Can Any Discount Retailer Withstand Wal-Mart?

Jefferies picked up Wal-Mart Stores, Inc. WMT among four discount retailers within its coverage universe to receive a boost in expectations.

As far as Dollar General Corp. DG, Target Corporation TGT and Dollar Tree, Inc. DLTR are concerned, the firm has either slashed or maintained its expectations on same-store sales.

Wal-Mart

Analyst Daniel Binder boosted his Wal-Mart's SSS expectations from 1.5 percent to 1.7 percent in the United States for the third quarter. The analyst checks indicated continued sales momentum fueled by several other factors like price investments, store execution and continued e-commerce enhancements. This would boost gross margin and in relation EPS estimate from $0.94 to $0.96, which is within the forecast of $0.90–$1.00 offered by the retailer. He is not surprised by price cuts in electronics in the recent months.

Target

The brokerage thinks Target has established a low bar of SSS of zero to -2 percent apart from a $0.75–$0.95-wide EPS range guidance. The firm thinks the retailer could achieve zero to -1 percent SSS and maintained its EPS projection of $0.87, pointing out weaker sales trends and enough space to respond to Wal-Mart.

Dollar Tree

The analyst expects Dollar Tree to achieve SSS growth of 1 – 1.5 percent based on its checks. He maintained its SSS expectations of 1 percent and EPS projections of $0.72 and pointed out risk factors coming from expense inflation, price investment activity by rivals and systems and supply chain integration.

Dollar General

The brokerage slashed its sales and EPS estimates modestly based on field checks. While reducing SSS expectations from 1 percent to 0.5 percent, the firm reduced its EPS estimate from $0.97 to $0.93.

“We also saw DG doing some of its own price investment activity through absolute price cuts and percentage off promotions with a minimum spend (often 20 percent off). As we spoke to store managers about price competition the intensity increased in October and Walmart was primarily named as the source of this activity, but Family Dollar was mentioned as well,” the brokerage said in a note.