Will these discount retail stocks benefit from Americans’ summer cost cutting?

Will these discount retail stocks benefit from Americans’ summer cost cutting?

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Americans are sticking to their budgets this summer, which could be great news for discount retail stocks.

Consumer confidence may be nearing this year's high, but a new Gallup poll reveals Americans are watching their spending habits. Within the last four weeks, 83% of respondents had purchased generic or store brand goods, 61% had shopped at multiple stores to obtain the best deal, 58% used coupons while shopping, and 55% stuck to a strict budget. 

The poll results reflect the ongoing, tepid growth in US consumer spending. After reaching a four-and-a-half-year high of 1% growth in March, personal spending fell 0.1% in April, marking the first decline of household purchases in a year. Surprisingly, the Bloomberg Consumer Comfort Index reached its 2014 high of 37.9 in April. Spending picked up in May, rising a modest 0.2%. The Commerce Department will release its June figures this month. 

Not all Americans are intent on saving money, however, with 58% of the poll respondents saying they had bought more than they intended when shopping. Nevertheless, the slow growth in consumer spending coupled with the poll results suggest that many Americans remain particularly budget-conscious these days.

We ran a screen with the cost-cutting consumer in mind. To begin, we created a group of US retail stocks that sell discounted or used goods, pulling our stocks from the following industries: catalog & mail order houses; discount, variety stores; and specialty retail, other. Then we screened that group for stocks with rising diluted normalized earnings per share (EPS) for the past three consecutive years.

EPS is the amount of profit given to each outstanding share of a company's common stock, and diluted normalized EPS factors in convertible securities that could be exercised and reduce the company's net income. As a result, diluted normalized EPS tends to be lower and more conservative than regular EPS. We used diluted normalized earnings because they provide a better picture of a company's financial health.

We were left with five discount retail stocks on our list. Do you think Americans' cost-saving measures will lead to another year of rising profits? Use this list as a starting point for your own analysis, and let us know what you think in the comments.

Click on the interactive chart to view data over time. 

1. Costco Wholesale Corporation (COST, Earnings, Analysts, Financials): Operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. Market cap at $51.75B, most recent closing price at $117.59.

Diluted normalized EPS increased from 2.94 to 3.31 during the first time interval (52 weeks ending 2011-08-28 vs. 52 weeks ending 2010-08-29).

For the second time interval, diluted normalized EPS increased from 3.31 to 3.89 (53 weeks ending 2012-09-02 vs. 52 weeks ending 2011-08-28).

And for the last time interval, the EPS increased from 3.89 to 4.63 (52 weeks ending 2013-09-01 vs. 53 weeks ending 2012-09-02).

 

2. Dollar General Corporation (DG, Earnings, Analysts, Financials): Operates as a discount retailer of general merchandise in the southern, southwestern, midwestern, and eastern United States. Market cap at $17.03B, most recent closing price at $55.82.

Diluted normalized EPS increased from 1.82 to 2.36 during the first time interval (52 weeks ending 2012-02-03 vs. 52 weeks ending 2011-01-28).

For the second time interval, diluted normalized EPS increased from 2.36 to 2.91 (52 weeks ending 2013-02-01 vs. 52 weeks ending 2012-02-03).

And for the last time interval, the EPS increased from 2.91 to 3.17 (52 weeks ending 2014-01-31 vs. 52 weeks ending 2013-02-01).

 

3. Dollar Tree, Inc. (DLTR, Earnings, Analysts, Financials): Operates discount variety stores in the United States and Canada. Market cap at $11.40B, most recent closing price at $54.46.

Diluted normalized EPS increased from 1.55 to 2.02 during the first time interval (52 weeks ending 2012-01-28 vs. 52 weeks ending 2011-01-29).

For the second time interval, diluted normalized EPS increased from 2.02 to 2.69 (53 weeks ending 2013-02-02 vs. 52 weeks ending 2012-01-28).

And for the last time interval, the EPS increased from 2.69 to 2.72 (52 weeks ending 2014-02-01 vs. 53 weeks ending 2013-02-02).

 

4. Family Dollar Stores Inc. (FDO, Earnings, Analysts, Financials): Operates a chain of self-service retail discount stores primarily for low and middle income consumers in the United States. Market cap at $6.96B, most recent closing price at $60.38.

Diluted normalized EPS increased from 2.62 to 3.12 during the first time interval (52 weeks ending 2011-08-27 vs. 52 weeks ending 2010-08-28).

For the second time interval, diluted normalized EPS increased from 3.12 to 3.64 (52 weeks ending 2012-08-25 vs. 52 weeks ending 2011-08-27).

And for the last time interval, the EPS increased from 3.64 to 3.86 (53 weeks ending 2013-08-31 vs. 52 weeks ending 2012-08-25).

 

5. The TJX Companies, Inc. (TJX, Earnings, Analysts, Financials): Operates as an off-price apparel and home fashions retailer in the United States and internationally. Market cap at $37.45B, most recent closing price at $53.10.

Diluted normalized EPS increased from 1.65 to 1.93 during the first time interval (52 weeks ending 2012-01-28 vs. 52 weeks ending 2011-01-29).

For the second time interval, diluted normalized EPS increased from 1.93 to 2.55 (53 weeks ending 2013-02-02 vs. 52 weeks ending 2012-01-28).

And for the last time interval, the EPS increased from 2.55 to 2.94 (53 weeks ending 2014-02-01 vs. 53 weeks ending 2013-02-02).

(List compiled by Mary-Lynn Cesar. EPS data sourced from Fidelity. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from finviz.)

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