Gap (NYSE:GPS) shares went a little crazy yesterday in a good example of the type of short-term thinking that long-term investors want to avoid. This development could serve as a good lesson for anybody who's in retail stocks for the long haul.
Anybody who follows retail probably knows that many retailers will report their same-store sales figures for March this Thursday. Gap shares ended Monday's trading up a whopping 4.25%, apparently because of comments about the long-struggling retailer's March numbers. Several analysts expressed expectations that Gap's March comps will be in the positive territory. That sounds like good news on the surface, since Gap has had a tough time with comps for several years.
However, the news isn't really that stunning when you stop to reflect that Gap is up against what's called an "easy comparison" in Wall Street parlance. In this case, the retailer's March same-store sales last year were down 13%.
We should all appreciate being able to see monthly data and figure it into our models when considering retailers' valuations. But the often crazy machinations we see in retail stocks on the day when monthly same-store sales figures get reported represent the worst in short-term thinking. To buy and sell based on how a retailer performed during an approximately 30-day period seems like the equivalent of either panic or hysterical euphoria, depending on what's spurring the activity. It's not uncommon to see sizeable drops or increases in stock prices on the day the monthly comp numbers are reported.
This phenomenon has resulted in some retailers deciding to stop reporting their comps on a monthly basis. Last summer, I wrote about what seemed to be a dangerous trend in retail stocks, as some retailers, including Talbots (NYSE:TLB), said they were bowing out of the monthly reporting madness for this very reason. Last fall, Starbucks (NASDAQ:SBUX) joined the list of no-shows when it comes to monthly comps reportage.
In Gap's case yesterday, the stock movement seems even more illogical than some we've seen, given that the March comps haven't even been reported yet. Although expecting a positive March result for Gap certainly isn't a bad thing, there's the "easy comparison" caveat I mentioned before, and it's also pretty clear Gap still has plenty of work to do in rejuvenating its brands for the long term. It seems to me that situations like this serve as good reminders to long-term investors: Put the short-term buzz into perspective, take a deep breath, and count to 10 before pulling that trigger.
For related Foolishness, check out the following stories:
- Revisit Gap's most recent quarterly numbers.
- Here's 2006 in review at Gap.
- Last summer, it seemed that retailers might be embarking on a dangerous trend.
Gap and Starbucks are Motley Fool Stock Advisor recommendations. Gap is also a Motley Fool Inside Value pick. To see why, check out either service -- or both! -- free for 30 days.
Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.
