The Retailers Strike Back: Much-Maligned Sector Shows Signs Of Life

Doomsday proponents have sounded the death knell for the retail sector, as they get crushed under the weight of big daddy Amazon.com, Inc. AMZN. Unable to stand up against the competition posed by the online retailer, brick-and-mortar retailers have been left bleeding on their bottom line, thanks to dwindling sales.

The current retail earnings season was no exception. Department stores, the worst subsector among the retail sector, fared badly, with most reporting comp declines.

Earnings Season Underway

Meanwhile, discount retailers put up a good show. Here is a summary of earnings reports of these budget retailers:

• Off-price retailer TJX Companies Inc TJX reported strong second-quarter results and raised its full-year guidance.
• In late May, Costco Wholesale Corporation COST reported forecast-beating fiscal third-quarter earnings and positive comps. However, revenues trailed estimates.
• Ross Stores, Inc. ROST's reported 4-percent comp growth in its second quarter. The retailer also grew its top and bottom line — a rarity within the sector in recent times.
• Wal-Mart Stores Inc WMT's second-quarter adjusted earnings per share beat estimates by a penny, although revenues were shy of estimates. Its U.S. same-store sales were up for the 12th straight quarter.
• All the three key metrics, namely sales, earnings and comps of rival Target Corporation TGT exceeded expectations.

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• Discount chain Burlington Stores Inc BURL shares were rallying strongly Thursday after it reported second-quarter adjusted earnings per share of 72 cents, ahead of the 51-cent consensus estimate. Sales were 8.6 percent higher at $1.363 billion, ahead of the Street forecast of $1.349 billion, with the top-line performance coming on the back of 3.5-percent comps. The company raised its full year guidance and issued third-quarter guidance, both of which were above the consensus estimates.
• Meanwhile, dollar store Dollar Tree, Inc. DLTR shares have soared after reporting second-quarter earnings of 98 cents per share on sales of $5.28 billion, up 5.7 percent. Analysts, on average, were expecting earnings of 72 cents per share on sales of $5.24 billion. Dollar Tree issued in line earnings per share and sales guidance for the third quarter and full year.
• Though not belonging to the same category, apparel retailer Gap Inc GPS, which has a namesake brand as well as the Banana Republic and Old Navy brands, topped expectations and also raised its earnings guidance for the full year.
• Discount retailer Big Lots, Inc. BIG released its quarterly results Friday. Big Lots reported Q2 EPS of 67 cents versus the 62-cent estimate on sales of $1.22 billion versus the $1.21 billion estimate.

What's Behind The Sparkle Of Discounters

Consumers are enamored with the value proposition, especially during uncertain economic times. The U.S. economy is seeing sub-par growth. Policy paralysis in the wake of squabbling between the Republicans and the Democrats is threatening even this anemic growth.

These stores are also benefiting from them being one-stop shops for all purchases, offering an assortment of items, ranging from high-end to budget buys, which makes shopping a seamless experience.