Consumer discretionary stocks faced challenges as high inflation and rising interest rates took a toll on consumer spending. The pinch in purchasing power led to reduced demand for non-essential goods and services. However, with inflation showing signs of moderation and interest rates trending downward, conditions are becoming more favourable for discretionary items. Against this background, here are three top Canadian stocks with fundamentally strong businesses from the consumer discretionary sector that investors can consider in 2025.
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Consumer discretionary stock #1
Investors looking for top consumer discretionary sector stocks could consider adding BRP (TSX: DOO) in 2025. The company is a leader in powersports products, boats, and propulsion systems. However, its sales and margins took a hit due to softer demand led by macro headwinds, efforts to reduce inventory levels across its network, and higher promotional activities to drive volumes.
Looking ahead, an improving economic environment, BRP’s robust product portfolio, and efficient inventory management set the stage for a potential rebound in demand. The company’s extensive and well-connected dealer network further strengthens its position to capitalize on the recovery.
BRP is focused on long-term growth and doubling down on its core powersports activities. The company aims to solidify its position as an industry leader while maintaining sustainable profitability. Its investments in innovation, particularly in developing a strong pipeline of new products, are expected to provide significant support to its revenue growth over the coming years. Further, the company is poised to benefit from its efforts to enhance its operational efficiency. Also, favourable pricing, production efficiencies, and streamlined distribution costs are anticipated to bolster its profit margins and drive its stock.
Consumer discretionary stock #2
Canadians could consider adding Aritzia (TSX: ATZ) stock to their portfolio. This women’s clothing and accessories company is growing at a solid pace despite macro challenges. Its focus on introducing new assortments, momentum in the e-commerce channel, and growth of its boutique network across North America, primarily the U.S., is supporting its top and bottom line growth.
The clothing retailer’s top and bottom lines are growing rapidly. For instance, its top line has grown at a compound annual growth rate (CAGR) of 19% since fiscal 2016 (FY16). At the same time, its bottom line expanded at a CAGR of 13%.
This momentum in Aritzia’s business will likely be sustained in the coming years. The company’s planned opening of new boutiques, macro improvement, higher comparable sales growth in existing boutiques, and strength in e-commerce business will support its top line. Moreover, inventory improvements, lower markdowns, decline in warehousing costs, and savings from the company’s smart spending initiative will drive its margins and stock price.
Consumer discretionary stock #3
Investors could consider adding shares of Alimentation Couche-Tard (TSX: ATD). While the elevated interest rates and high inflationary pressures impacted demand, the company is poised to benefit from its expanding range of private-label products. These offerings are becoming increasingly popular among cost-conscious consumers seeking value. Couche-Tard’s private-label sales are growing at a high-single-digit pace across its network, and the company plans to introduce more than 100 new private-label products this year.
Beyond private label products, Couche-Tard’s diversified business model further enhances its resilience. The company operates convenience stores, supplies fuel, and provides electric vehicle (EV) charging solutions. This multi-faceted approach allows Couche-Tard to capture revenue from various streams.
A notable area of growth for the company is its EV fast-charging business. With ongoing network expansion and improved utilization rates, this segment is set to deliver meaningful returns in the coming years. Overall, Couche-Tard stands to benefit from an improved macroeconomic environment and its initiatives to drive sales and enhance margins. Moreover, strategic acquisitions and its extensive store network will further bolster the company’s growth potential.
