The US consumer "remains strong" despite economic warning signs, they added.

Aaron's, Burlington, and Target should outperform the retail industry should spending slow through the fourth quarter, the analysts projected.

Holiday season spending is poised to slow this year, according to Bank of America Merrill Lynch.

Tariffs, warmer weather, a shorter holiday season, and increased inventory would all be to blame for weaker sales, the bank's analysts wrote in a Monday note. The bank projected same-store sales to grow by 2.7% in the fourth quarter, down from 3.8% last holiday season.
Online sales growth and weakening consumer demand also threaten retailers this holiday season, UBS analysts wrote in a September 23 note. E-commerce sales growth hit a six-year high in 2019 after surging 25%, according to the bank.

The US consumer "remains healthy" despite growing fears of economic recession, the team of BAML analysts said. Should the retail industry face a holiday headwind, certain value stores could benefit from discount-seeking customers, they added.
Here are the three companies BAML expects to outperform the retail industry this holiday season.

The analysts named Aaron's their "Retail Hardlines top pick" for its acceleration in invoice volume growth and strong appeal among low-income consumers. Aaron's Progressive Leasing business offers a lease-to-own financing option for customers, and has led to partnerships with large retailers like Best Buy.

Only a "low-mid single digit percentage" of Aaron's products is imported from China, insulating the business from tariff-related profit squeezes, the team led by Lorraine Hutchinson wrote. Its lease contracts also help spread revenue over a longer period of time, making the shorter holiday season less of an issue.

Warmer weather should have a smaller impact as well, "since seasonal products represent a very small percentage of sales," the BAML analysts said.

The bank rates Aaron's stock "buy" with a $75 per share price objective.

Burlington Stores is the bank's "Specialty Retail top pick," with its positive potential for improved margins and strong inventory situation setting the company up for a strong fourth quarter.

The team of analysts also pointed to tariff-sourced retail disruption as a boon for Burlington sales. Only 6% of the company's products are directly imported, and not all of them are from China, according to the note. Burlington management is positioning the company to attract shoppers should competitors transfer tariff costs directly to consumers.

"The off price industry historically has benefited from retail disruption," the analysts wrote.

The team also praised Burlington's leaders for improving its inventory situation. Last year's holiday season saw the company face a product shortage during critical sales weeks. The company is likely to adjust its inventory count for upcoming holiday sales and improve its logistics accordingly, the note said.

"We think leaner overall inventory combined with products focused on strong holiday and winter categories will help improve 4Q sell-through," the analysts wrote.

The bank rates Burlington stock "buy" with a $225 per share price objective.

The team of analysts named Target their "Discount Store top pick" for the holidays, noting its "impressive traffic" and sales growth has set the chain up for a strong fourth-quarter performance. The company's appeal to its key low- and middle-income consumers "remains healthy," and Target's smaller urban locations continue to bring strong results, BAML said.

The retail company's "stores as hubs" strategy - which allows Target to quickly ship items to online customers from its retail locations - allows it to offer more fulfillment options than other discount stores, the note added.

The bank rates Target stock "buy" with a $125 per share price objective.