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Cowen: A Cold December Could Heat up Apparel Sales

Things could be looking up for apparel thanks to the weather.

Following a call with Weather Trends International (WTI) CEO Bill Kirk, Cowen & Company said Friday that forecasts for a colder winter should drive full-price outerwear sales.

Though fall has only just begun, winter is expected to rear its head early and stay a while.

Since the U.S. has seen two consecutive warmer winters and has never in history experienced three straight unseasonably warm winters, WTI expects this year’s to be frigid. And instead of one big blizzard, major snowfall could come frequently.

A hot dry June meant there was no weather-based catalyst to drive back-to-school sales of cooler weather clothing, but a projected cold, wet surge around Columbus Day could support later third quarter sales. December is more than 90 percent likely to be cold, so cold weather apparel should sell at full margin.

“Given these trends so far, we believe summer clearance likely sold well throughout August, and retailers could be entering fall decently clean on inventories,” Cowen said in a report. “We worry somewhat on full-price sales for fall apparel in the BTS season as weather hasn’t consistently shifted cooler.”

The start of the fourth quarter, according to Cowen analyst Oliver Chen, will likely be the best weather to benefit apparel retailers.

“Combined with more favorable cold weather, the election risk will be over, which could release some pent-up demand from consumers on bigger ticket items,” Chen said.

American Eagle could capitalize on seasonal weather owed to its “strong execution” in denim, and Macy’s and Nordstrom could benefit from consumers buying cold weather gear at full price in December.

“This set up should encourage higher full price sell through and margin performance in 2H16 versus a year ago,” Cowen analyst John Kernan added. “While incremental topline benefit in 2H16 may be harder to come by as the ability to chase goods will be difficult, the outlook for open-to-buy budgets for cold weather may be more favorable y/y in 2017.”