Two of the Safest Retailer Stocks to Consider with Inflation

Aug 09, 2022
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With inflation through the roof, retailers are struggling.

All we have to do is look at the earnings disasters from Walmart and Target for proof.

Target posted adjusted EPS of $2.19 a share, which fell short of expectations for $3.07. Revenue of $24.48 billion did manage to beat expectations for $24.49 billion, though. Worse, according to The Wall Street Journal, “Target management said fuel and freight costs will be $1 billion higher this year than it had expected, with little sign of their easing throughout 2022.”

The company added that it expects to see low to mid-single digit revenue growth in 2022. It also expects for income margins to come in around 6%, instead of 8%.

Walmart made a mess, too.

Adjusted EPS of $1.30 came in short of expectations for $1.48. However, sales did jump to $141.6 billion, which was above estimates for $138.8 billion. “Bottom-line results were unexpected and reflect the unusual environment,” said CEO Doug McMillon, as quoted by Barron’s. “U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected.”

Both may continue to struggle, with many consumers forced to buy the necessities.

In fact, as noted by Barron’s, “The big-box stores cautioned that shoppers had rapidly shifted away from pandemic-popular categories—think clothing, home goods, and electronics—in favor of essentials, prompting hefty, margin-crunching discounts to move overstocked merchandise. That warning triggered selloffs across the industry, including dollar stores, which cater to lower-income consumers who are hurting the most from inflation.”

That’s great news for dollar stores, like Dollar General (DG) and Dollar Tree (DLTR).

That’s also why, since May, Dollar General exploded from about $185 to $253. Dollar Tree popped from about $125 to $165.

Both could run even higher until we begin to see inflation cool off.