US holiday spending is expected to rise modestly this year, according to UBS analysts, who forecast a 1% year-over-year increase based on October survey data.
Heading into the holiday quarter, the analysts favor ‘Buy’-rated On Holding, Deckers Outdoor Corp (NYSE:DECK), Gildan Activewear, Aritzia Inc (TSX:ATZ), Ralph Lauren Corp (NYSE:RL), Levi Strauss & Co (NYSE:LEVI), Amer Sports Inc (NYSE:AS), Birkenstock Holding PLC (NYSE:BIRK), TJX Companies Inc (NYSE:TJX), Burlington Stores Inc. (NYSE:BURL), PVH Corp. (NYSE:PVH), and Signet Jewelers Limited (NYSE:SIG).
It has ‘Neutral’ ratings on Nike Inc (NYSE:NKE, ETR:NKE) and Lululemon Athletica Inc (NASDAQ:LULU) and ‘Sell’ ratings on Macy's, Inc. (NYSE:M), Kohl's Corporation (NYSE:KSS), and Dillard’s.
The analysts see 2025 as shaping up to be “an average year” for holiday sales, noting that over the last 12 years, spending intentions have increased by about 1% annually on average.
October survey results showed that only 42% of respondents have started their holiday shopping, down 300 basis points from last year.
UBS said this suggests “consumer spending momentum will build from here,” likely alongside retailers’ promotional activity in November.
While survey responses in October were “less bullish” than in September, UBS said risks are “to the upside” for several reasons.
The firm highlighted that the biggest factor restraining consumers is the expectation of higher prices, with about 29% of respondents said they expect to see “much higher prices” during the holiday season, up 500 basis points year-over-year.
However, UBS said “consumers aren’t seeing inflation accelerate yet,” and the analysts do not expect those inflation fears to materialize.
“Our view is consumers’ confidence will rise when they see prices aren’t spiking, and this will cause them to spend more than they currently plan to,” they wrote.
UBS added that spending intentions among high- and middle-income consumers remain solid, while lower-income consumers are the most cautious.
The analysts noted that lower-income shoppers account for only about 10% of industry sales and that many softline companies have minimal exposure to that segment.
UBS also suggested that consumer confidence could strengthen in the coming weeks. The US government shutdown and news of a potential 100% incremental tariff on China may have dampened sentiment but confidence could rebound if those issues are resolved, they believe.
“If the US Supreme Court rules US tariffs are illegal during the holiday season, it could further catalyze both US consumer spending and softline stock prices,” the analysts wrote.