Cars and cosmetics: two reasons to be optimistic on retail. The two stocks to watch today are AutoNation and Estee Lauder . Both reported stellar earnings on significantly higher sales. AN is at its highest level since 1997; EL is at an historic high.
But inflation is coming to retailers; the issue is, how much can they raise prices? How elastic is demand? There hasn't been notable price inflation in the retail space, particularly clothes, for years, so no one knows the answer.
So if a pair of jeans goes from $45 to $50, will sales stay the same, or drop by 1, 5, or 10 percent or more? We don't know. And this assumes inventory levels remain lean; if they don't and someone lowers prices, than all bets are off.
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