Looking back on non-discretionary retail stocks' Q3 earnings, we examine this quarter's best and worst performers, including Dollar General (NYSE:DG) and its peers.
Food is non-discretionary because it's essential for life (maybe not those Oreos?), so consumers naturally need a place to buy it. Selling food is a notoriously tough business, however, as the costs of procuring and transporting oftentimes perishable products and operating stores fit to sell those products can be high. Competition is also fierce because the alternatives are numerous. While online competition threatens all of retail, grocery is one of the least penetrated because of the nature of the product. Still, we could be one startup or innovation away from a paradigm shift.
The 8 non-discretionary retail stocks we track reported a decent Q3; on average, revenues were in line with analyst consensus estimates while next quarter's revenue guidance was in line with consensus. Investors abandoned cash-burning companies to buy stocks with higher margins of safety, but non-discretionary retail stocks held their ground better than others, with the share prices up 7.2% on average since the previous earnings results.
Weakest Q3: Dollar General (NYSE:DG)
Appealing to the budget-conscious consumer, Dollar General (NYSE:DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Dollar General reported revenues of $9.69 billion, up 2.4% year on year, in line with analyst expectations. It was a mixed quarter for the company, with a narrow beat of analysts' earnings estimates. Guidance was underwhelming, with the company lowering its sales growth and EPS outlooks, both of which came in below Consensus.
“I am excited to be back at Dollar General and working with the team to fulfill our mission of Serving Others every day,” said Todd Vasos, Dollar General’s chief executive officer.
The stock is up 0.6% since the results and currently trades at $134.77.
Best Q3: Target (NYSE:TGT)
With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.
Target reported revenues of $25.4 billion, down 4.2% year on year, in line with analyst expectations. It was a very strong quarter for the company, with a solid beat of analysts' earnings estimates.
Target had the slowest revenue growth among its peers. The stock is up 29.9% since the results and currently trades at $143.74.
Is now the time to buy Target? Access our full analysis of the earnings results here, it's free.
Grocery Outlet (NASDAQ:GO)
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Grocery Outlet reported revenues of $1.00 billion, up 9.3% year on year, falling short of analyst expectations by 0.4%. It was a mixed quarter for the company, with a solid beat of analysts' earnings estimates but underwhelming earnings guidance for the full year.
Grocery Outlet scored the fastest revenue growth and highest full-year guidance raise in the group. The stock is down 5.7% since the results and currently trades at $26.86.
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Costco reported revenues of $57.8 billion, up 6.2% year on year, in line with analyst expectations. It was a strong quarter for the company. Despite slightly missing same-store sales expectations on a consolidated basis and in the US specifically, Costco managed to beat revenue expectations by a small margin. Slightly better profits led to a more convincing EPS beat.
The stock is up 5.6% since the results and currently trades at $666.75.
Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE:BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.
BJ's reported revenues of $4.92 billion, up 2.9% year on year, in line with analyst expectations. It was a decent quarter for the company, with a narrow beat of analysts' revenue estimates. In addition, the company maintained its full year EPS guidance, which was very slightly ahead of current Consensus.
The stock is down 1.4% since the results and currently trades at $66.82.
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The author has no position in any of the stocks mentioned