holidays, which would be lower than last year's gain. Analysts are also expecting strong online sales growth, which could be a bonus for companies with a strong online presence. But which subsectors are most likely to see growth, and which areas are going to have a rough Christmas?

The (semi)official line
The most prominent number being kicked around is the NRF's 4% growth figure. That's above the 10-year average growth rate of 3.5%, but below last year's 5.6% rate . One of the challenges that retailers will face is making this year's growth seem strong even when compared to 2011's excellent position. Many companies are focusing on product strength this year, and hoping that Americans have moved past the discount culture that damaged margins in holiday seasons gone by.

While the 4% growth rate is optimistic -- it's the highest forecast the NRF has released since the recession hit -- it's facing a lot of headwinds. The NRF called out the shaky nature of the forecast by listing the things Americans are still unsure of: fiscal cliffs, unemployment, the presidential election, and stagnant income growth, to name a few. But on the whole, investors should be looking forward to the end of 2012.

Worries and warts
While the NRF's prediction is upbeat, its list of concerns is just the tip of the iceberg. Handbag retailer Coach (NYSE: COH) has predicted that its fiscal 2013, which includes 2012 Christmas, is going to be a rebuilding year. Target (NYSE: TGT) has announced holiday hiring that falls short of last year's figure , even though the company has opened additional stores. While overall hiring for the holiday season should be up from last year, it still falls short of the average increase seen before the recession .

But let's take the move from last year as a good sign, a sign that more Americans are going to have some sort of job, and that hopefully more money will be pumped into workers' pockets. Is that enough to help retailers over the holidays? Not everyone.

September sales figures come out later this week, and while the picture looks fine for some, drugstores look like they're in a bind. Hardest hit may be Walgreen (NYSE: WAG) , which fought through much of the summer with prescription manager Express Scripts, and only settled its dispute in the middle of July. While sales should pick back up, September was probably not a stellar month.

Optimism and opportunity
Not everyone is as worried about September sales figures, or the holidays. UBS analysts have predicted solid September growth, based on a good first half of the month from back-to-school sales. Also, if you take out the drugstores, Retail Metrics has predicted a 3.5% same-store sale increase in September , which is roughly in line with the growth predicted for the end of the year.

According to Retail Metrics, a lot of last month's strength came from discount retailers like Ross (Nasdaq: ROST) , which caters to the back-to-school crowd and to those with tight purse strings. Strong summer performers Gap (NYSE: GPS) and The Limited (NYSE: LTD) are also expected to show same-store sales over 4% .

Strong sales could lead to a temporary bump in the stock price, which is always nice, but more temptingly, poor performance could lead to a dip, and a buying opportunity. Companies like Walgreen may have a poor showing for September, but if you're optimistic about its long-term growth like my colleague Travis Hoium, then a drop from its new 52-week high could be a great chance to get in at a small discount.