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Why Retailers Will Avoid Sounding Overly Optimistic

Thursday, 13 Aug 2009 | 2:40 PM ET

Plenty more retail earnings and commentary ahead. Just don't expect a lot of gushy, positive comments--there's little incentive to do so.

Nordstrom after the bell, Abercrombie and JC Penney tomorrow, and Lowe's on Monday, Home Depot, Target and TJX Tuesday.

Why no incentive to talk up the second half? Because the stocks have had a had a huge runup--retail as a group is up 30% since the summer rally began a month ago!

That is frothy territory, and it's happening because traders are betting that as consumer confidence begins to recover, there will be a notable sales upside to retailers.

But if you were a retail CEO, would you stick your neck out in this environment and notably up your earnings guidance? Wouldn't it be better to be more cautious, under the theory that you do not want your stock to get too far ahead of the facts?

That seems to be what's happening. There is a very clear pattern developing in retail commentary for the second half:

1) we continue to cut costs

2) inventories are lean

3) sales will be flat to slightly up, an improvement over the first half

4) there is room for trends to improve in the fourth quarter

Keep an eye on Nordstrom, earnings out after the bell. They had their usual Annual Sale in July, and word was that it was very successful. Still, the stock is up 30 percent in one month! Don't be surprised if you see some selling on the news.

A final word on Wal-Mart . Wal-Mart has dramatically underperformed the market since the March lows:

Wal-Mart: up 8 percent

Retail index: up 59 percent

S&P 500: up 49 percent

Why is Wal-Mart such a laggard? Because professional traders generally have a very cynical attitude toward Wal-Mart...it is mostly viewed as a place to park capital in uncertain times...but if there is a perception that retail will start to do better (which is what is happening), traders tend to DUMP WAL-MART and put into other retailers.

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Questions? Comments? tradertalk@cnbc.com


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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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