Where Bernstein sees strength in U.S. retail going forward

Investing.com -- Bernstein sees opportunity in select U.S. retail names as 2025’s tariff-driven volatility gives way to clearer consumer trends and operational differentiation in the second half of the year.

The firm’s analysts said in a note to clients this week that they believe the shift in macro environment has prompted a “flight to value,” with Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR) outperforming by roughly 45% and 25%, respectively, year to date.

“We expect continued trade down benefit in H2 for retailers with price leadership positions (e.g., WMT) and/or compelling opening price point offerings (e.g., DG, DLTR),” Bernstein wrote. 

While tariff-related cost pressure and inventory distortions have impacted gross margins at import-heavy names like Target and DLTR, Bernstein notes that “most retailers have found the current tariff levels to be manageable.”

Among dollar stores, DG is the firm’s top pick for the next 6–9 months. “DG’s woes have been self-inflicted,” the firm said. 

“As the turnaround strategy starts yielding results, we see plenty of gross margin recovery opportunities… which are still underappreciated by consensus.” 

Despite the stock being up 50% year to date, Bernstein believes it “remains below its historical levels” and sees upside from improving mix and reduced shrink.

Looking further ahead, Bernstein prefers Walmart (NYSE:WMT) over the next 3–5 years. “We believe that WMT is not as expensive as it looks on paper,” analysts said, pointing to underestimated e-commerce profitability and the potential IPO of its Indian holdings. 

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“We see additional upside from here if WMT manages to sustain its share gain momentum and/or out-delivers from an e-commerce profitability improvement perspective.”

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