The retail sector has not been the place to be in 2016. Earnings have been dismal for most companies, which has caused those stocks to lag and in some cases fall 10% plus after an earnings report. The SPDR Retail ETF (XRT) is just up over 2% on the year, while the S&P 500 is up close to 8%. Lack of consumer demand and competition from online giant Amazon are forcing retailers to get creative in order to get people in the door.

Amazon (AMZN - Free Report) simply continues to eat the average retailer’s lunch, putting a dent in earnings for a majority of stocks in the space. The good companies have adjusted to the Amazon threat and beat the odds. Loyalty programs and other incentives bring traffic to the store, which is the first step in competing against Amazon.

Below I list four top ranked companies that have adjusted and look poised to outperform in the fourth quarter. The stocks all are Zacks Ranked #1 (Strong Buy) or #2 (Buy) and have rising earnings estimates.

Tillys (TLYS - Free Report) is a Zacks Rank #1 (Strong Buy) that is a specialty retailer in the action sports industry selling clothing, shoes and accessories. The company offers one of the largest assortments of brands and merchandise from the top players in the surf, skate, motocross and lifestyle apparel industries available both in stores and online at tillys.com. The company was founded in Southern California in 1982 and has grown to 225 stores in 33 states.

Tillys has a market cap of nearly $300 Million with a Forward PE of 20. The stock sports a Zacks Style Score of “A” in both Value.

Q2 earnings were reported on August 24th, with the company seeing $0.05 versus the -$0.03 expected. Revenue came above expectations at $136.4 Million verse $133 Million. The company also guided Q3, saying they expect to come within the range of $0.07-0.13 verse the $0.10 expected. Same store sales were up 0.9% and the company saw an improvement on margins, which ticked up to 28.5% verse the 28.1% seen last year. Investors rewarded the stock with a 17% up move in just a day.

For fiscal year 2017 and 2018, analyst are all in agreement and revising estimates higher. For 2017, estimates have ticked 42% over the last month, from $0.19 to $0.27. For 2018, estimates have been revised 28% higher, from $0.25 to $0.32. This is the first uptick in estimates that the company has seen since early 2015. Look for the stock to reflect this uptick, just like it did in 2015.

Children’s Place (PLCE - Free Report) is a Zacks Rank #1 (Strong Buy) that is a growing specialty retailer of apparel and accessories for children from newborn to twelve years of age. The company is headquartered in Secaucus, NJ where it was founded in 1969.

Children’s Place has a market cap of $1.4 Billion and a Forward PE of 16. The stock sports Zacks Style Scores of “A” in Value and “A” in Growth.

Estimates for the company have been revised higher over the last 60 days. The current fiscal year is seen at $4.69, up 11% from $4.22. For next year, estimates have been raised 8% as well, from $4.76 to $5.16.

Urban Outfitters (URBN - Free Report) is a Zacks Rank #1 (Strong Buy) that is a specialty retail company that engages in the retail and wholesale of general consumer products. The company was founded in 1970, employs over 9,000 and is headquartered in Philadelphia, Pennsylvania. 

Urban Outfitters has a market cap of $4.15 billion with a Forward PE of 17. The stock sports Zacks Style Scores of “A” in Value and “B” in both Growth and Momentum. It also has a VGM score of “A”.

Estimates for the company have been revised higher over the last 60 days. The current fiscal year is seen at $2.07, up 6.7% from $1.94. In addition, next year’s estimates have been raised 3.7% as well, from $2.14 to $2.26.

Urban reports on November 11th and if the company sees another beat, expect the stock to shoot higher. Last quarter the stock jumped over 10% after a 17.86% EPS beat.

American Eagle (AEO - Free Report) is a Zacks Rank #2 (Buy) that isa specialty retailer of all-American casual apparel, accessories, and footwear for men and women between the ages of 16 and 34. The Pittsburgh based company has 6,500 employees and was founded in 1977.

AEO has a market cap of $3 billion and a Forward PE of 13. The stock sports a Zacks Style Score of “A” in Value, Growth, and Momentum. It also has a VGM score of “A” and pays a dividend of 2.95%.

Estimates for the company have been revised higher over the last 90 days. Fiscal year 2017 estimates have been revised 3% higher to $1.27 from $1.31. Fiscal year 2018 is seen at $1.43, up 5% from $1.36.

The company will report earnings December 11th, where it will go for its ninth straight beat of EPS. The stock has seen a stretch of volatility, but the recent trend is up. Look for this trend to continue if the company continues to beat EPS.

In Summary

Retail has seen some destruction. But the winners that come out of a shaky 2016 will have big rewards for investors. Sticking with stocks that are adjusting to the new world of retail, should pay off as we head into the holiday season.