Economists say the Canadian economy is in relatively good shape but will slow as fuel costs rise. People feel the pain in gas prices, but it is more pronounced in diesel and furnace oil. Headline inflation rose to 3.1% in September 2026, setting the stage for a Bank of Canada rate hike.
Retailers and businesses will absorb some rising operating costs but also plan to pass higher input costs on to consumers. The consumer discretionary and consumer staples sectors, where retail stocks belong, are in the spotlight. Investor sentiment in both sectors may shift despite their resilience so far in 2026.
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Divergence in consumer discretionary
Increased volatility is inevitable in retail stocks when persistent inflation forces consumers to cut spending. Aritzia (TSX: ATZ) is synonymous with everyday luxury, yet the consumer discretionary stock continues to beat the broader market.
At $155.38 per share, ATZ is up 33.4% year-to-date and outpacing the TSX’s plus-14%. The $17.2 billion designer house and apparel retailer sells women’s clothing and accessories. It has more than 100 physical stores that serve as high-end showrooms.
On October 27, 2026, Aritzia unveiled a bold five-year strategic plan, signalling a positive outlook. According to CEO Jennifer Wong, the plan builds on tremendous business momentum, and Aritzia’s proven growth levers will continue to drive success.
In the first half of fiscal 2027 (six months ending August 30, 2026), net income rose 193.4% year-over-year to nearly $319 million. “Our United States business is delivering exceptional results and will remain our primary growth market through Fiscal 2032, with substantial runway still ahead,” said Wong.
Meanwhile, Gildan Activewear (TSX: GIL), another prominent Canadian retailer, is underperforming. GIL trades at $56.31 per share, down 33.5% year-to-date. Its 2.4% dividend compensates for the temporary weakness. The $10.5 billion company is known globally for its everyday basic apparel and activewear products.
Like with most retailers, consumer sentiment and spending capacity affect sales. In Q2 2026, Gildan reported a 72.3% year-over-year increase in net sales to $1.6 billion, but posted a $50 million net loss. Other factors driving the downtrend include high debt ($4.97 billion) and a short-seller report alleging channel stuffing to inflate revenues. The company denied the allegations.
Resilient consumer staples
Alimentation Couche-Tard (TSX: ATD) is a resilient stock against rising fuel costs and inflation. The $76 billion company continues to strengthen its position as the global convenience store champion. It also operates a network of gas stations. ATD trades at $81.39 per share (+9.4% year-to-date) and pays a super-safe 1% dividend (17.6% payout ratio).
Convenience store sales enjoy high margins, while gas stations benefit from essential fuel traffic and higher gas prices. Couche-Tard CEO Alex Miller said elevated living costs and fuel prices continue to weigh on discretionary spending in certain markets. He notes that consumers are more intentional now when they spend.
Couche-Tard reported solid financial results for the start of fiscal 2027. In the three months ending July 19, 2026, total revenue and net earnings increased 25.1% and 5.9% to US$21.7 billion and US$832.5 million, respectively, versus Q1 fiscal 2026. Total road transportation fuel gross profit rose 15% year-over-year to US$1.8 billion.
The bear case: Persistent headwinds
The suspension of the federal excise tax rate for gasoline and diesel fuel runs through January 31, 2027, but it does little to boost consumer spending. Retailers and businesses can only hope the global energy crisis ends soon.
