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Pisani: The Retail Question Now

Mid-afternoon trading: fairly broad advance developing, with retail, transports, and banks leading the way. Weakness in semis really preventing techs from breaking out.

Retail sales. The good news: you can't deny that consumer spending picked up.

What do retailers do from here? Most are still cheap, PROVIDING that: 1) costs don't go up dramatically (inflation), and 2) GDP remains positive this year and into next.

Key to further stock price gains is continuing margin expansion: keeping inventories low, keeping costs of goods down, and keeping a lid on costs and capital expenditures (low rate of store expansion).

Also remember: most are in dramatically better financial shape, so unlike financials don't expect big stock sales. Many are throwing off genuine cash flow. Target re-initiated their buyback a while ago, for example. Expect Gap to bring back their buyback. Hot Topic is paying a special dividend, just announced.

The bad news: tougher comps coming.

The calendar shift for Easter into March sales will cost retailers in April. Kohls said they see a low double-digit decline in sales. Macy's will be flat. Ross Stores, which raised guidance, said sales would be up 5 to 6 percent versus double-digit gains in February and March.

But we knew this. And the commentary was mostly positive. This from Atlantic Securities was typical of analyst remarks: "we are seeing a fundamental improvement in traffic and conversion and a strengthening in sales trends that is due to more than just the Easter calendar shift."

Same from Goldman Sachs broadlines analyst (covering department stores, discounters, and off-price retailers), said: "...we believe the month displayed core acceleration even after accounting for a positive Easter shift."

And this from J.P. Morgan: "we feel good that the tone retailers set for April was not as cautious as originally feared provided solid trends in early April, calendar shift."

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