Retail stocks retreated Friday, but turned in a 1.1 percent gain for the week—a relatively modest increase given the sector established new all-time highs on Wednesday and Thursday as investors bet the improving economy would continue to filter down to stores.


The S&P Retail Index, which goes back to 2002, slid 0.4 percent, or 1.95 points, to 540.50 Friday and was still close to its peak of 543.64, reached Thursday. The Dow Jones Industrial Average—trading at its highest level in almost three years—rose 0.4 percent, or 47.23 points, to 12,810.54 Friday.


Of the 170 stocks tracked by WWD, 112 rose last week, while three ended flat and 55 fell.


“We’re seeing signs that there’s some pricing power behind some of these retailers; in a very selective and careful manner they are starting to improve their margins by increasing their prices,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates, a boutique investment firm. Earnings this year might well hinge on whether or not retailers can boost their prices enough to keep up with higher costs for cotton, labor and oil products.


Fitzpatrick said there is room for retail stocks to keep rising, but that it’s hard to paint the sector with a single brush. “It’s a little more on a stock-by-stock basis,” he said.


Retail stocks, which in many cases are still seen as undervalued given recent earnings built on lower inventories, have picked up steam in the last month. The sector gained 4.8 percent versus in April while the Dow rose 4 percent. But so far this year, retail stocks are only up 6.4 percent versus the Dow’s 10.7 percent ascent.


Despite the strong showing of late, it is not all wine and roses for retail. Unemployment has fallen, but is still high at 8.8 percent, and consumers have had to find place in their budgets for higher prices on food and gasoline. According to AAA, a gallon of regular gasoline averaged $3.91 Friday—just 20.5 cents from its all-time high in 2008.

That clouds the outlook for retailers, said Frank Badillo, senior economist at the Kantar Retail consultancy, who has been closely watching surveys on consumer intentions.


“Shoppers are going to be tightening their belts up to deal with these higher fuel prices as well as elevated food prices,” Badillo said. “They really do suggest that spending in a lot of channels will slow in the coming month.”

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