5 retail stocks that can shine in a downturn

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A customer browses gift wrapping supplies from a Dollar Tree store in Louisville, Ky.

Luke Sharrett/Bloomberg

Same-store sales are key for retailers, but many investors fear they will plummet in 2022 as 2021, a strong year for the industry, gave them a huge boost. Analysts raised their estimates for the key metric for just five companies in the past month.

Although definitions vary from company to company, comparable store sales or comparable sales generally measure the change in revenue for stores that have been open for more than one year. It’s useful because it shows the performance of existing stores – a business’s sales may increase if it adds new stores, but expansion may not be positive if customers don’t return over time.

Concerns about customers’ willingness to spend are high at the moment. Many investors worry that retailers will struggle to match the big sales gains they have made during the pandemic. Consumers are no longer receiving government stimulus checks and their entertainment options have expanded. Now that people can go to restaurants or see shows, they will have less money for shopping, the argument goes.

Additionally, the past month has brought a lot of important news. Not only have the big names in retail from all walks of life announced the results of the crucial holiday quarter, but gasoline prices have skyrocketed since Russia’s invasion of Ukraine, reducing the power of consumer purchases at a time when inflation is already at 10-year highs.

It is therefore not surprising that, on average, analysts have revised down their estimates of comparable store sales for the full year. The estimate for the entire industry, as tracked by


set of facts
,

had fallen to 5.1% growth on Thursday against 16.5% a month earlier.

Five companies bucked the trend. Analysts’ full-year comparable store sales estimates for


dollar tree

(symbol: DLTR),


General dollar

(DG),


Auto area

(AZO), Advance Auto Parts (AAP) and


O’Reilly Automotive

(ORLY) are up over the past month.

Company / Symbol Recent Price Latest SSS estimate
Dollar Tree / DLTR $157.17 4.00%
General Dollar / DG 229.63 2.50
Auto Zone / AZO 1,952.75 6.50
Advanced Auto Parts / AAP 206.34 2.00
O’Reilly Automotive / ORLY 689.98 5.70

Note: Forecasts are for the full year.

Source: FactSet

Dollar stores saw the greatest improvement. Analysts are growing more bullish on Dollar Tree as the company reorganizes its board of directors in response to pressure from an activist investor. At least two analysts have upgraded their ratings on Dollar Tree to the news, and the consensus is now calling for same-store sales to rise 4% this year, up from a previous estimate of 1% growth.

Either way, consumers tend to turn to discounters when pinching pennies, and Dollar General (DG) was bullish on its outlook when it reported strong fourth-quarter results this week. The Street now expects Dollar General to post same-store sales growth of 2.5%, when it previously forecast a decline.

Analysts also raised their estimates of comparable sales at the three auto parts retailers. All three are expected to achieve comparable store sales growth this year.

This may seem counterintuitive, given that higher gas prices cause people to drive less, which reduces wear and tear on cars. Some analysts may be betting that a vehicle shortage and economic uncertainty are pushing consumers to hold on to their cars longer, especially as more and more workers are commuting again, at least some of the time. . The group’s latest quarterly results are quite solid.

Write to Teresa Rivas at teresa.rivas@barrons.com

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