Favorable weather conditions and a strong comparison to last year will help retailers during the holiday, the report says. Retailers also have two extra selling days this year compared to 2003. These factors should lead to a 3% to 4% increase from last year's sales, according to Lehman.

Women and teens will be buying fitted, shrunken and tailor-fitted apparel, the report says. Pants will have high waists and wide legs; skirt styles are "pencil tight or full and flouncy." Lehman calls the biggest fabric story of the season "modern versions of classic textured tweed." Chains capitalizing on the trend include Ann Taylor, Anthropologie, Banana Republic and Express. The report also highlights cardigans, denim, animal prints, corduroy and ponchos as hot sellers.

Last week Lehman Brothers initiated coverage of Abercrombie & Fitch, American Eagle Outfitters, Children's Place, Gap Inc., Limited Brands, Ross Stores, TJX Cos., and Urban Outfitters.