By Jeanine Poggi, TheStreet

 

Warm weather, strong pre-Easter spending and low year-earlier numbers probably contributed to a jump in retail sales for March.

 

The S&P Retail Index hit a 52-week high on Tuesday as expectations for the sector rose ahead of comparable-store sales results, which will be released on Thursday.

 

The International Council of Shopping Centers expects stores to report the best sales since 1994. The trade group said on Tuesday it expects sales to increase 8% to 10% for the month, boosting its previous forecast of 3% to 3.5%. If the ICSC's forecast is correct, March would mark the third consecutive month of stronger-than-expected comparable sales growth.

 

Investors will look for companies to raise sales and earnings forecasts. Among those expected to increase outlooks are Aeropostale (ARO), Ross Stores (ROST), Wet Seal (WTSLA) and American Eagle Outfitters (AEO).

 

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For American Eagle, investors are looking for the teen retailer to raise first-quarter guidance by a couple of pennies if same-store sales increased by double-digits in March, JPMorgan Chase (JPM) analyst Brian Tunick wrote in a note.

 

American Eagle, which plans to shutter its ailing Martin + Osa chain, has been an industry laggard. Investors fear the company won’t be able to boost performance as they expand inventory and deal with increased managerial costs, Brean Murray analyst Eric Beder wrote in a note.

 

Rival Abercrombie & Fitch (ANF) posted its first monthly gain in February since November 2007. Will this momentum continue? Beder is skeptical.

 

"We continue to view the company's drive to register comparable sales via lower prices as further eroding their core user base and replacing it with customers who will desert the company if it inevitably tries to raise pricing," Beder wrote. "We remain negative on the short term at Abercrombie and believe investor hopes have been raised to unsustainable levels."

 

Within the teen space, Aeropostale and Buckle (BKE) face tough comparisons, as two of the only four retailers that posted gains in same-store sales in March last year.

 

Other potential winners include Fred's (FRED) and TJX (TJX).

 

"We believe that companies like TJX have fallen back into favor given its attractive valuation, stable business model, hedge against a potential 'double-dip' economic downturn and in TJX's case, an international square-footage story as well," Beder wrote.  

 

Among department stores, Nordstrom (JWN) is pegged to be the big winner. Analysts are forecasting the high-end department store to report a same-store sales gain of 9.7%.

 

"We believe the company's well-edited assortment, excellent customer service and ease of shopping through all channels are differentiating factors helping the company to gain market share, particularly as the consumer is demonstrating a renewed interest in shopping," Stifel Nicolaus analyst Richard Jaffe wrote in a note.

 

There are also high expectations for Limited Brands (LTD), as analysts are predicting a 5.7% jump. "We believe anything less than a high-single-digit comp would be treated as bad news by investors with the stock at current levels," Tunick wrote.

 

While Easter happened earlier than last year, spurring purchases in March, analysts are not predicting a significant drop-off in April.

 

Still, analysts caution that inflated expectations by the market may not bear fruit as the economy enters the second half of the year.

 

"We continue to see weak employment data and consumer confidence, while better than prior period, it is nowhere near what we would expect for sustainable improvements," Beder wrote. "When combined with tougher comparisons, rising staffing costs, and at best, flat material pricing, we believe many of the current ‘turnaround’ plays will be exposed in the second half of the year."

 

By the second half of the year, multiples will be approaching the high-end of ranges seen during the last five years, wrote Brian Sozzi, an analyst at Wall Street Strategies. As they hit these peaks, it’s likely the retail stock rally will cool off, he says.

 

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