The end of the earnings season is always a good time to take a step back and see who shined (and who not so much). Let’s take a look at how non-discretionary retail stocks fared in Q3, starting with Grocery Outlet (NASDAQ:GO).
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 mixed Q3. As a group, revenues beat analysts’ consensus estimates by 0.8% while next quarter’s revenue guidance was in line.
Thankfully, share prices of the companies have been resilient as they are up 9.4% on average since the latest earnings results.
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 $1.11 billion, up 10.4% year on year. This print was in line with analysts’ expectations, but overall, it was a mixed quarter for the company with a decent beat of analysts’ EBITDA estimates.
Eric Lindberg, Chairman and Interim President and CEO of Grocery Outlet said, “Our double-digit third quarter net sales growth reflects the strong positioning of our consumer offering – value continues to win in the market and we continue to grow our share of consumer non-discretionary spending.”
Grocery Outlet delivered the weakest full-year guidance update of the whole group. Interestingly, the stock is up 29.8% since reporting and currently trades at $18.92.
Read our full report on Grocery Outlet here, it’s free.
Best Q3: Sprouts (NASDAQ:SFM)
Playing on the secular trend of healthier living, Sprouts Farmers Market (NASDAQ:SFM) is a grocery store chain emphasizing natural and organic products.
Sprouts reported revenues of $1.95 billion, up 13.6% year on year, outperforming analysts’ expectations by 3.7%. The business had a stunning quarter with EPS guidance for next quarter exceeding analysts’ expectations and a solid beat of analysts’ EBITDA estimates.
Sprouts achieved the biggest analyst estimates beat and fastest revenue growth among its peers. The market seems happy with the results as the stock is up 28% since reporting. It currently trades at $152.11.
Is now the time to buy Sprouts? Access our full analysis of the earnings results here, it’s free.
Weakest 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 $25.67 billion, up 1.1% year on year, falling short of analysts’ expectations by 0.9%. It was a disappointing quarter as it posted full-year EPS guidance missing analysts’ expectations.
Target delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 17.1% since the results and currently trades at $129.34.
Read our full analysis of Target’s results here.
Dollar Tree (NASDAQ:DLTR)
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ:DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Dollar Tree reported revenues of $7.57 billion, up 3.5% year on year. This number topped analysts’ expectations by 1.7%. Aside from that, it was a solid quarter as it also produced a decent beat of analysts’ sales and earnings estimates.
Dollar Tree achieved the highest full-year guidance raise among its peers. The stock is down 1% since reporting and currently trades at $71.77.
Read our full, actionable report on Dollar Tree here, it’s free.
Costco (NASDAQ:COST)
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 $79.7 billion, flat year on year. This result was in line with analysts’ expectations. It was a satisfactory quarter as it also put up a solid beat of analysts’ gross margin estimates.
Costco had the slowest revenue growth among its peers. The stock is up 9% since reporting and currently trades at $982.85.
Read our full, actionable report on Costco here, it’s free.
Market Update
As a result of the Fed's rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed's 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump's victory in the US Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain. Said differently, there's still much uncertainty around 2025.
Want to invest in winners with rock-solid fundamentals? Check out our Hidden Gem Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.
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