Bernstein named two U.S. retail chains it views as most likely to surpass Wall Street consensus for first-quarter results: Five Below and Target. The research note, released Tuesday, emphasized that the trajectory for the remainder of the year may ultimately carry more weight with investors than quarterly headlines.
Analyst Zhihan Ma described the quarter as shaping up into "one of bifurcating fates," with retailers that draw higher-income customers set to capture momentum from stimulus, while discounters oriented toward lower-income shoppers are likely to face pressure from fuel costs, broader inflation and reductions in food-stamp transfers.
Bernstein specifically called out Five Below and Target as the most favorably positioned to beat consensus. The firm also gave Costco an outside chance to exceed expectations, while noting that fuel inflation presents a notable headwind for the warehouse club.
The bank cautioned, however, that potential beats are already largely signaled by recent credit card data, and that margin performance will be a critical swing factor in how results are interpreted by the market.
For both Five Below and Target, Bernstein said investor focus will be on how management teams set expectations for the rest of the year. The note warned that executives will need to navigate guidance carefully to avoid provoking a "sell the news" reaction from investors if quarterly beats are not paired with constructive forward commentary.
On Walmart, Bernstein reiterated a favorable view based on what it characterizes as strong market share momentum and improving profitability, while also noting that current valuations embed high expectations.
Within the discount segment, Ma expressed a preference for Dollar General over Dollar Tree, calling Dollar General a "self-help story that's less predicated on the macro environment." The firm grouped Dollar General, Dollar Tree and Walmart among discounters that could be pressured by the combination of fuel, inflation and changes to food-assistance transfers.
Context for investors
- Bernstein highlights retailers serving higher-income shoppers as more likely to benefit from stimulus momentum in Q1.
- Discounters focused on lower-income consumers may face headwinds from fuel inflation, general price increases and reduced food-stamp transfers.
- Margins and management guidance for the rest of the year are identified as primary drivers of post-earnings investor reaction.