Credit Suisse Goes Shopping For Discount Retail Winners

Analysts at Credit Suisse initiated coverage of discount retail stocks Tuesday.

The Analyst

Credit Suisse's Judah Frommer initiated coverage of the following stocks:

• Dollar Tree, Inc. DLTR: Outperform, $114 price target.
• Five Below Inc FIVE: Outperform, $88 price target.
• Ollie's Bargain Outlet Holdings Inc OLLI: Outperform, $68 price target.
• Dollar General Corp. DG: Neutral, $103 price target.
• Smart & Final Stores Inc SFS: Neutral, $5.50 price target.

Dollar Tree

• Dollar Tree's management is seeing traction in its multi-price point concept after buying and integrating Family Dollar
• While 2018 will prove to be an investment year, the longer-term margin opportunity is attractive.
• Dollar Tree is a "rare self-help story" within the retail segment, especially given its size of nearly 15,000 stores.

Five Below

• Five Below offers consumers a "highly differentiated treasure hunt" proposition with one of the quickest store return models in retail.
• A notable white space opportunity ahead will fuel growth for years to come, as more than 80 percent of sales growth comes from new stores.
• Upside potential could also be found in Five Below's new share repurchase program.

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Ollie's

• Ollie's business model of selling closeout merchandise is among one of the "few compelling reasons" left for consumers to enter a store.
• Upside to estimates from selling brand names for as much as 70 percent below competitors should continue in the near term.
• The closeout merchandise market is valued at around $60 billion, which implies "ample runway" for Ollie given its $1.1 billion in sales.

Dollar General

• New store openings are likely to slow after many years of "elevated' square footage growth and traffic-driving initiatives.
• Competition within the dollar store space among low-income customers has become "stiffer than ever."
• Opportunities for growth do exist as the core customer is "feeling better today," but there is no apparent silver bullet to reassure investors.

Smart & Final

• The company's core market of Southern California is "simply brutal," as the company is a "small fish in a big pond."
• The company is not succeeding in showing how its Smart & Final and Cash & Carry banners differentiate — and its relevance is "less clear than other names."
• A slowdown in square footage growth needs to be countered with market share gains, but this will be "difficult to execute."

Price Action

• Shares of Dollar Tree were up 1.67 percent at the close Wednesday at $100.52. 
• Shares of Five Below were down 1.03 percent at $76.06. 
• Shares of Ollie's Bargain Outlet were up 1.6 percent at $63.60. 
• Shares of Dollar General were up 0.31 percent at $100.18. 
• Shares of Smart & Final Stores were down 1.89 percent at $5.20. 

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