4 Stocks to Buy Now as Consumers Pinch Pennies - InvestingChannel

4 Stocks to Buy Now as Consumers Pinch Pennies

Proprietary Data Insights

Top Discount Store Stock Searches This Month

Rank Name Searches
#1 Walmart 99
#2 Target 89
#3 Dollar General 44
#4 Costco 35
#5 Dollar Tree 32
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Discount Stores

As we promised in last week’s Juice on food inflation, today we have an update from Dollar General (DG)’s and Dollar Tree (DLTR)’s recent earnings conference calls. 

These names are where people shop as they pinch pennies amid persistent inflation. But in a clear threat to places such as Target (TGT) and Walmart (WMT), not just low-income consumers are turning to dollar stores. 

On Dollar General’s earnings call, CEO Jeff Owen said the low-income consumer remains employed, but “she’s worse off financially […] primarily due to food inflation,” which is pushing her towards the $1 price point and private-label brands. And “she’s buying fewer items on occasion.” 

Owen also pointed out that higher-income consumers are trading down to DG as the company expands “wallet” and market share across economic demographics. 

Similar situation at Dollar Tree. 

On DLTR’s earnings call, CEO Rick Dreiling said “the consumer making $80,000 a year is trading down” and “the current economic climate is driving more higher-income consumers into value retail.”  

Where are they coming from? Logic dictates they’re shopping a little less at middle-of-the-road discounters such as Walmart and Target and a little more at deep discounters Dollar General and Dollar Tree. 

Consider Target. On its recent earnings call, the company discussed its move toward stocking more food and household staples – the items consumers need. As of the end of Target’s Q4, its overall inventory fell 3%, but its inventory of discretionary items plummeted 13%. In this economy, the wants have to wait for many consumers.  

At Walmart, similar deal. The company is seeing fewer discretionary purchases and more consumers who earn six figures coming in to save on essentials, particularly groceries. In fact, almost half of Walmart’s growth in groceries comes from these relatively well-off consumers. 

Another thing all four names have in common: They’re going light on guidance for 2023. The Juice thinks they’re lowballing guidance to tamp down expectations in case the bottom falls out of the economy. If it doesn’t, they surprise with earnings beats in a couple months and everybody’s happy. 


The Bottom Line: When the economy improves, things will shake out. Maybe start going back to normal. However the shift happens, there’ll be plenty of discount shoppers to go around for all four stores in the near and long term. 

These discounters are now trying to keep their new traffic coming back. For example, Walmart is upping its visual merchandising game to make its groceries look sexier in an effort to keep shoppers in stores longer and increase their impulses to purchase more items more frequently. 

Consider buying DG, DLTR, TGT, and WMT on any weakness, as all four sit on big opportunities to engage consumers now and bring them back tomorrow once they have more cash in their pockets. This relatively hard time might be a blessing in disguise for discount retail, as it has introduced different classes of consumers to stores they might not normally visit.

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