Discount Retail Sector Opportunities in the Post-Building #19 Landscape: A Value Investing Perspective

The post-pandemic retail landscape has reshaped consumer behavior, with price sensitivity and value-driven shopping emerging as dominant themes. Discount retailers, particularly those specializing in surplus and off-price models, have thrived amid economic uncertainty, offering compelling opportunities for value investors. This analysis explores the resilience of surplus-focused retail models, their financial metrics, and the structural advantages driving their performance in 2024–2025.

The Rise of Surplus-Focused Retailers

Discount retailers like Ollie's Bargain Outlet (OLLI), Grocery Outlet Holding (GO), and Ross Stores have demonstrated robust growth in 2024, capitalizing on shifting consumer priorities. Ollie's reported 2.8% comparable store sales growth in Q4 2024, alongside a 20-basis-point improvement in gross margin. Similarly, Grocery Outlet and Ross have leveraged their ability to source inventory at deep discounts, particularly in consumables and household goods, which remain less vulnerable to tariffs and inflationary pressures.

The dollar store segment has also surged, with Dollar General (DG) and Dollar Tree (DLTR) expanding their footprint in rural and underserved urban areas. Dollar General's sales increased by $0.5 billion year-over-year in 2025, reflecting its dominance in the budget-friendly retail space. These successes underscore a broader trend: consumers are increasingly prioritizing affordability over convenience, favoring one-stop shopping experiences that minimize costs.

Financial Metrics and Value Investing Insights

From a value investing perspective, surplus-focused retailers exhibit mixed but generally favorable financial metrics. Dollar General, for instance, trades at a P/E ratio of 19.51 as of early 2025, slightly above its 4-quarter average. Its return on equity (ROE) of 15.64% and a 2.24% dividend yield according to financial data position it as a balanced option for income and growth investors. However, its debt-to-equity ratio of 2.13 according to financial reports highlights significant leverage, a potential risk in a rising interest rate environment.

Ollie's Bargain Outlet, while less leveraged with a debt-to-equity ratio of 0.37, carries a higher P/E ratio of 35.68 according to financial analysis, reflecting market optimism about its long-term growth prospects. Its ROE of 12.63% according to financial data is solid but trails Dollar General's, and its lack of a dividend yield according to financial records (0% as of December 2025) may deter income-focused investors. Grocery Outlet's financials remain less transparent, with a debt-to-equity ratio of 41.7% according to financial data but no recent data on P/E or ROE.

The Department & Discount Retail Industry's average P/E ratio of 18.76 in early 2025 according to market data suggests that Dollar General is broadly in line with sector benchmarks, while Ollie's appears more speculative. Investors must weigh these metrics against each company's operational strengths, such as Ollie's low-cost inventory model and Dollar General's expansive store network.

Structural Advantages and Risks

Surplus-focused retailers benefit from structural tailwinds, including the proliferation of retail bankruptcies (e.g., Big Lots, Bargain Hunt) and the availability of excess inventory. These dynamics allow them to maintain aggressive discounting while preserving margins. Additionally, their focus on essential goods-such as groceries and household products-provides a buffer against discretionary spending shifts.

However, challenges persist. Traditional drugstore chains like Walgreens and CVS face declining sales, with Walgreens reporting a $0.3 billion drop in Q1 2025, as consumers migrate to dollar stores for basic needs. Meanwhile, online retailers and evolving consumer preferences for omnichannel experiences pose long-term threats to all brick-and-mortar models.

Conclusion: A Case for Selective Value Investing

The discount retail sector offers fertile ground for value investors who prioritize operational efficiency and pricing power. Dollar General's combination of strong ROE, a modest dividend yield, and a proven ability to scale in rural markets makes it a compelling candidate. Ollie's, despite its higher valuation, warrants attention for its disciplined inventory management and low leverage. Investors should remain cautious, however, about overpaying for growth in a sector where margins can erode quickly during economic downturns.

As the post-Building #19 landscape continues to evolve, surplus-focused retailers that adapt to digital trends while maintaining their core value proposition will likely outperform. For value investors, the key lies in identifying companies that balance affordability with financial discipline-a hallmark of the discount retail sector's current renaissance.