Discounting isn’t dead. Retailers just need to do a better job of selling the markdowns.
Adjusted earnings of $0.11 a share easily landed ahead of the pros parked at their forecast of $0.09 a share.
The report is impressive enough on its own, but it takes on a little extra charm when you consider how many of the leading discounters have been faring this summer.
- Wal-Mart Stores, Inc. (NYSE:WMT) saw its domestic comps decline 0.3% in its latest quarter. It blamed a lack of inflation, but store traffic still declined 0.5% during the period. Wal-Mart Stores, Inc. (NYSE:WMT) also singled out the end of the federal payroll tax stimulus that was giving employees a 2% tax break through the end of 2012.
- Wal-Mart Stores, Inc. (NYSE:WMT) rival Target Corporation (NYSE:TGT) also had a soft quarter. Comps were positive — up 1.2% for the quarter — but that was softer than the cheap chic discounter was expecting. Target Corporation (NYSE:TGT) went on to lower its outlook for the entire fiscal year.
- Closeouts and clearance specialist Big Lots, Inc. (NYSE:BIG) may have seen its share move higher after posting better-than-expected earnings growth two weeks ago, but where are the shoppers? Consolidated comparable-store sales tumbled 1.9% at Big Lots, Inc. (NYSE:BIG) for the quarter.
Why is Five Below Inc (NASDAQ:FIVE) doing what larger discounters have failed to do this summer?
The answer can be found in exploring its concept. True to its moniker, Five Below Inc (NASDAQ:FIVE) sells a wide variety of products for $5 or less. Dollar stores carry largely useless junk, but Five Below stocks stylish items that teens and young adults aren’t embarrassed to buy. A fiver isn’t going to get you a Kors handbag or some Ugg boots, but youngsters with limited funds value the ability to stretch their disposable income through Five Below’s ever-changing assortment of apparel, home decor, and accessories.
Is Wal-Mart Stores, Inc. (NYSE:WMT) jealous? On the surface, it can’t be. Wal-Mart claims to have 60% of the country shopping at its stores in any given month. It will generate more than 900 times the sales this fiscal year that Five Below will ring up. Wal-Mart is a global juggernaut as the world’s largest retailer. Five Below has just 276 stores in unassuming strip malls where the rent is cheap.
However, deep down inside, Wal-Mart Stores, Inc. (NYSE:WMT) has to be envious of the growth. It will never post 35% sales growth. Unlike Target offering up soft guidance a few weeks ago, Five Below is pushing its targets higher.
Sure, Five Below isn’t cheap. It was fetching 38 times next year’s profit target, and that was before the shares moved higher on its blowout report. Then again, those are the premiums that the fast and nimble command on Wall Street. Wal-Mart Stores, Inc. (NYSE:WMT) won’t admit it, but it has to be a little jealous.
The article Wal-Mart Is Jealous of This Retailer originally appeared on Fool.com is written by Rick Munarriz.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Big Lots.
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