Key Drivers Spotlight: Q2 Retail Winners: WMT, BJ Commit to E-Commerce

Interested in learning more?

We’ve previously explored a rebounding of supply chain sentiment in the consumer staples sector (using our ESG dataset) after a lengthy, pandemic-fueled decline. This week, our Key Drivers dataset reveals a potential turnaround for margin sentiment, which has taken hits across the consumer retail space since Q1 of 2022.

Sentiment on margins has been taking hits across the consumer retail space since Q1 of 2022. One factor has been inflation and its toll on consumer-purchasing power. Another has centered around concerns related to supply chains. Supply chain sentiment has since largely rebounded (as we explored in our previous article).

The improvement in supply chain sentiment has led us to hypothesize if margin sentiment is also heading for a rebound. We’ve applied our Key Drivers dataset to reveal the extent of negative management commentary on margins that major companies have experienced in recent quarters. We also consider the volatility of margin sentiment on a quarterly basis in order to determine if there are any outliers.

Key Drivers: Earnings Calls Margin Sentiment, Consumer Retail, 2020Q2 to 2023Q2
ESG Spotlight: Q2 Retail Winners_image 1

The resulting Key Drivers data shows Dollar Tree, Inc. (DLTR: US) as having the most trouble recently, followed by Dollar General Corp (DG: US). We also find that Walmart Inc. (WMT: US) and BJ’s Wholesale Club Holdings, Inc. (BJ: US) are seeing significant improvement in margin sentiment, which merits a closer look.

Dollar Tree

In its May earnings call earlier this year, Dollar Tree stated that its “gross margins had declined by approximately 530 basis points”, and it attributed the decrease in margins to increased merchandise cost. In its latest Q2 earnings call, Dollar Tree states the following:

“Gross margin contracted primarily from lower merchandise margin.”

— Dollar Tree, Inc. Q2 2023 Earnings, 8/24/2023

This continues the theme brought up in the Q1 earnings call: shrinking margins. The company also cites higher inventory levels (reactions to supply chain issues last year), increased repair costs to buildings (due to higher diesel costs), and overhead for shipping as other considerations for reduced margins.

As we’ve seen in our previous article, supply chain themes are rebounding and inventory levels should be improving. But overhead costs could continue to be an issue, especially for a company reliant on a brick-and-mortar model.

Dollar General

Dollar General states in its recent earnings call that consumers buying fewer discretionary items are having an impact on sales.

“[W]e expect continued pressure in the sales line for the duration of this year, particularly in discretionary sales as our customer focuses more on buying for need.”

—Dollar General Corp. Q2 2023 Earnings

“Buying for need” may be the reason behind more purchases of low-margin items in Dollar General’s categories of staples instead of the company’s higher-ticket items that consumers are viewing as non-essential. Dollar General also says that it is increasing promotions for non-consumable discretionary items to “right size” inventory, which will result in an operating headwind of $95 million.

Dollar General mentions it will be investing in more store locations and distribution centers, claiming this will lower the marginal cost to serve customers. But this decision will also increase the cost of overhead. This move in particular points to why margins for stores like Dollar Tree and Dollar General are in rough shape. The overhead operating expenses for traditional brick-and-mortar stores—specifically, stores without additional channels of distribution and sales, such as e-commerce—have a considerable impact on margins. Further supporting that idea, Dollar General CFO states that gross profit as a percentage of sales decreased by 126 basis points, while SG&A costs increased by 136 basis points.

BJ's Wholesale Club

BJ’s opens its most recent earnings call by discussing how it has been managing inventory since last year, and how this has led to higher margins. The warehouse retailer also cites “digital conveniences” as an overall boon to business, which most likely refers to online shopping.

Echoing the conclusion in our previous article, BJ’s mentions that last year’s supply chain difficulties have largely dissipated. The company also sells gasoline at competitive prices, and it cites this as a major reason driving membership growth by 30% since 2018.

“Membership fee income or MFI grew approximately 5% to $103.7 million in the second quarter and we remain pleased with our membership trends including in higher-tier penetration, easy renewal and first year and tenured renewal rates.”

— BJ’s Wholesale Club Holdings, Inc. Q2 2023 Earnings, 8/22/2023

For BJ’s, both the membership model and gasoline services are major differentiating factors when compared to other retailers like Dollar Tree and Dollar General. Membership creates stickiness, while gasoline provides consumers with another reason to visit a BJ’s brick-and-mortar location.


You can’t talk retail without bringing up Walmart. With a name that has become synonymous with big box and low prices, Walmart is seeing a significant rebound in margin sentiment in recent quarters. This is largely due to how the company has evolved and continues to innovate.

To start, Walmart has invested heavily in e-commerce to compete with the likes of Amazon. The multinational retail chain says that online business has grown 24%, and it is seeing increased use of its mobile app. Walmart also owns an 80% stake in the e-commerce company Flipkart, giving the company an inside track in the world of online shopping. A large portion of Walmart’s earnings call is devoted to e-commerce, and it seems that any discussion about a new facility is related in some way to e-commerce shipping or logistics.

“There’s not only a lot of store and club expertise in this group, but there’s also a great deal of digital and eCommerce experience. These are omni-channel merchants, they’re purpose-driven with proven leadership skills.”

—Walmart, Inc. Q2 2024 Earnings, 8/17/2023

More interestingly, Walmart goes on to discuss how it is investing in green hydrogen in Chile and working on regenerative agriculture with farmers in the U.S.

Green hydrogen could be the fuel of the future, especially when it comes to transforming diesel-dependent industries, such as trucking. It makes sense that Walmart would want to have the means to generate this alternative fuel onsite for its fleet and to sell at a competitive price to consumers.

Overall, the company states that margins have increased by 50 basis points, largely due to it embracing e-commerce.

The Way of the Future Is Digital

Companies such as Dollar General and Dollar Tree are seeing eroding margins, largely due to a lack of online presence and high overhead associated with brick and mortar only operations. It is no longer viable to have brick-and-mortar be the sole retail strategy, especially as low prices are no longer enough to drive foot traffic and business to a physical location. The data clearly shows that Dollar Tree and Dollar General are finding it more difficult to sell those higher-margin discretionary items.

Meanwhile, companies such as BJ’s and Walmart that embrace e-commerce in tandem with brick-and-mortar are reaping the benefits. Walmart especially appears fully on board with digital, as e-commerce has become a major focus for the company along with secondary efforts to reduce diesel and energy costs.

New Margin Factor on the Horizon: Energy

Each company examined in this article has addressed the topic of energy in its recent earnings call. Whether citing high diesel costs as a reason for lower margins (Dollar Tree), pointing out direct-to-consumer sales of gasoline (BJ’s), or discussing investments in hydrogen as the future fuel source (Walmart), these earnings calls have a strong undertone of energy cost and access as being factors in sales and overhead expenses. With supply chain considerations returning to more familiar levels, it is interesting to see companies focus on other factors, such as energy, as being drivers of margin sentiment.

Interested in learning more?

You may also like