Discount Retailers Shine in Inflation-Driven Market

The recent inflation data and consumer spending reports have put the spotlight back on discount retailers. This trend creates opportunities or risks, and missing it can be costly. Three stocks that could matter for your watchlist right now are Dollarama (TSX:DOL), Zumiez (ZUMZ), and Citi Trends (CTRN).

Dollarama operates a large chain of discount variety stores across Canada and several international markets, generating approximately CA$7.6b in revenue from retail variety stores. The company uses share buybacks and a dividend to return cash to shareholders, but its high P/E multiple and heavy use of debt raise concerns about future execution.

Zumiez is a specialty retailer focused on youth lifestyle apparel, footwear, accessories, and boardsports gear, selling through its Zumiez, Blue Tomato, and Fast Times stores and e-commerce sites across the United States, Canada, Europe, Australia, and other international markets. The company generates about US$938 million in revenue from retail operations.

Citi Trends is a value-focused retailer targeting mostly African American families with discounted fashion, footwear, accessories, and home goods sold through neighborhood-based stores across the United States. The company leans into the behavior of its low-income shoppers by expanding stores and offering culturally specific assortments.