Value retailers are holding up against a broader spending pullback as persistent anxiety over the economy and a softening job market drive shoppers to seek out discounts and deals.
Even with holiday-spending growth seen slipping to a five-year-low, off-price retailers TJX Cos., Ross Stores Inc. and Burlington Stores Inc. are set to post higher sales in their upcoming third-quarter reports. This is in stark contrast to high-end and luxury names such as LVMH Moet Hennessy Louis Vuitton and Tapestry Inc., which have reported slowing growth.
“Whenever we see consumers under pressure, we tend to see a flight to value,” Bloomberg Intelligence senior analyst Jennifer Bartashus said.
Cost-conscious consumers will continue to lend momentum to the yearlong sales recovery for discount retailers. Ross Stores and TJX, operator of T.J. Maxx and Marshalls, are on track for their first double-digit sales growth in seven quarters for the October-through-December period. Burlington Stores is seen posting double-digit sales growth in two consecutive quarters, starting in the third quarter.
Despite the start of holiday sales promotions, US retail traffic dropped in October, with the resumption of student-loan repayments that month compounding the impact of higher interest rates and a cooling labor market, BI senior analyst Mary Ross Gilbert noted.
The growing reluctance among households to spend on big-ticket items, however, is less likely to hurt retail chains such as Dollar Tree Inc., Five Below Inc. and Miniso Group Holding Ltd., which offer lower-priced goods compared to brand department stores.
Five Below, which sells snacks and personal accessories to teenagers, is forecast to grow sales by 19 percent in the fourth quarter, up from an estimated 13 percent in the previous period. Miniso, which sells small electronics and toys, is also expected to see an acceleration in sales, rising an estimated 34 percent in the third quarter of 2023 and 45 percent in the subsequent quarter. Analysts see discount variety store operator Dollar Tree nearly doubling revenue growth to 13 percent in the fourth quarter compared to the average estimate for the previous three months.
To be sure, the value-seeking mindset among consumers will also aid big-box chains such as Walmart Inc., Target Corp. and Dollar General Corp. These stores sell groceries alongside more general merchandise and will appeal to shoppers seeking to control a limited budget across multiple categories, Bartashus said.
“Those retailers have an everyday low-price stance,” she added.
The broader range of their offerings, however, will prove a drag on earnings comparisons due to the base effects of comparing against last year’s elevated food prices.
Quarterly revenue growth at Walmart is seen decelerating at least until the end of this year while Target’s sales are seen contracting in the third quarter before expanding 1.4 percent in the next. Dollar General, which sells more fresh produce than rival Dollar Tree, will see revenue grow 2 percent in the third quarter before shrinking 4.2 percent in the next.
This article was written by Rachel Phua and Gabriel Sanchez from Bloomberg and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to email@example.com.
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