February's retail news may not have been quite as abysmal as many people expected, but it's still obvious that times are tough and consumers are spending cautiously. Investors should plot their courses carefully.
Dawn of the discounter
Don't bank on turnarounds just yet
That said, I'll reiterate that now's probably a bad time to invest in stocks still muddling through lengthy turnarounds, however cheap they might appear. Although troubled Pacific Sunwear
Chico's same-store sales plunged 14.9% in February, compared to a 4.3% decrease in comps this time last year, extending its ugly trends. Gap's recent quarter may have impressed some investors, but its February comps gave little reason for optimism, down 6% compared to a 4% decrease last year. Ann Taylor's
Look for quality, long-term names
As long-term investors, we shouldn't view one month's worth of comps as an influential measure of whether to buy, sell, or hold a retail stock. However, comps do provide investors another look at how retailers are currently faring, and how their present performance compares to previous periods.
Given retailers' recent tough times, I wonder how many more will jump on a growing, dangerous trend I've noted before: discontinuing all monthly comps reports. Macy's
I think clamming up about comps is very shareholder unfriendly, however much that short-term data may spark stock volatility. Less information simply can't be a good thing for patient, reasonable long-term investors.
Today, we've learned that consumer confidence is at its lowest since 2002, employment is looking pretty bleak, and the price of oil is surging, among other ominous signs. In my opinion, we're definitely in a recession, and that won't make life easier for many retailers. However, I believe that long-term investors who focus on good, quality companies -- particularly those not currently struggling through a turnaround -- are the best retail stocks for the current environment.