As the inflationary pressures persist, many households are becoming more cautious with their spending, seeking value and affordability. This shift in consumer behavior has positively impacted discount retailers, allowing them to thrive in these uncertain economic times.
In this environment, quality retail stocks like Costco Wholesale Corporation (COST), Burlington Stores, Inc. (BURL), and PriceSmart, Inc. (PSMT) are well-positioned for solid gains.
According to EY’s Future Consumer Index (FCI), 49% of consumers are now turning to loyalty programs, private brands, and discounts for both essentials and discretionary items. As value takes priority, discount retailers have become trusted allies, offering competitive prices without sacrificing quality.
In addition, by embracing digital platforms and omnichannel strategies, these retailers expanded their reach and improved the overall shopping experience. Many have also ramped up their private label products, which offer better margins and allow for cost savings, further solidifying their appeal to budget-conscious shoppers.
Moreover, the global discount retail market is on a strong growth trajectory, with projections estimating it to reach $830 billion by 2030, growing at a CAGR of 5.35%. This solid outlook underscores the increasing demand for budget-friendly options and the sector’s ability to thrive in a shifting economic landscape.
Let’s examine the fundamentals of the above-mentioned stocks in detail:
Costco Wholesale Corporation (COST)
COST, along with its subsidiaries, engages in the operation of membership warehouses internationally. The company offers branded and private-label products in various merchandise categories, warehouse ancillary, and other businesses. It operates through three segments: United States Operations; Canadian Operations; and Other International Operations.
On August 9, the company paid its shareholders a quarterly dividend of $1.16 per share. With 19 years of consecutive dividend growth, COST pays an annual dividend of $4.64, which translates to a yield of 0.51% at the prevailing price levels. Its four-year average dividend yield is 1.65%. The company’s dividend payments have grown at a CAGR of 23% over the past three years and a 17.9% CAGR over the past five years.
COST’s trailing-12-month ROTC of 17.72% is 158.4% higher than the 6.86% industry average. Similarly, its 10.56% trailing-12-month ROTA is 144.4% higher than the industry average of 4.32%. Also, its trailing-12-month asset turnover ratio of 3.77x compares favorably to the industry average of 0.86x.
For the third quarter of 2024, which ended on May 12, COST’s total revenue increased 9.1% year-over-year to $58.52 billion, while its operating income stood at $2.20 billion, up 30.9% year-over-year. Its net income for the quarter amounted to $1.68 billion or $3.78 per share, representing an increase of 29% from the same period last year. Also, the company’s net cash flow from operating activities grew 14.1% from the year-ago value to $8.38 billion.
The consensus revenue estimate of $80.02 billion for the fiscal fourth quarter (ended August 2024) represents a 1.4% increase year-over-year. The consensus EPS estimate of $5.07 for the same quarter indicates a 4.4% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has surged 64.2%, closing the last trading session at $917.08.
COST’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
COST has a B grade for Momentum and Stability. It is ranked #28 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional ratings for COST (Growth, Value, Sentiment, and Quality).
Burlington Stores, Inc. (BURL)
BURL operates as a retailer of branded merchandise, providing fashion-focused merchandise that includes ready-to-wear apparel for women, menswear, youth apparel, footwear, accessories, toys, gifts, and beauty products.
BURL’s trailing-12-month gross profit margin and ROTC of 43.08% and 7.24% are 15.8% and 17.4% higher than their respective industry averages of 37.19% and 6.16%. Likewise, its trailing-12-month asset turnover ratio of 1.39x is 40% above the industry average of 0.99x.
BURL’s total revenue for the second quarter (ended August 3, 2024) increased 13.4% year-over-year to $2.47 billion. Its adjusted EBITDA grew 43.3% from the prior year’s quarter to $201.84 million. The company’s adjusted net income stood at $77.49 million, up 99.3% year-over-year, while its adjusted EPS doubled from the year-ago value to $1.20.
The company has updated its fiscal year 2024 outlook, and it now expects its total sales projection to range from 9% to 10% on top of the 10% increase for the 52 weeks ending January 27, 2024. Additionally, it expects adjusted EBIT to increase in the range of 50 bps to 70 bps. This guidance suggests the adjusted EPS to be between $7.66 and $7.96.
Analysts expect BURL’s revenue for the third quarter (ending October 2024) to grow 11.6% year-over-year to $2.56 billion, while its EPS for the same period is expected to increase 58% from the prior year to $1.55. Moreover, the company has topped the revenue and EPS estimates in three of the trailing four quarters, which is promising.
BURL shares have surged 98.8% over the past year and 41.8% over the past nine months to close the last trading session at $271.98.
BURL’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and Sentiment while a B for Momentum and Quality. Within the A-rated Fashion & Luxury industry, it is ranked #13 out of 59 stocks. Click here to see BURL’s ratings for Value and Stability.
PriceSmart, Inc. (PSMT)
PSMT owns and operates U.S.-style membership shopping warehouse clubs internationally. The company provides basic and private-label consumer products under the Member’s Selection brand, including groceries, health and beauty aids, electronics, and clothing. It also operates as an e-commerce platform.
The company pays an annual dividend of $1.16 per share, which translates to a yield of 1.28% on the current share price. Its four-year average yield is 1.22%. PSMT’s dividend payouts have grown at impressive CAGRs of 18.3% and 10.6% over the past three and five years, respectively.
The stock’s trailing-12-month ROTC of 9.97% is 45.4% higher than the industry average of 6.86%. Similarly, its 2.43x trailing-12-month asset turnover ratio is 183.4% above the industry average of 0.86x.
In the fiscal third quarter that ended on May 31, 2024, PSMT’s total revenues increased 12.1% year-over-year to $1.23 billion. The company reported an adjusted EBITDA of $71.04 million, indicating an 11.3% growth from the prior year quarter. PSMT’s net income came in at $32.49 million, up 9.9% year-over-year, while its adjusted net income per share grew 3.8% from the year-ago value to $1.08.
Street expects PSMT’s revenue for the fiscal fourth quarter (ended August 2024) to increase 8.9% year-over-year to $1.22 billion. Moreover, its EPS estimate of $1.02 for the same period indicates a 107.1% improvement year-over-year. In addition, it surpassed the revenue estimates in each of the trailing four quarters, which is promising.
Shares of PSMT have gained 19.4% over the past year to close the last trading session at $89.
PSMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, Stability, and Sentiment. Out of 37 stocks in the Grocery/Big Box Retailers industry, PSMT is ranked #9. Click here to see PSMT’s rating for Quality.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
COST shares were unchanged in premarket trading Tuesday. Year-to-date, COST has gained 39.56%, versus a 20.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
The post 3 Discount Retailers Positioned for Strong Gains appeared first on StockNews.com