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Buy Discount Retail Stocks After Dollar Tree's (DLTR) Strong Q3 Earnings?

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Shares of Dollar Tree (DLTR - Free Report) jumped over 5.5% Thursday after the discount retailer posted better-than-excepted earnings results. Now the question is should investors think about buying Dollar General (DG - Free Report) and Five Below (FIVE - Free Report) stock before they report their quarterly earnings next week?

Dollar Tree

Dollar Tree’s adjusted quarterly earnings surged nearly 17% to reach $1.18 per share, which topped our Zacks Consensus Estimate of $1.15 a share. Meanwhile, the company’s revenues jumped 4.2% to $5.54 billion. This did fall short of our consensus estimate, but the company’s Dollar Tree segment saw its same-store sales pop 2.3%.

DLTR stock climbed 5.52% through morning trading Thursday to hit $87.92 per share. It is, however, worth noting that the company’s Family Dollar segment’s comp sales slipped by 0.4%. Dollar Tree has closed 195 Family Dollar stores and converted 354 others into Dollar Tree location since it purchased the chain over three years ago for nearly $9 billion in cash and stock.

Quick Retail Overview

In general, the third quarter has been strong for retailers, with giants Walmart (WMT - Free Report) , Target (TGT - Free Report) , and Macy’s (M - Free Report) proving once again they can adapt to the Amazon (AMZN - Free Report) driven retail age. At this point, roughly 90% of the S&P 500’s retail sector has reported quarterly earnings, or 34 of the 38 members. Total earnings for these retailers jumped 27.1% from the year-ago quarter on 6.8% higher revenues.

The chart below helps us understand how the discount retail stocks we are looking at have performed this year.

 

Dollar General

We can see that Dollar General stock has climbed roughly 20% since the start of the year. This outpaced its industry’s average and blows away the S&P’s roughly 2.6% climb. Unlike, Dollar Tree, which sells everything for $1 mostly in suburban locations, Dollar General operates primarily in rural locations with various discounted price points.

Looking ahead, Dollar General is projected to see its Q3 revenues jump 8.2% to reach $6.39 billion, based on our Zacks Consensus Estimate. Plus, the company’s same-store sales are expected to pop 2.45%, based on our NFM estimates. Meanwhile, the company’s full-year revenues are expected to reach $25.57 billion, which would mark a roughly 9% climb from fiscal 2017.

At the bottom end of the income statement, DG’s adjusted quarterly earnings are projected to soar 28.6% to reach $1.26 per share. The company’s full-year earnings are expected to surge nearly 36%.

DG is currently a Zacks Rank #3 (Hold) that sports an “A” grade for Growth in our Style Scores system. Shares of Dollar General closed Wednesday at $110.36 per share, down 7% from their 52-week high. Dollar General is scheduled to report its Q3 financial results before the market opens on Tuesday, December 4.

Five Below

From the chart above we can see that FIVE stock has outperformed some of its discount retail peers in a big way recently, with its shares up over 56% this year. Five Below is different from Dollar General and its every-day item approach as it sells toys, sports equipment, decorations, and other items for $5 and under.   

The company could be poised to keep its 2018 momentum going with its Q3 revenues projected to surge 18% to $303.54 million. Furthermore, Five Below’s full-year revenues are expected to jump 20.7%.

FIVE’s adjusted quarterly earnings are only projected to jump 5.6%, but its full-year earnings are expected to soar nearly 45%.

Five Below is also currently a Zacks Rank #3 (Hold). The company is set to report its financial results for the third quarter after the market closes on Wednesday, December 5.

If none of these stocks sound right at the moment, investors interested in the retail sector might instead consider Burlington Stores (BURL - Free Report) , Canada Goose (GOOS - Free Report) , Shoe Carnival (SCVL - Free Report) , and Fossil Group (FOSL - Free Report) , which are all currently Zacks Rank #1 (Strong Buy) or #2 (Buy) stocks.

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