With fourth-quarter earnings announcements looming for much of the retail industry, there’s been a lot of noise surrounding the negative impact that bad weather will have on sales.
Wal-Mart, which is set to report on Thursday, is one of many that has warned fourth-quarter sales will take a hit from the unending cadence of winter storms, as shoppers bundle up and stay inside to avoid the snow.
“In what has arguably been the coldest winter in recent memory, companies that can provide warmth have been winning,” said Jefferies analyst Randal Konik in a research note on Friday. “We interpret this as a positive indicator for Deckers and the Ugg brand in particular.”
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Konik said that store checks have shown the Ugg brand—famous for its comfortable sheepskin boots—has “benefited immensely” from frigid temperatures. Along with the cold weather, a compelling assortment of classic and new fashions has enabled the brand to avoid the heavy discounting that has damaged much of the industry’s margins this season.
“The stock has seen a nice run over the past year but we still think there is room to go,” Konik said. He reiterated his “buy” rating on Deckers and maintained a $100 price target. Shares were trading near $86 on Tuesday.
Similarly, Morgan Stanley analyst Kimberly Greenberger upgraded Burlington Stores to “overweight” earlier this month, citing among catalysts its heavy assortment of coats.
“Record cold weather likely helped outerwear sell-through, especially earlier in the quarter,” she said.
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Nomura analyst Robert Drbul initiated coverage on Columbia Sportswear earlier this month with a “buy” rating and an $80 target price. He said the company, which makes up an estimated $1.7 billion of the $10 billion U.S. retail outerwear market, maintained its share in the international athletic apparel market despite two unseasonably warm winters. Therefore, he said he was looking for upside to the company’s fourth-quarter and 2014 estimates.
“We believe demand for the Columbia brand remains strong and that recent winter weather has wiped the channel clean of inventory, setting the company up for a strong fourth quarter 2013 estimate and full-year 2014 estimate,” he wrote.
Columbia reported record fourth-quarter net sales of $533.1 million after the bell on Tuesday, an increase of 6 percent from the same quarter a year ago.
VF, which also owns winter boot maker Timberland, reported 8 percent revenue growth for the fourth quarter last week, boosted by 12 percent growth at The North Face. The news followed Under Armour’s quarterly revenue increase of 35 percent, which was rooted in its Fleece and ColdGear Infrared products.
VF CEO Eric Wiseman told CNBC that the company’s direct-to-consumer channel, which includes e-commerce sales, also increased 30 percent in the quarter. With foot traffic taking a beating from the bad weather, it’s a trend that’s likely to play out for many retailers in the first quarter—and could end up having a lasting impact on the industry overall, former Office Depot CEO Steve Odland told CNBC.
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“People who are now learning to buy more online and getting trained for that, they won’t go back to the bricks-and-mortar stores,” he said. “This weather can have a permanent impact on the switch between bricks-and-mortar and online sales.”
For retailers that have seen sales dip because of the weather—which is the majority of the industry—Wells Fargo analyst Paul Lejuez said the pain could continue even when the weather warms up. As inventory builds up from stalled sales, it becomes harder for retailers to avoid markdowns on new items.
“When new full-price product has to compete with extensive markdowns in the back of the store (the stuff that didn’t sell well thanks to the bad weather), shoppers often opt for the sale merchandise,” Lejuez said. “This perpetuates the problem.”
—By CNBC’s Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.
UPDATE: This story was updated to include earnings results from Columbia.