Today's news headlines offered comforting words about shockingly robust March retail sales. Still, investors had better think carefully about which retail stocks they shop for right now.
Nobody expected decent March data; consumers were expected to push most Easter-related shopping to April. In many parts of the U.S., winter weather held fast, and gasoline sticker shock gave shoppers yet another reason to stay home.
Thomson Reuters' calculations of 25 retailers showed a 1.7% overall sales increase; analysts had expected a 0.7% decrease in March sales, even with a difficult comparison to last year, when sales surged 9% for the month.
Big March winners included Limited
Investors should temper their enthusiasm, though, and think before trading. Some temporary elements might have helped boost the sales figures; for example, tax refunds found their way into many consumers' bank accounts, which could have offset some of the expected stinginess.
As much as I am a fan of Costco for the long term, if you exclude the impacts of higher gasoline prices, its total comps increased only 8%. That's still impressive, but it's not 13%, and investors shouldn't ignore the difference.
Inflation should also remain on investors' radar. Rising commodity prices might boost sales in the near term, but they will ultimately make things difficult for consumers and the companies that cater to them. Spiking cotton prices complicate the retail business, which will have to pass some of that increase on to consumers or lose profitability. Is a retailer like Gap strong enough to command higher prices without driving customers elsewhere? Time will tell, and these times will be telling about many retailers.
I noticed that several retailers' stock prices surged even though they didn't even share any March comps data at all. Talbots
The rising tide of positive sentiment regarding March sales might be lifting all boats, even the leaky ones. That's a potential disaster for investors. Some retailers have plenty of existing challenges to overcome, even without a difficult macro environment that combines higher raw material costs and budget-minded shoppers.
Monthly comps are a great piece of data to help figure different retailers' strengths or weaknesses. But investors who ignore the context and buy indiscriminately into a general rally in retail stocks truly risk getting burned.
Alyce Lomax does not own shares of any of the companies mentioned. For more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.