4 Consumer Discretionary Stocks to Watch This Holiday Season

Core Insights - The Consumer Products-Discretionary industry is facing challenges due to inflation and tariff-driven cost pressures, but consumer spending is expected to remain resilient albeit at a slower pace compared to last year [1][4] - Companies with strong brand loyalty, pricing power, and diversified channels are better positioned to navigate the current economic landscape [2] - The industry's earnings outlook has declined significantly, with a 21.8% drop in earnings estimates since the beginning of 2025 [9] Industry Overview - The Consumer Products-Discretionary industry is cyclical and closely tied to economic conditions, targeting middle-to-higher-income consumers with high-priced discretionary products [3] - The industry includes various product categories such as fashion, jewelry, home goods, and personal care products, sold through specialty retailers, mass-market retailers, and e-commerce platforms [3] Key Trends - Consumer sentiment is under pressure, leading to cautious spending behavior, with a projected increase in U.S. holiday retail sales of 2.9% to 3.4%, slower than the previous year's 4.2% [4] - Companies are investing in digital ecosystems and optimizing supply chains to mitigate cost pressures and enhance margins [5] - Brand enhancement and capital discipline are critical, with companies focusing on consumer engagement, product innovation, and operational efficiency [6] Market Performance - The Zacks Consumer Products-Discretionary industry ranks 165, placing it in the bottom 32% of over 250 Zacks industries, indicating bleak near-term prospects [7][8] - The industry has underperformed the broader market, declining 16.7% over the past year compared to the S&P 500's rise of 18.4% [11] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-sales (P/S) ratio of 2.98X, lower than the S&P 500's 5.40X and the sector's 2.20X [14] Notable Companies - The Honest Company: Positioned for growth in the sensitive skin market, with a projected sales growth of 4.7% and EPS growth of 283.3% [17][18] - Central Garden & Pet Company: Focused on innovation and market share expansion, with an EPS growth estimate of 22% [21][22] - Interparfums: Maintains a strong market position with a diversified brand portfolio, expecting sales growth of 2.4% [25][26] - The RealReal: A leader in the luxury resale market, with projected sales growth of 12.3% and EPS growth of 87.9% [29][31]