What happened?

Shares of a number of retailers climbed higher on Thursday, even as most other stocks were mixed, and the SPDR S&P 500 ETF Trust (NYSEMKT:SPY) finished the day down about 0.3%. Four retailers that saw big share gains are Foot Locker (NYSE:FL), The Michaels Companies (NASDAQ:MIK)Chico's FAS (NYSE:CHS), and Capri Holdings (NYSE:CPRI), which all were up between 4.5% and 17.3% today. 

So what

Leading off the group, The Michaels Companies reported first-quarter earnings before the open today. Its results weren't pretty, with sales down 28% on a same-store basis, and a loss of $64 million. This was a little worse than most investors expected, but the company offered some optimism that it should be able to turn things around. As of June 4, the company said, about 1,000 of its 1,273 stores were open and fully operational. That's more than double the number of stores Michaels had open at the beginning of May. The company also said it had over $900 million in cash on the books as of May 2, giving it substantial liquidity to support operations and needed capital spending as the COVID-19 crisis continues to play out. 

Shopper holding bags.

Image source: Getty Images.

For the other three, there wasn't anything new announced by the companies, but the general sentiment for retail stocks continues to be positive. More parts of the U.S. are reopening more of their economies, in particular retail shopping. And as places reopen for business, many retailers are reporting strong demand and sales that are recovering relatively quickly.

This is driving bullish sentiment for one of the sectors of stocks that has remained beaten-down while the market has recovered the bulk of its losses. At this writing, the S&P 500 is down about 3% since the beginning of 2020, while the four retail stocks above are down between 17% and 52%. 

Now what

It's been a heck of a good couple of weeks for all four of these stocks:

FL Chart

FL data by YCharts.

The sentiment has shifted favorably for specialty retailers as more places open up, but even with the big run-ups, just about every specialty retailer's stock is still well below its pre-coronavirus peak. And this has investors looking for opportunities to cash in on their rebound as things return to normal. That's particularly true with the broader market having recovered a lot of its value. 

But investors should remain cautious. As things stand today, COVID-19 is still a huge threat, and there are signs that cases are starting to spike in places that have reopened quickly. Another surge in cases could lead to a return to government-mandated shutdowns, arresting all the progress companies have made in the past few weeks. There are still no effective medical treatments, and a vaccine could still be a year away. We are closing in on 2 million confirmed cases in the U.S., and over 107,000 people have died. 

With that in mind, it's a good idea to focus on the retailers that have the balance sheet strength to ride out another forced closure, and the possibility that the full recovery won't happen this year. There's some value to be had for investors willing to ride out the downturn in retail sales, but the real recovery may take a lot longer than the market seems to be betting on today. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.