It was the worst performer on the Dow last year.

It’s not the fact it lost up to 30% of its value that was scary. 

It was the fact it was WalMart (WMT) – one of the biggest U.S. economic bellwethers that accounts for up to 10% of consumer spending. 

After months of cutting 2017 earnings forecasts, closing stores, countless warnings on weak consumer spending, and declines in store traffic, all hope was lost.

However, that’s quickly changing for the better, as consumer spending habits shift from upscale stores, such as Target (TGT), Macy’s (M), Nordstrom (JWN), Kohl’s (KSS), and Gap (GPS),

They’re looking for better values at lower prices. And they’re finding that at discount retailers, such as WalMart (WMT).

In fact, WalMart’s stock has remained unchanged since late April 18, 2016, as compared to a 23% average loss found with the above-mentioned retailers over the same time frame.

Unlike other retailers that have struggled to regain lost ground, WalMart just posted better than expected first quarter sales and profits.  Adjusted EPS of 98 cents handily beat expectations for 89 cents a share.

Revenues for the retailer giant totaled $115.9 billion, beating expectations for $113.3 billion as well.  Comparable sales were up 1%.  (While 1% may not seem like much, it is when sales are more than $100 billion!)

Meanwhile, Target, for instance, has lost 17% of its value after missing quarterly sales and offering a poor forecast, adding to growing evidence that many U.S. retailers are suffering from a cautious consumer that’s shifting to stores that offer better value at discount prices.

“We have seen the impact of climate and a more cautious consumer,” Target’s CEO Brian Cornell noted, as quoted by Bloomberg.

Same-store sales at Target were up just 1.2% in the first quarter, less than the 1.6% growth estimate.  Despite posting higher than expected EPS of $1.29, as compared to the projected $1.19, revenues of $16.2 billion missed the expected $16.3 billion.

Target also lowered its sales guidance for the second quarter to flat to a 2% contraction.  EPS of $1.00 to $1.20 is also well below the estimate for $1.36.  Such painful declines in retail sales were partially to blame for the Dow Jones Industrial Average’s (DJIA) recent decline from 18,100 to 17,500 since late April, as well.

While major retailers are feeling the pressure of lower consumer spending, major discounters are picking up lost market share and seeing significant growth opportunities.

Much of this shift may be happening because of higher costs elsewhere.

For instance, about 25% of Americans are spending at least half their income on rent and higher insurance costs, leaving little remaining for higher-ticket items at major retailers.  More than 11.2 million households spend 50% or more of their income just on housing and utilities. 

As long as that continues, we are likely to see a continued shift from major retailers to discount retailers, such as WalMart. 

While volatility will persist, it’s only a matter of time before we begin to see breaks in the storm.

Look for more information on what’s happening in the next issue of The Cheap Investor being issued shortly.

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