Steady wage gains, solid labor market and improving consumer sentiment have been working in favor of the Zacks Retail – Discount Stores industry. The strategy to sell products at discounted prices has helped industry players expand customer base, which comprises low to middle income groups. Moreover, a differentiated product range in sync with customers’ spending habits enabled the companies to gain market share and increase sales per square foot.
The companies in the industry have benefited from the ongoing efforts to develop omni-channel capabilities, which include technological updates and store remodels. These retailers have been undertaking brand enhancement efforts with off-price models and innovative customer-friendly approach such as same-day delivery options. Apart from these, better pricing, effective inventory management, and merchandise and operational initiatives have been contributing to revenue growth.
Certainly, the space is highly competitive and fragmented with each company vying for a bigger slice of the market on attributes such as price, products and speed-to-market. Again, higher digital marketing investments and constant store remodeling and refurbishments have been escalating costs. But these investments seem unavoidable, given the changing retail dynamics, wherein online shopping have been gradually gaining preference over traditional ways.
No wonder a significant number of companies in the discount industry have been on a tear buoyed by the aforementioned underlying strengths. Here we have highlighted four discount retailers that have soared more than 40% in a year.
4 Prominent Picks
Target Corporation TGT has taken steps that have improved prospects in a big way. The company’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments and emphasis on flexible format stores to generate higher sales productivity bode well. Robust traffic trends, favorable store comps and surge in comparable digital sales are clearly aiding results. Management envisions comparable sales to increase approximately 4% in fiscal 2019. This general merchandise retailer made a significant headway in the same-day delivery race by acquiring Shipt, an Internet-based grocery delivery service. Drive Up, an app-based service, is another initiative to facilitate the shopping process. The service enables customers to place orders utilizing the Target app and have them delivered to their cars.
The stock with a VGM Score of B and has estimated earnings per share growth rate of 18.4% for the current fiscal year. Notably, shares of this Zacks Rank #1 (Strong Buy) company have surged 92.9% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar General Corporation’s DG better pricing, private label offerings, effective inventory management, and merchandise initiatives have been aiding the company in carving out a niche in the retail space. The company’s everyday low-price model and better-for-you products are anticipated to drive traffic consistently despite the rising popularity of online retailers. We believe that store expansion initiatives and continued restructuring, as evident from steady store openings and the improvement of distribution centers, should keep driving revenues. The company’s impressive same-store sales growth story is testament to the same. The metric improved 4.6% in third-quarter fiscal 2019. Management expects same-store sales to increase in the mid-to-high 3% range in fiscal 2019.
The stock has a VGM Score of A and estimated earnings per share growth rate of 11.2% for the current fiscal year. We note that shares of this Zacks Rank #3 (Hold) company have surged 46.4% in a year.
Ross Stores, Inc.’s ROST commitment to pricing, merchandise initiatives, cost containment and store expansion bode well. Moreover, the off-price model offers strong value proposition and micro-merchandising that drive better product allocation and margins. This has aided the company significantly in delivering decent top-line and comparable-store sales performances. Comparable-store sales improved 5% during third-quarter fiscal 2019 on the back of higher traffic and increased average basket size. For the fourth quarter, the company anticipates comparable-store sales growth of 1-2%. The company is constantly focused on merchandising organization through investments in workforce, processes and technology as part of its key growth strategy. Additionally, Ross Stores’ significant store expansion actions have paved the way for sturdy growth.
The stock has a VGM Score of B and estimated earnings per share growth rate of 7.3% for the current fiscal year. We note that shares of this Zacks Rank #3 company have surged 45% in a year.
Costco Wholesale Corporation COST, which operates membership warehouses, has been able to create a niche for itself on the back of growth strategies, better price management, strong membership trends and increasing penetration of e-commerce business. These factors have certainly aided the company in sustaining decent comparable sales run. Comparable sales improved 4.3% during first-quarter fiscal 2020. Costco is rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. It is steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea, Taiwan and Japan. The company continues to be one of the dominant warehouse retailers based on the breadth and quality of merchandise offered. In fact, its strategy of selling products at heavily discounted prices has helped it to remain on growth track.
The stock has a VGM Score of A and estimated earnings per share growth rate of 5.1% for the current fiscal year. We note that shares of this Zacks Rank #3 company have surged 44.6% in a year.
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Dollar General Corporation (DG) : Free Stock Analysis Report
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