Dollar store results for the 2H are coming in strong despite pressure on the lower-end consumer. The outperformance is the result of strong execution on Retail 101 fundamentals by new management teams. Tariff cost pass-throughs, better in-stocks, and better assortments are driving the comp-ticket. Improved store standards, consumer trade down, and increased social media marketing are driving comp-traffic. Despite the widely reported pull-back in spending by the less-affluent during the September – November period, for FQ3, the dollar stores reported comps in line with expectations, resulting in consistent 2-year trends, save Five Below, which again, reported blow out results; that stems from selling purely discretionary merchandise driven by a rocket-fueled toy / merchandise trend of Lilo & Stitch, K-Pop Demons, and SpongeBob.

· Black Friday Weekend traffic was softer YoY due to adverse weather, a softer weekend box office, aggressive online promotions, and potentially a strong Saturday college football schedule that kept folks on their couches for the day. (They sprang into shopping malls on Sunday). · The trends align with what we said about September (and likely October) retail sales. This suggests that the Christmas season is likely to be good, but not gangbusters like 2024’s.

September core retail sales growth, per the Census Bureau’s monthly report , accelerated from the prior three-month trend, with strength coming from more affluent consumers, weight loss drugs, K-Pop Demon Hunter merchandise (and like categories), and the absence of Temu (a previously disruptive agent). September also faced a number of large 1-off headwinds; their lapsing sets up October for stronger growth on a MoM basis. However, October ’24 was a very strong month, making it a difficult compare, plus there was the shutdown jitters and SNAP break, and so we doubt that it will outgrow September’s +5%; +3% would still be solid.

The club channel continues to thrive in today’s thrifty K-shaped economy, with the channel and its strong private brands taking meaningful share-of-stomach. The club channel is widening its price gaps to conventional grocers by not increasing retail prices despite commodity cost inflation, implying that the share capture is likely to accelerate. That share capture will lead to further volume and margin pressure on national CPG brands. In yesterday’s note on Walmart’s results and its strategic actions, we highlighted how it was leaning into providing greater value to its shoppers by not passing through cost inflation onto its shoppers and increasing price rollbacks.

When prices are inflating and the consumer is evermore thrifty, it’s a great time to be an off-price retailer. That, plus easy comparisons allowed the sector to drive a +400bps sequential acceleration in comp-sales; however, as shown in the table, the 2-year CAGR was little changed. That said, the sequential improvement in the observed traffic trend suggests that the underlying pace of the business has improved due to the “evermore thrifty” component as well as the brands success in sourcing more better & best product brands, especially for **Ross Dress for Less **and Burlington stores, whereas TJX is already playing that card well.

With FQ3 results from Walmart, Targe t, Home Depot , and Lowe’s, it is clear that our K-shaped economy is becoming more pronounced , and its “pronouncement” is now undermining aggregate consumer expenditure and the retail industry (and CPG). In response, retailers and brands are focusing even more on affordability and being more tactical in any price increases in response to tariffs or cost inflation. (See our story –What’s happening in Vegas, isn’t staying in Vegas) That, in turn, is pressuring margin rates and profits.

As previewed (Housing-Related Retail – Are Things Improving? It depends upon your neighborhood, if pricey, then yes), the comp-sales results of Home Depot and Lowe’s improved slightly on a 2-year basis, but softened on a 1-year basis (lapping hurricanes). Comp-ticket and big-ticket are accelerating, driven by stronger growth in big-ticket items (appliances, power tools, etc.) and bigger Pro-oriented projects. Home Depot CEO Ted Decker said, “While underlying demand in the business remained relatively stable sequentially, **an expected increase in demand **in the [fiscal] third quarter did not materialize.

With Target’s FQ3 results, we wanted to circle back to our preview note , “Target – Updated views on Target’s performance, any good news?” In that note, we opined that there were a few key things to listen for in the results, while also highlighting the competitive challenges. Below we highlight those items, along with what we heard. Our conclusion from all of this is we see progress in both management qualitative comments and Advan’s data, especially in the month of October – a fairer month to judge progress given that incoming CEO Michal Fiddelke is just getting started with his strategic plan to right Target.

Next week kicks off retail earnings, including home improvement (our preview here ), Target (here ), off-price, and the behemoth – Walmart. Prior to the pandemic, generalists used to view Walmart as an important read on the consumer; however, Walmart generally was a misread, as it skewed rural and to the less-affluent. As followers and readers know , Walmart’s “contemporization” won them significant market share in the suburbs and near-burbs, and with the more-affluent.

The underperformance of HD and LOW since we wrote about their improving results on August 20th is curious. Despite the 30-year mortgage rate declining from 6.6% to 6.3%* and favorable Q3 results from building product manufacturers and furniture / home-related retail, HD / LOW have declined and significantly underperformed the S&P 500. Also pointing to improvement is the NAHB’s remodeling index “which for the third quarter, posting a reading of 60, up one point compared to the previous quarter.