We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
These Leading Discount Retailers Are Outperforming the Market
Read MoreHide Full Article
As costs have spiked for businesses, it’s become increasingly difficult for even the leading discount retailers and other low-cost stores to maintain prices at a fixed level. Last month, data from the Labor Department showed the producer price index (PPI) rose 1% for the month of January and 9.7% for the prior 12-month period – a near-record high going back to 2010.
We’ll get a further glimpse into February’s PPI next week, while the latest CPI data comes out this Thursday. Lower-than-expected numbers could signal an easing of supply chain issues which could lead to cooler consumer prices, while hotter inflation prints may exaggerate the move even further.
Discount retailers primarily sell low-margin consumables such as food, household staples, and seasonal goods. It becomes more challenging for these companies to hold costs low when their own costs are skyrocketing. That’s why it’s very important – particularly in this type of market environment – to identify businesses that are able to pass on these increased costs to consumers without any negative effects.
One of the more defensive businesses, discount retailers are consumer staples that are fairly resilient. The leaders in this space exhibit high pricing power. They can pass on rising costs without losing much volume at all. These defensive companies tend to fare better during inflationary periods and market downturns.
Let’s take a deeper look at two leading discount retailers that are outpacing their peers. Both companies are part of the Zacks – Retail and Wholesale Sector, which ranks in the top 44% out of 16 Zacks Ranked Sectors. By targeting stocks within the top sectors, we can dramatically improve our investing results.
Dollar Tree operates discount variety retail stores. The company is the largest single-price-point retailer in North America. DLTR provides consumable products such as food and personal care items, household paper and chemicals, health and beauty items, as well as clothing and other fashion accessories. Dollar Tree was founded in 1986 and is headquartered in Chesapeake, VA.
DLTR was the last major dollar store chain that kept prices at $1 or under before raising prices to $1.25 several months ago. The company acquired Family Dollar back in 2015 to expand its retail reach; it now operates over 16,000 stores in 48 states and five Canadian provinces.
DLTR has been on a hot streak in terms of earnings surprises, exceeding estimates in each of the past nine quarters. The retailer chain posted Q4 EPS last week of $0.91, a +24.66% surprise over the $0.73 consensus. DLTR has posted a trailing four-quarter average earnings surprise of +11.76%, helping push the stock 36.87% higher in the past year. The stock hit a 52-week high today.
Dollar Tree, Inc. Price and EPS Surprise
Analysts covering DLTR have upped their full-year EPS estimates by +7.55% in the past 60 days. The Zacks Consensus Estimate now stands at $7.83, translating to 35% growth relative to last year. Sales are expected to climb 5.63% to $27.8 billion.
Costco is a global operator of membership warehouses, offering branded and private-label products across a variety of merchandise categories. The company provides groceries, appliances, sporting goods, office supplies, furniture, houseware items, media products, jewelry, food courts, pharmacies, and tire installation centers. COST operates over 800 warehouses as well as several e-commerce websites. Costco was founded in 1976 and is based in Issaquah, WA.
COST generates revenue from two sources: store sales (98% of revenue) and membership fees (2% of revenue). The company reported its fiscal Q2 results last week, posting EPS of $2.92 – a +8.55% surprise over estimates. Revenues of $51.9 billion also beat expectations. We can see the trends in both earnings and sales have been quite favorable:
Image Source: Zacks Investment Research
COST has surpassed earnings expectations in each of the past four quarters, delivering an average positive surprise of +13.29% over that timeframe. The stock has responded in kind, advancing over 70% during the past year.
Costco Wholesale Corporation Price and EPS Surprise
Analysts covering COST have also increased their full-year EPS estimates by +3.35% in the past 60 days. The Zacks Consensus Estimate is now $12.96, reflecting potential growth of 16.97% relative to fiscal 2021.
These two discount retailers are bucking the downtrend of the market.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
These Leading Discount Retailers Are Outperforming the Market
As costs have spiked for businesses, it’s become increasingly difficult for even the leading discount retailers and other low-cost stores to maintain prices at a fixed level. Last month, data from the Labor Department showed the producer price index (PPI) rose 1% for the month of January and 9.7% for the prior 12-month period – a near-record high going back to 2010.
We’ll get a further glimpse into February’s PPI next week, while the latest CPI data comes out this Thursday. Lower-than-expected numbers could signal an easing of supply chain issues which could lead to cooler consumer prices, while hotter inflation prints may exaggerate the move even further.
Discount retailers primarily sell low-margin consumables such as food, household staples, and seasonal goods. It becomes more challenging for these companies to hold costs low when their own costs are skyrocketing. That’s why it’s very important – particularly in this type of market environment – to identify businesses that are able to pass on these increased costs to consumers without any negative effects.
One of the more defensive businesses, discount retailers are consumer staples that are fairly resilient. The leaders in this space exhibit high pricing power. They can pass on rising costs without losing much volume at all. These defensive companies tend to fare better during inflationary periods and market downturns.
Let’s take a deeper look at two leading discount retailers that are outpacing their peers. Both companies are part of the Zacks – Retail and Wholesale Sector, which ranks in the top 44% out of 16 Zacks Ranked Sectors. By targeting stocks within the top sectors, we can dramatically improve our investing results.
Dollar Tree, Inc. (DLTR - Free Report)
Dollar Tree operates discount variety retail stores. The company is the largest single-price-point retailer in North America. DLTR provides consumable products such as food and personal care items, household paper and chemicals, health and beauty items, as well as clothing and other fashion accessories. Dollar Tree was founded in 1986 and is headquartered in Chesapeake, VA.
DLTR was the last major dollar store chain that kept prices at $1 or under before raising prices to $1.25 several months ago. The company acquired Family Dollar back in 2015 to expand its retail reach; it now operates over 16,000 stores in 48 states and five Canadian provinces.
DLTR has been on a hot streak in terms of earnings surprises, exceeding estimates in each of the past nine quarters. The retailer chain posted Q4 EPS last week of $0.91, a +24.66% surprise over the $0.73 consensus. DLTR has posted a trailing four-quarter average earnings surprise of +11.76%, helping push the stock 36.87% higher in the past year. The stock hit a 52-week high today.
Dollar Tree, Inc. Price and EPS Surprise
Analysts covering DLTR have upped their full-year EPS estimates by +7.55% in the past 60 days. The Zacks Consensus Estimate now stands at $7.83, translating to 35% growth relative to last year. Sales are expected to climb 5.63% to $27.8 billion.
Costco Wholesale Corp. (COST - Free Report)
Costco is a global operator of membership warehouses, offering branded and private-label products across a variety of merchandise categories. The company provides groceries, appliances, sporting goods, office supplies, furniture, houseware items, media products, jewelry, food courts, pharmacies, and tire installation centers. COST operates over 800 warehouses as well as several e-commerce websites. Costco was founded in 1976 and is based in Issaquah, WA.
COST generates revenue from two sources: store sales (98% of revenue) and membership fees (2% of revenue). The company reported its fiscal Q2 results last week, posting EPS of $2.92 – a +8.55% surprise over estimates. Revenues of $51.9 billion also beat expectations. We can see the trends in both earnings and sales have been quite favorable:
Image Source: Zacks Investment Research
COST has surpassed earnings expectations in each of the past four quarters, delivering an average positive surprise of +13.29% over that timeframe. The stock has responded in kind, advancing over 70% during the past year.
Costco Wholesale Corporation Price and EPS Surprise
Analysts covering COST have also increased their full-year EPS estimates by +3.35% in the past 60 days. The Zacks Consensus Estimate is now $12.96, reflecting potential growth of 16.97% relative to fiscal 2021.
These two discount retailers are bucking the downtrend of the market.