Dollar General and Dollar Tree stores
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Shares of Dollar General and Dollar Tree stood out Thursday, as discounters beat Wall Street quarterly earnings expectations, raised expectations for the next year and spoke of consumers flocking to lower prices during times of inflation.
As of midday Thursday, Dollar General shares are up about 14%, and Dollar Tree shares are up about 20%.
The two retailers said they see an opportunity for growth because Americans place more importance in their purchasing decisions, whether they’re buying groceries or seasonal décor.
“We’re already starting to see our core customers start to shop more deliberately,” Dollar General CEO Todd Vasos said on a call with analysts. And we’re starting to see the next tier of customers start to shop with us a bit more as well.”
Dollar Tree CEO Rick Drilling listed the many challenges consumers face, ranging from the highest levels of inflation since the early 1980s to record high gas prices and the uncertainty of current events such as the Ukraine war and the pandemic. He added that many consumers “live from paycheck to paycheck.”
“In difficult times, value retail can be part of the solution to helping families increase their dollars to meet their evolving needs,” he said.
Dollar General and Dollar Tree both beat expectations for fiscal first-quarter earnings, revenue, and same-store sales.
The Dollar Tree, which includes the Family Dollar logo, said it now expects net sales for this year to be between $27.76 billion and $28.14 billion compared to its previous forecast of between $27.22 billion and $27.85 billion.
Dollar General said it expects net sales to grow about 10% to 10.5%, compared to its previous forecast of about 10%. It raised its same-store sales forecast to growth of about 3% to 3.5%, compared to the previous forecast of 2.5%.
Here are three main takeaways from the two discountable first-quarter financial earnings reports:
Mix different goods
Shoppers still come to the stores, but they buy different items. Food is a bigger part of the baskets and it drove sales of Dollar General and Dollar Tree in the first quarter of the fiscal year.
A year ago, consumers were getting extra dollars from stimulus checks and child tax credits. This meant that some were turning towards impulse items or discretionary purchases. Those dollars are gone and other budget items, like groceries and gas, become more expensive.
Dollar General’s same-store sales fell in every category of seasonal, apparel and home products in the fiscal first quarter, Vasos said, but more consumables were sold. Overall, same-store sales were down 0.1% from the same period last year, outpacing the 1.3% decline analysts had expected, according to FactSet.
At Dollar Tree, sodas, salty snacks, and cookies have been items that have increased in popularity—particularly as the retailer expands its food and beverage assortment. The company is the parent company of Family Dollar, a banner that leans more heavily on food than its namesake banner.
“We think this is a traffic driver, and as customers experience items and appreciate the value we give them, we believe over time that will help drive traffic to the store as a whole, not just those categories,” Dollar Tree CEO Michael Wittinsky said. .
The companies’ sales patterns echoed those at Walmart and Target, two companies that also saw a shift toward groceries and away from general merchandise in the fiscal first quarter.
seize the moment
Even before inflation jumped to its highest level in four decades, Dollar Tree and Dollar General had plans to make a bigger footprint in stores and expand into new categories and strategies to attract more customers. Retailers doubled that on Thursday – saying the challenging economic backdrop makes the time and offers more compelling.
Dollar General, which has more than 18,000 stores, will open 1,100 new locations this year. It will expand the new store concept, PopShelf, and go ahead with adding more health-related merchandise. It will go global with up to 10 stores opening in Mexico by the end of this year.
The company is expanding with its stores as well. About 800 of the new locations will be larger at 8,500 square feet, with additional aisles for health and beauty products and coolers containing produce or other groceries, Chief Financial Officer John Garratt told analysts on the call.
Vasos said Dollar General is adding more end caps and screens that emphasize its cheaper private label and $1 items. He said the company “has seen an acceleration in our own brand business” in recent weeks.
Dollar Tree, which has more than 15,500 stores, will open 590 stores this year. It adds a larger range of commodities by raising the price of a $1 item to $1.25 and adding items at $3 and $5. And it brought in new CEOs to turn the banner of Family Dollar.
High cost management
Dollar Tree and Dollar General weren’t immune to rising costs in the first quarter, and some investors have raised concerns about whether they can keep prices lower without hurting earnings.
So far, retailers have been able to beat Wall Street earnings expectations despite higher fuel, freight and more prices. This is something Walmart and Target haven’t done.
Vasos said the general dollar can trade in other commodities or reduce volumes if the prices of certain commodities rise. He said the company is managing inventory closely to avoid a high level of mass writedowns and excess items that don’t sell.
Dollar General has a few other measures to save costs and generate ongoing profits as well. It added the self-checkout feature to more than 8,000 stores as of the end of the first quarter. It plans to convert about 200 stores to self-pay only this year. It more than doubles its own fleet of trucks as of 2021, so it’s about 40% of the outbound fleet by the end of the year. And they carry more healthcare products, like cough and cold medicines, which have a better profit margin than food.
At Dollar Tree, the price hike was a huge boost to profitability. The retailer announced last year that it would raise the price of dollar items by a quarter. It’s bringing $3 and $5 merchandise to more stores, too.
Witynski said that a wider range of price points means new sales opportunities in key seasons, such as the holidays. He said Dollar General has strong sales around Easter and Valentine’s Day and expects a similar dynamic in the back half of the year with back to school, Halloween and the holiday season.