3 Discount Retailers That Cashed In on Holiday Season

A splendid holiday season has given retailers a reason to smile. Certainly, Americans were in the mood to spend, as retail sales during the November/December period increased 5.5% to $691.9 billion, per National Retail Federation. Bullish stock market, improved job prospects, upbeat consumer sentiment and modest inflation were enough to trigger consumer spending.

Our today's article revolves around three discount store retailers - Target TGT , Costco COST and PriceSmart PSMT . Promising holiday sales numbers have not only helped the retail-discount industry to rally approximately 20% in three months but also outpace the S&P 500's growth of roughly 10%. We noted that the industry occupies a space in the top 20% of the Zacks classified industries (52 out of the 256). Further, the broader Retail-Wholesale sector of which they are part of is also placed at top 13% of the Zacks classified sectors (2 out of 16).

From the above, it is quite apparent that the near-term outlook for the industry looks favorable. Let's take a closer look at the performances of the three discount retailers.

Target Posts Solid Holiday Comps

Target joined the bandwagon of retailers that have witnessed strong holiday season sales. Comparable sales for this general merchandise retailer rose 3.4% in the combined November/December period buoyed by healthy store comps, robust traffic and sturdy digital sales. The solid holiday numbers allowed management to lift the view.

Target now anticipates digital sales to increase more than 25% for the fourth straight year in fiscal 2017. The company now projects fourth-quarter fiscal 2017 adjusted earnings in the band of $1.30-$1.40 compared with the prior range of $1.05-$1.25. For the fiscal year, management now forecasts adjusted earnings between $4.64 and $4.74 per share, up from the previous guidance of $4.40-$4.60.

Further, Target now envisions comparable sales to increase approximately 3.4% during the fourth quarter with the full year expected to be just over 1%. Taking into account the 53rd week, Target anticipates total sales to increase more than 9% in the final quarter.

Target is trying all means to rapidly adapt to the changes in the retail ecosystem, which is more inclined toward digitalization. Initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores bode well for this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today's Zacks #1 Rank stocks here .

Costco Unveils Healthy Comps

Costco seems somewhat unfazed by tough retail scenario, comprising soft traffic and inclination toward online shopping. It continued with its solid comparable-store sales trend in the month of November as well December, which is the most crucial part of the year for retailers. Comparable-store sales rose 10.8% and 11.5% during November and December period, respectively. Meanwhile, comparable e-commerce sales for the respective months surged 39% and 33.3%.

We believe that this Zacks Rank #3 (Hold) company's growth strategies, sturdy comparable-store sales (comps) performance, strong membership trends and higher penetration of Citi Visa co-brand card program are the pillars that reinforce its position. Moreover, analysts believe that Costco is likely to gain from Wal-Mart's WMT latest decision to shut 63 of 660 Sam's Club outlets in the United States over the next few weeks.

PriceSmart Witnesses Comps Growth

PriceSmart, which owns and operates membership shopping warehouse clubs, registered net sales increase of 6.4% and 4.9% in the months of November and December, respectively. This San Diego, CA-based company's comparable warehouse sales jumped 2.7% and 6.4% during the said periods, respectively.

The company also recently came out with first-quarter fiscal 2018 results, wherein earnings of 74 cents missed the Zacks Consensus Estimate of 82 cents and declined roughly 10% from the year-ago period. However, the top line of this Zacks Rank #2 (Buy) company came in line with the consensus mark. The company reported total revenue of $767.1 million, reflecting an increase of 3.7% year over year.

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Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report

Target Corporation (TGT): Free Stock Analysis Report

Costco Wholesale Corporation (COST): Free Stock Analysis Report

PriceSmart, Inc. (PSMT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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