An uncertain economy has kept consumers on a tight leash, making them spend each penny judiciously. This rationalization of expenses is expected to continue for the rest of the year as highlighted in a recent report, known as Empty Pockets Update, on U.S. consumers. It throws light on the fact that consumer spending will be slow during the year, driven by macro factors, rising unemployment and growing inventories in retail stores. This makes something really obvious to the eyes of a prudent investor an investment opportunity. Let’s understand it further.
The opportunities
In such a tough economic environment, discount retailers are expected to perform really well. Hence, we now know which industry to follow in the months to come. Next obvious question would be the prominent players who will drive the smiles of the industry investors. There is a list of performers who have been doing well, especially in these times of economic uncertainty. Let us take a look at them.
Dollar General (DG, Financial), which offers value deals to customers through its $1 items, attracted a lot of people to its stores, pushing up its recent quarter earnings by 36% and revenue by 13% over last year. Not only did the retailer perform well in a tough environment, it expanded its geographic presence, opening 128 stores in its recent quarter. Also, Dollar General raised its outlook for the year which definitely calls for a clap.
Kroger (KR, Financial) also did well recently with an earnings increase of 11.4%. What worked for Kroger is pretty simple to interpret. In circumstances where consumers are sensitive to price it provided discount vouchers to the loyal ones. This was a smart move since it increased visits to its stores, even though it hurt the grocer’s earnings. Even this player is not sitting idle with continuous efforts to perform well. It added the Express Scripts business to boost its pharmacy operations and launched snack chips for its eatery business. These things are going to be the boosters in future.
Dollar Tree (DLTR, Financial), which has added the perishable foods segment to its existing business with introduction of freezers in its stores, also looks good to go. Its recent quarter was decent enough with an earnings jump of 22% driven by higher customer footfall. This discount retailer also sells items for $1 and is planning to further expand its already growing stores. All these factors are expected to drive the company’s growth, helped by customers’ price sensitivity as well to a great extent.
Bottom line
All of the companies mentioned above are already performing well and are expected to continue to do so with the slowdown in consumer spending predicted for the year. Moreover, if you have invested in any of them, then you would know how fruitful these companies have been in the past. After the results by Dollar General a month back, its stock price increased 12.5%. Similarly, Kroger’s stock price increased 5.4%. Lastly, Dollar Tree gave the best returns of 13.8% to its investors after posting its quarterly results. With these results in mind, I think it’s the right time to take advantage of the companies’ growth momentum and jump onto them for adding more shine to your portfolio.
