Polo Ralph Lauren Margin Squeeze a Shot Across the Bow for Retailers?

It's been interesting to see some investors push into consumer discretionary retailing stocks the past few weeks. That may be a function of lower gasoline prices, but it seemed to ignore the coming impact of higher commodity prices on margins. Since it takes a few quarters to work such prices through the food chain, the surge in commodity prices that began from the Bernanke's declaration to inflate everything starting in late August 2010, now appears to be hitting. Polo Ralph Lauren's earnings this morning are a fine example, as margins were squeezed to the tune of 220 basis points. Yes there was a 5 cent miss but I think that degree of margin compression is what has been hitting the stock. Also some inventory buildup, but that could be 'transitory'. Now we could in theory make a bull case for the longer term in retail, especially the higher end (oct 8, 2010: No Recession in High(er) End) - especially until QE3 is announced this winter (my guess). To compensate for the higher input costs, retailers with pricing power are raising prices. Right now those price increases are not high enough to compensate for the increase inputs. But as the dollar strenghtens, people take risk off and commodities sell off the same retailers suffering from higher inputs costs will see lower inputs costs a few quarters down the line. But they obviously won't be lowering prices - hence they hit a sweet spot. We'll see how it works out - right now the market is not looking that far ahead.