Non-Discretionary Retail Stocks Q2 Teardown: Grocery Outlet (NASDAQ:GO) Vs The Rest

Let’s dig into the relative performance of Grocery Outlet (NASDAQ:GO) and its peers as we unravel the now-completed Q2 non-discretionary retail earnings season.

Food is non-discretionary because it's essential for life (maybe not those Oreos?), so consumers naturally need a place to buy it. Selling food is a notoriously tough business, however, as the costs of procuring and transporting oftentimes perishable products and operating stores fit to sell those products can be high. Competition is also fierce because the alternatives are numerous. While online competition threatens all of retail, grocery is one of the least penetrated because of the nature of the product. Still, we could be one startup or innovation away from a paradigm shift.

The 8 non-discretionary retail stocks we track reported a satisfactory Q2. As a group, revenues beat analysts’ consensus estimates by 0.8% while next quarter’s revenue guidance was 1.1% below.

Stocks, especially growth stocks with cash flows further into the future, had a good end of 2023. On the other hand, this year has seen more volatile stock market swings due to mixed inflation data. However, non-discretionary retail stocks have held steady amidst all this with average share prices relatively unchanged since the latest earnings results.

Grocery Outlet (NASDAQ:GO)

Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.

Grocery Outlet reported revenues of $1.13 billion, up 11.7% year on year. This print exceeded analysts’ expectations by 2.4%. Overall, it was a strong quarter for the company with an impressive beat of analysts’ earnings estimates and a solid beat of analysts’ gross margin estimates.

"We are pleased with our second quarter performance with gross margins and earnings coming in better than our expectations," said RJ Sheedy, President and CEO of Grocery Outlet.

Grocery Outlet pulled off the highest full-year guidance raise of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 9.6% since reporting and currently trades at $16.75.

Is now the time to buy Grocery Outlet? Access our full analysis of the earnings results here, it’s free.

Best Q2: Sprouts (NASDAQ:SFM)

Playing on the secular trend of healthier living, Sprouts Farmers Market (NASDAQ:SFM) is a grocery store chain emphasizing natural and organic products.

Sprouts reported revenues of $1.89 billion, up 11.9% year on year, outperforming analysts’ expectations by 3.2%. The business had a very strong quarter with optimistic earnings guidance for the full year and a solid beat of analysts’ earnings estimates.

Sprouts scored the biggest analyst estimates beat and fastest revenue growth among its peers. The market seems happy with the results as the stock is up 22.8% since reporting. It currently trades at $103.95.

Is now the time to buy Sprouts? Access our full analysis of the earnings results here, it’s free.

Weakest Q2: Dollar General (NYSE:DG)

Appealing to the budget-conscious consumer, Dollar General (NYSE:DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.

Dollar General reported revenues of $10.21 billion, up 4.2% year on year, falling short of analysts’ expectations by 1.5%. It was a softer quarter as it posted underwhelming earnings guidance for the full year and a miss of analysts’ gross margin estimates.

Dollar General delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 31.2% since the results and currently trades at $85.17.

Read our full analysis of Dollar General’s results here.

Target (NYSE:TGT)

With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.

Target reported revenues of $25.45 billion, up 2.7% year on year. This print was in line with analysts’ expectations. It was a very strong quarter as it also produced an impressive beat of analysts’ gross margin estimates and a solid beat of analysts’ earnings estimates.

The stock is up 5.1% since reporting and currently trades at $151.83.

Read our full, actionable report on Target here, it’s free.

Dollar Tree (NASDAQ:DLTR)

A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ:DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.

Dollar Tree reported revenues of $7.38 billion, flat year on year. This result lagged analysts' expectations by 1.4%. It was a slower quarter as it also recorded a miss of analysts’ earnings estimates.

Dollar Tree had the slowest revenue growth and weakest full-year guidance update among its peers. The stock is down 14.6% since reporting and currently trades at $69.68.

Read our full, actionable report on Dollar Tree here, it’s free.

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