Wrapping up Q2 earnings, we look at the numbers and key takeaways for the non-discretionary retail stocks, including Sprouts (NASDAQ: SFM) and its peers.
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 strong Q2. As a group, revenues beat analysts’ consensus estimates by 0.6% while next quarter’s revenue guidance was in line.
While some non-discretionary retail stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 4.6% since the latest earnings results.
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 $2.22 billion, up 17.3% year on year. This print exceeded analysts’ expectations by 2.3%. Overall, it was an exceptional quarter for the company with an impressive beat of analysts’ EBITDA estimates and full-year EPS guidance beating analysts’ expectations.
"We are pleased with our excellent results for the second quarter," said Jack Sinclair, chief executive officer of Sprouts Farmers Market.
Sprouts achieved the biggest analyst estimates beat and fastest revenue growth of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 20.3% since reporting and currently trades at $125.97.
We think Sprouts is a good business, but is it a buy today? Read our full report here, it’s free.
Best Q2: Dollar General (NYSE: DG)
Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Dollar General reported revenues of $10.73 billion, up 5.1% year on year, outperforming analysts’ expectations by 0.5%. The business had an exceptional quarter with a solid beat of analysts’ EBITDA estimates and full-year EPS guidance exceeding analysts’ expectations.
Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 6.1% since reporting. It currently trades at $104.50.
Is now the time to buy Dollar General? Access our full analysis of the earnings results here, it’s free.
Weakest Q2: BJ's (NYSE: BJ)
Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE: BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.
BJ's reported revenues of $5.38 billion, up 3.4% year on year, falling short of analysts’ expectations by 1.9%. It was a slower quarter as it posted full-year EPS guidance slightly missing analysts’ expectations.
BJ's delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 5.9% since the results and currently trades at $99.90.
Read our full analysis of BJ’s results here.
Walmart (NYSE: WMT)
Known for its large-format Supercenters, Walmart (NYSE: WMT) is a retail pioneer that serves a budget-conscious consumer who is looking for a wide range of products under one roof.
Walmart reported revenues of $177.4 billion, up 4.8% year on year. This result beat analysts’ expectations by 0.8%. However, it was a slower quarter as it recorded a significant miss of analysts’ EBITDA estimates and full-year EPS guidance missing analysts’ expectations.
The stock is flat since reporting and currently trades at $103.42.
Read our full, actionable report on Walmart here, it’s free.
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 $25.21 billion, flat year on year. This print surpassed analysts’ expectations by 1.3%. Zooming out, it was a mixed quarter as it also produced full-year EPS guidance exceeding analysts’ expectations but a significant miss of analysts’ EBITDA estimates.
Target had the slowest revenue growth among its peers. The stock is down 14.8% since reporting and currently trades at $89.78.
Read our full, actionable report on Target here, it’s free.
Market Update
In response to the Fed’s rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed’s 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 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.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
