Earnings Reveal the Power of Bargain Hunting

The retail landscape is telling us a fascinating story about American consumers and the economy right now. Discount retailers are absolutely crushing it as value-hungry shoppers flock to bargains. Five Below posted a jaw-dropping 50% jump in earnings per share alongside 24% revenue growth, while Burlington, Ollie's, and Dollar General all delivered impressive financial results that outpaced broader market expectations.

Meanwhile, the beauty segment reveals what might be called "affluent value" driving success. Ulta Beauty managed 9% sales growth to $2.8 billion with same-store sales up 7%, reversing previous negative trends despite fierce competition from Amazon, Sephora, and social commerce platforms. Their strategy of bridging luxury and everyday value while maintaining a cohesive omnichannel presence clearly resonates with today's beauty consumer.

The big box and mass retail picture is more complex. Walmart posted strong revenue but saw net income plummet 43% as tariffs, inflation, and import costs squeezed profits. Best Buy exceeded expectations with modest same-store sales growth but offered no upward guidance. Gap surprised with better-than-expected earnings despite underwhelming comparable sales. The common thread? Consumers remain cost-conscious but actively spending, strategically placing their dollars where they perceive the best value. Retailers with successful omnichannel strategies are gaining advantage, but profitability faces intense pressure even as revenues grow. Looking ahead, Wall Street is focused less on top-line numbers and more on earnings potential in light of ongoing tariff and trade policy pressures. The second half of the year promises to be especially revealing about the direction of American retail.

Whether you're a retail professional, investor, or simply curious about where the economy is headed, these earnings insights provide valuable signals about consumer behavior and the retail strategies that are winning in today's challenging landscape. Subscribe to Scott's Thoughts for more expert analysis on the trends shaping business and commerce.

Episode Transcript

Speaker 1 (00:08):
Well, hello everyone, welcome to Scott's Thoughts.
I'm Scott Benedict.
One of the things I've beenthinking about recently is some
of the key insights that can begleaned about the state of US
retail from a series of recentretailer quarterly earnings
reports, and I thought thosereports reveal a lot about the

(00:28):
state of US retail and I want toshare some thoughts on that.
First of all, in discountretail, momentum and really the
benefit of consumers looking forvalue is certainly very real
and manifesting itself inearnings reports.
Companies like Five BelowBurlington's, ollie's, bargain

(00:52):
Outlet, dollar General are allreally kind of lighting up the
scoreboard with their quarterlyearnings report.
A couple examples Five Belowposted a 50% jump in earnings
per share and a 24% revenuegrowth in the most recent
quarter.
Burlington similar hugeincreases both in earnings and
in sales.
Ollie's and Dollar General bothhad really solid improvement in

(01:16):
earnings per share as well astop line sales, and what I think
this tells us is thatvalue-driven retail is thriving
and consumers are really leaninginto bargain hunting and making
those off-price retail playersoutperform the broader market.
In the case of the beautysegment, something I call

(01:40):
affluent value is reallymanifesting itself in the way
players like Ulta Beauty areplaying out.
Their sales were up 9% yearover year to over $2.8 billion
and their same store sales wereup 7%, reverse a trend that had
been a little bit negative theyear before.

(02:00):
Earnings per share beatconsensus analysts' reports and
they actually raised theirfull-year guidance up from their
prior direction to the streetand their gross margin rate also
improved.
And so clearly a player likeUlta is bridging luxury and

(02:22):
everyday value and reallycapturing the broader beauty
audience that has navigated alot of competitive pressures or
force from the work of Amazon,sephora and what's happening
online in things like TikTokshop, and so their cohesive
omni-channel strategy is reallyshowing that it's resonating.

(02:44):
In the big box side of thebusiness, players like Best Buy
did better than expected.
Their same store sales were up1.6%, one of the best
performances for them since thepandemic.
But their stock dipped a littlebit after this most recent
earnings report because theygave no upward guidance looking

(03:04):
forward into the future.
Gap kind of surprised thestreet with their performance.
They had a 57 cent earning pershare performance versus what
was estimated to be about 55cents a share.
Their same store sales wereonly up 1% and the street had
expected 2%.
But really what it feels likethey're doing, is that they

(03:28):
weren't as negatively impactedby what's happening in the
marketplace.
So it's a relative victory, butthey're still struggling a
little bit.
Some of the bigger Wall Streetgiants, the giants of retail
here locally, walmart posted areally strong second quarter
revenue number $177 billion,plus beating estimates, but

(03:54):
earnings were below where thestreet had expected Same store
sales, e-commerce sales, growth,advertising revenue all looking
up, but margins andprofitability took a bit of a
hit.
Net income dropped about 43%and the impact of tariffs on

(04:14):
inflation and import costsreally squeezed profits.
Looking forward, walmart saidthat they were raising their
revenue projection for thebalance of the year, but they
did not raise their profitprojection.
So you take all this and patchit all together and here's a
couple of thoughts about wherethe consumer is.

(04:35):
First of all, the consumer iscost conscious right now, but
they're not silent.
They are placing their bets andplacing their dollars where
they think they are getting thebest value.
Bargain hunters they're notsilent and retailers that serve
bargain hunters are really doingwell.
At the same time, even thoughrevenue has been relatively good
, margins are under siege.

(04:56):
Profitability is under siegeBoth.
The impact of tariffs andinflation is really looming
large in a lot of retailers andso, while there may be great
signs in top line revenue,earnings for these retailers are
really under pressure.
The smart pivot to Omni Channelis paying off for a lot of
retailers, momart being one,ulta being another great example

(05:20):
and really being presentwherever, whenever and how the
consumer wants to shop.
Those retailers that embrace itand have done well.
And really one of the otherthings that the street is
expecting out of these retailersis they're really looking at
signs for what retailers sayabout their earnings outlook for
the balance of this year andinto next, and so they want to

(05:43):
know not just revenue growth,but they don't assume that with
revenue growth comesprofitability growth in light of
what's happening with tariffand trade policies.
So that's some of the majorinsights coming out of the last
wave of retailer earningsreports, and I'm really thinking
it will foretell us a veryinteresting back half of this

(06:05):
year and outlook into the nextpart of the next year.
So we'll all be watching.
That's what I've been thinkingabout.
I'm Scott Benedict.