The Retail – Discount Stores industry, which comprises companies that offer apparel, accessories, footwear, beauty products, and food and beverage products, has outpaced the S&P 500 Index so far this year. The industry, which is placed in the top 20% of more than 250 Zacks industries, has rallied 24.4% in the said time frame, comfortably surpassing the index’s growth of 14%. The outperformance can be attributed to strategic endeavors by the companies.
Certainly, discount retailers have succeeded in creating a niche despite the rising popularity of online retailers that has compelled many traditional operators to exit. This has been largely supported by investments, focus on cost savings and introduction of loyalty and marketing programs. Retailers are deploying resources to enhance omni-channel capacities, introduce brands, remodel or refurbish stores and expand same-day delivery options to expedite the shopping process.
Further, a favorable consumer environment with confidence index at a six-month high in May and strategic endeavors undertaken at company level are working in tandem for the industry. Definitely, the industry’s prospects are closely tied to the purchasing power of consumers. In fact, strengthening labor market and rising disposable income are encouraging Americans to go on a shopping spree.
We note that consumer spending — one of the pivotal factors driving the economy — has picked up in recent months. This is evident from an uptick of 0.5% in retail sales during the month of May, following an upwardly revised reading of 0.3% gain in April. Clearly, this dissipates the fear of economy losing steam that gripped the stock market lately. While economists may revisit their second-quarter GDP numbers, the Federal Reserve may now have a reason to refrain from a cut in interest rate.
Well for now let’s focus on four discount retailers that command your attention.
4 Discount Retailers
Target Corporation TGT, which offers beauty and household essentials, food assortments, apparel and home decor products, is a solid bet with a long-term earnings growth rate of 7.1% and a VGM Score of B. This Zacks Rank #2 (Buy) company has delivered an average positive earnings surprise of 2.6% in the trailing four quarters. Moreover, the stock has surged approximately 39% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Dollar General Corporation DG, which offers clothing, cleaning supplies, home decor, health & beauty aids, toys, seasonal items and grocery, is also a solid pick with a Zacks Rank #2 and a VGM Score of A. The stock has a long-term earnings growth rate of 10.9%. The stock has gained roughly 32% in the past six months. It has an average positive earnings surprise of 1.6% in the trailing four quarters.
Investors can also count on Ross Stores, Inc. ROST, which operates off-price retail apparel and home fashion stores. This Zacks Rank #2 company has a long-term earnings growth rate of 10.4% and a VGM Score of B. The company has delivered an average positive earnings surprise of 2.8% in the trailing four quarters. It has advanced about 29% in the past six months.
You can also add The TJX Companies, Inc. TJX, an off-price apparel and home fashions retailer, to your portfolio. Shares of this Zacks Rank #2 have surged about 23% in the past six months. The stock has a long-term earnings growth rate of 10.9% and an average positive earnings surprise of 1.3% in the trailing four quarters.
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Target Corporation (TGT) : Free Stock Analysis Report
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