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Retail stocks jump, historically outperform ahead of Black Friday

In the week leading up to Black Friday and in the days thereafter, the clear outperformers in the stock market are the retailers participating in the holiday shopping phenomenon themselves.

The shares are already on the comeback trail heading into Thanksgiving week 2017, as companies including Nike, L Brands, Wal-Mart, Gap, Ulta Beauty and Foot Locker all finish the week on a positive note. The S&P 500 Retail ETF (XRT) was up more than 2.8 percent alone on Friday.

Since 2007, the top U.S. equities sector in the period spanning from one week before to one week after Black Friday has been retail, CNBC analysis using hedge fund analytics tool Kensho found.

A grouping of S&P 500 retail stocks, on average, posts returns of 5 percent during that time frame, according to Kensho. That compares with the S&P 500 index’s average return of about 3 percent, and consumer discretionary stocks seeing about 4.5 percent growth in their share prices.

The search looked at the last 10 Black Friday periods.

To be sure, competition is heightened this holiday season as traditional retailers pit themselves against e-commerce platforms such as Amazon.com.

But a recent slew of upbeat quarterly earnings hints that many companies are optimistic about their holiday plans, with some even upping their full-year outlooks as they bet on a spike in sales to round out 2017.

Wal-Mart shares reached an all-time high, surging more than 10 percent, on Thursday after the big-box retailer posted earnings and same-store sales that outpaced Street expectations. The company also raised its earnings forecast for fiscal 2018.

“As usual, we expect Walmart to largely set the tone on multiple fronts and in multiple categories for the Holiday season,” Moody’s retail analyst Charlie O’Shea wrote in a note to clients.

Retail rival Target held a more conservative tone when discussing the upcoming quarter, sparking an alarm among investors and sending shares lower Wednesday. But Target’s stock was climbing again nearly 4 percent by Friday afternoon.

Off-price brands are giving retailers another reason to celebrate — shares of Ross Stores and Old Navy’s parent company, Gap, were climbing 8.5 and 7 percent, respectively, by Friday afternoon. Both companies reported earnings and sales Thursday after the bell that topped analysts’ expectations.

“The company deserves tremendous credit for delivering an outstanding 4% comp … in a quarter that was heavily impacted by both hurricanes … and unseasonably warm weather in September / early October,” Evercore ISI analyst Omar Saad wrote about Ross in a note to clients.

“We remain strong believers that the brands-at-a-value Off-price proposition remains protected from digital disintermediation given that brands will always have a need to dispose of branded inventory quietly (which can only be done in scale In physical stores), and the ‘treasure hunt’ experience … can never really be replicated online.”

Teen apparel retailer Abercrombie & Fitch watched its shares soar more than 25 percent Friday as its quarterly same-store sales grew at the fastest clip in six years. The company is in the midst of a turnaround, which includes rolling out a new store prototype and ditching flashy logos.

“Abercrombie & Fitch is still a company in transition and is not back to full health,” GlobalData Retail Managing Director Neil Saunders said. “However, it is now showing some encouraging signs of life.”

On the whole, the earnings reports from retailers this week came in better than those of department stores last week, most of which reported a drop in comparable sales.

“I think there’s quite a few [retail stocks] in the space that you can play, despite the death and destruction that Amazon brings to brick-and-mortar retailing every day,” retail consultant Jan Kniffen told CNBC’s “Squawk Box” Friday morning.

Even with Friday’s gains, the S&P 500 Retail ETF (XRT) has fallen about 5 percent in 2017.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.

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