Could these retailers provide shareholders with a merry Christmas?

The latest edition of the AFGC CHEP Retail Index suggests that retailers face a challenging trading period this Christmas with year-on-year growth in retail sales slowing and a turnaround not expected in the remain months of the calendar year.

This state of affairs could be particularly true for the apparel sector. While it is possible that the worst of the decline in sales for apparel retailers is behind them, the recent run up in share prices has left many stocks in the sector looking fair value with limited upside potential.

For example, Myer (ASX: MYR) and Premier Investments (ASX: PMV) are trading on forward price-to-earnings ratios of 14.4 times and 15.7 times. While these aren’t ridiculous prices to pay for these companies, their businesses continue to face significant structural issues from online retailing, along with the lacklustre economic environment which means they will likely be ‘running fast just to stand still’ this Christmas.

While investors may want to approach the department stores and apparel retailers with caution there are a few stocks with could well enjoy improved Christmas sales this year. Here are 3 stocks which stand out for their ability to keep achieving sales growth thanks in part to their store roll-out programs as well as their product categories.

1. Super Retail Group (ASX: SUL) has seen sales growth of 3% to 6% across its divisions over the first 16 weeks of the financial year with margins also tracking well as they head into the Christmas sales period.

2. The Reject Shop (ASX: TRS) achieved sales growth of 13.3% in financial year 2013. At the company’s recent AGM management provided an update that the outlook for trading into December remained positive.

3. JB Hi-Fi (ASX: JBH) is expecting to open six new stores before Christmas which should help it boost sales during the all-important December period. At its AGM, the company re-affirmed its guidance for total sales to increase between 6% and 8% during the current financial year.

Foolish takeaway

While few stocks look overly cheap at present — particularly given the low earnings growth outlook for many businesses — investors who can identify companies that will grow earnings but don’t have that priced into their stock price yet are well placed to outperform the market.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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