As we enter the second quarter of the year, Jim Cramer wants to circle back to one of the best performing groups of the year—retail.
"Why not? Largely domestic, no dollar worries and a big beneficiary of the collapse in commodities of all kinds, especially gasoline," the "Mad Money" host said.
Stocks within a given sector don't necessarily trade in lockstep with one another. Instead, a group can now consist of a jumble of winners and losers all mixed up.
So while the Market Vectors Retail ETF rallied 8 percent in the first quarter, Cramer thinks it is important to analyze the winners and losers within the retail space so that investors can differentiate among the group.
He looked at the same-store sales, or comps, of 45 top retailers in the United States. Some 32 stores reported an increase in same-store sales for the fourth quarter of 2014. But just because a retailer posted strong results didn't mean that the stock rallied.
So what translated into higher share price?
The strongest retail stocks were those that had been delivering disappointing numbers, and then suddenly posted good ones.
Kohl's and Dillard's were perfect examples of this. Dillard's is a quiet Arkansas-based department store that had previously reported a 1 percent decline in sales growth, and then unexpectedly wowed investors with a 3 percent increase the next quarter. As a result, the stock is up more than 10 percent since then.
Kohl's was another reversal story. It surprised the market when it reported 3.7 percent same store sales growth. That's not a huge number, but it was the first time the company reported positively in over a year. It has also rallied approximately 10 percent since then.
Cramer also was impressed with the performance of Urban Outfitters and Foot Locker. However just as there are always winners, there are always losers lingering around.
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"Some retailers that reported hideous same store sales declines this quarter are simply out and out losers that could be downright toxic to your portfolio," Cramer warned.
That was exactly how he felt about Abercrombie & Fitch. Not only is it out of fashion to the teens who shop there, it was also out of fashion on Wall Street. Not only did the company deliver terrible numbers, but management declined to provide forward same-store sales or earnings guidance.
This gave Cramer the impression that management has absolutely no idea what the future holds for the company. Another teen retailer to steer clear from was American Eagle.
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Yet the company with one of the worst same-store sales reports last quarter had one of the best performing stocks. Coach had a 22 percent same store sales decline, and yet somehow found a way to rally 15 percent since before the quarter.
So while Cramer still finds same store sales growth to be a key metric for retail, he reminded investors to pay attention to trends—and he's not talking about fashion trends.
"What you're really judging is not the absolute numbers, but the strength of the trend relative to Wall Street's expectations," he said.
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