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The retail industry is a very fragile space. Right now we are seeing a clear distinction between companies within this space, as some clearly outperform and others are struggling to find a balance that appeals to the market. Overall, the segment has underperformed the market to start 2013, and weak fourth quarter sales combined with heavy discounting continue to spark fear. However, there are a few bright spots, and I am looking at three such companies.

Francesca's Holdings Corp (FRAN)

Francesca's Holdings is a small/mid size company that operates a national chain of retail boutiques. The company has seen its value increase by 21% during the last year and recently raised its guidance after seeing comparable sales rise. The reason that Francesca should be a company/stock to watch in 2013 is because the company is successfully executing on new e-commerce initiatives and has continued to grow sales while maintaining its margins. Monday, the company said that sales rose 7-8% during the holiday season and the company is now expecting an EPS of $0.29-$0.30 for the quarter. Fundamentally, it's a very attractive stock, one that is not overvalued, but rather fairly valued. The stock is currently trading at 21.50 times next year's earnings, which is fair considering the valuations of other stocks in the industry. Therefore, FRAN might be a stock to follow in 2013, one that is fairly valued that might see gains with fundamental improvements.

Christopher & Banks Corporation (CBK)

Christopher & Banks is a small cap retailer of women's apparel. The company has greatly declined in size over the last five years and has struggled to achieve profitability. Yet during the last year, the company has seen a re-emergence of sorts. The stock was one of the best performing retail stocks in the market over the last year, with gains of 220%. On Wednesday it traded higher by nearly 15% after the company raised its same-store guidance, saying it expects sales to increase in the high teens rather than low double digits. The company has been trying diligently to restructure and turnaround its bad fortunes, and it seems as though the company is on the right path. The company is one of the cheaper in terms of fundamentals/valuation, meaning it could still trade much higher in 2013 if its turnaround continues to progress positively.

Five Below Inc (FIVE)

Five Below is a company that has become highly popular with teens, offering all products for $5 and below. Since its IPO last year the stock has traded higher by more than 25% due to aggressive expansion and growth. On Wednesday it traded higher another 7% after pre-announcing fourth quarter results that were better than the consensus. The company's valuation is somewhat similar to that of Francesca's, which is more attractive than other retail companies such as Lululemon. Therefore, Five Below could have another good year, as it's priced fairly, growing fast, and continues to improve its same-store sales.

Conclusion

During a week where Lululemon Athletica (LULU) fell hard due to being overpriced and seeing slower than expected fourth quarter sales, these three companies set themselves apart as strong performers. The holiday season is a period where heavy discounting and aggressive advertising take place, as all companies fight for the consumer's dollar. I find it somewhat enlightening that these three companies stood atop as the stronger performers, and could continue this trend throughout the next year. As a result, I think it's appropriate to label these companies as bright spots in a fragile market.

Source: 3 Bright Spots In A Fragile Retail Industry