Bernstein: US consumer stocks diverge from earnings expectations: Bernstein favors discount retail and food distribution

Why have consumer stocks fallen, and how have valuations changed?

Through the end of September 2026, the market-cap-weighted year-to-date return on US consumer discretionary stocks was -9.0%, while the market comprising the largest 1500 US stocks rose 8.2% over the same period. Consumer staples rose 5.2% but still underperformed the market.
Earnings expectations for the consumer discretionary sector over the next 12 months were 6.5% higher than at the start of the year, but the forward price-to-earnings ratio contracted 14.6%, offsetting the improvement in earnings expectations. Changes in earnings expectations include both analyst revisions and the rolling forward of the forecast window over time.
The gap in forward price-to-earnings ratios among individual stocks narrowed sharply over the past quarter. Bernstein noted that similar convergence occurred during the financial crisis and early in the pandemic, reflecting investor unease about the economic and market outlook; its positioning crowding indicator also showed the consumer discretionary sector at a roughly 25-year low.

Apparel and discount retail share prices have fallen, but earnings expectations have improved. At the end of September, the market consensus forecast for the industry's year-on-year earnings-per-share growth in 2026 was 15.8%, up from 13.1% at the end of June; the revenue growth forecast rose from 7.9% to 8.2% over the same period. Bernstein therefore maintains a positive view.
Auto retail has also seen modest upward revisions: the market consensus forecast for 2026 revenue growth rose from 3.6% at the end of June to 5.1% at the end of September, while the earnings-per-share growth forecast rose from 2.6% to 3.6%. However, its forward price-to-earnings ratio relative to the market is at roughly the 53% percentile of its own past decade, so valuations are not at historic lows.
Bernstein believes demand for non-urgent auto-parts maintenance could recover relatively quickly if gasoline prices fall; high oil prices and El Niño weather are putting pressure on auto-parts and home-improvement retailers.

Bernstein continues to recommend an overweight position in dollar stores and has turned positive again on food distributors. At the end of September, the market consensus forecast for dollar stores' year-on-year earnings-per-share growth in 2026 was 27.1%, up from 15.9% at the end of June; the corresponding forecast for food distributors rose from 4.4% to 6.1%.
Food distributors' shares have recently been weighed down by concerns about fuel costs, but Bernstein believes large distributors have denser delivery routes, fuel hedges and better access to drivers, positioning them to gain share from local competitors facing cost pressures. The three largest US distributors have a combined share of about 38%–39%, and the industry remains relatively fragmented.
This assessment remains constrained by end demand: restaurant spending is weak, and distributors themselves face fuel cost pressures. The firm believes growth in business with independent restaurants and a higher share of private-label products could help improve margins in the future.

Bernstein notes that gasoline spending is squeezing some household budgets, while rising freight, packaging and other input costs are also pushing up costs and compressing margins for consumer goods companies. A resolution to the Middle East conflict and greater confidence that the Strait of Hormuz will remain open could help ease gasoline and supply-chain cost pressures.
The pressure varies across categories. The firm observed that, after gasoline prices surged, the year-on-year decline in US beer sales widened from 1%–2% to the mid-single digits in about a month. By contrast, soft drink consumption improved in the third quarter from the second, although beverage companies still face varying degrees of logistics and packaging cost pressure.
Household and personal care products face a similar trade-off between volumes and profits: Procter & Gamble's third-quarter volumes improved quarter on quarter, but Bernstein noted that some growth came alongside weaker pricing power. If costs keep rising and companies struggle to pass them on to consumers, profitability will come under pressure.