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HomeretailIt’s not as gloomy as you think for retail

It’s not as gloomy as you think for retail

Wall Street's retail analysts are adjusting their 2014 forecasts, and after last year's curveballs, it shouldn't be a surprise that many use qualifiers like "conservative" and "cautious."

Let's face it, 2013 was a year many retailers are happy to put in the past.

Although home values and equity markets rose and gas prices fell, consumers saw stagnant wage growth, and confidence declined. The government's payroll tax increase at the start of 2013 and its shutdown in the fall both put a dent in consumer spending.

Teen retailers like Abercrombie & Fitch and Aeropostale fell out of favor with consumers and investors. J.C. Penney, Lululemon and Toys R Us saw big management changes. Canadian Hudson's Bay bought Saks, and brought in an entire new management team. Wal-Mart Stores dealt with continued labor-related protests. Target had its point-of-sale systems compromised at the worst possible time.

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Still, 2013 wasn't all bad. Overall, the grew 40 percent over the course of the year, outperforming the broader .

NYC customers outside Macy's Herald Square store on Thanksgiving 2013.Getty Images

Best Buy's "Renew Blue" turnaround plan took hold and resonated with shoppers and Wall Street and led to an impressive 238 percent stock gain last year.

Michael Kors continued its enviable sales increases, and was rewarded by investors who bid up its shares nearly 60 percent in 2013.

Ready for a better economy?

With hopes for a better economy ahead, Jefferies' retail team recommends investors focus on retailers that have operations nimble enough to leverage improving economic conditions, and that also have low stock valuations. Top picks that meet these conditions are Urban Outfitters, American Eagle Outfitters, and Deckers, Jefferies said.

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FBR & Co. also likes Urban Outfitters, citing its strength in operating online and in traditional retail stores as well as the potential for reduced operational costs and the retailer's presence in Europe.

FBR expects the euro zone economies to improve and has advised clients to watch apparel retailers with exposure to the region. Beyond Urban Outfitters, FBR's picks include Express, Carter's and Children's Place.

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