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3 takeaways from Dollar General, Dollar Tree earnings that sent stocks soaring

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Dollar General and Dollar Tree stores

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Shares of Dollar General and Dollar Tree popped Thursday, because the discounters beat Wall Street’s quarterly earnings expectations, raised outlooks for the approaching 12 months and spoke of consumers flocking to lower prices during inflationary times.

Dollar General shares rose 13.71% to shut at $222.13 on Thursday. Dollar Tree shares jumped 21.87% to shut at $162.80.

The 2 retailers said they see opportunity to grow as Americans weigh value more heavily of their purchasing decisions, whether buying groceries or seasonal decor.

“We’re already beginning to see our core customers begin to shop more intentionally,” Dollar General CEO Todd Vasos said on a call with analysts. “And we’re beginning to see that next tier of consumers begin to shop with us slightly bit more as well.”  

Dollar Tree Executive Chair Rick Dreiling listed the numerous challenges that buyers are facing, from the best levels of inflation because the early Eighties to record high gas prices and uncertainty from current events equivalent to the Ukraine war and the pandemic. He added that many consumers “reside paycheck to paycheck.”

“In tough times, value retail will be a part of the answer to assist families stretch their dollars to fulfill their evolving needs,” he said.

Dollar General and Dollar Tree beat expectations on fiscal first quarter earnings, revenue and same-store sales.

Dollar Tree, which incorporates the Family Dollar banner, said it now expects net sales for the 12 months to range from $27.76 billion to $28.14 billion compared with its previous expectations between $27.22 billion to $27.85 billion. 

Dollar General said it expects net sales growth of about 10% to 10.5% compared with its previous expectation of about 10%. It raised its same-store sales forecast to growth of roughly 3% to three.5% compared with its previous expectation of two.5%.

Listed below are three major takeaways from the 2 discounters fiscal first-quarter earnings reports:

A special merchandise mix

Shoppers are still coming to stores, but are buying different items. Food is a much bigger a part of baskets and drove sales for Dollar General and Dollar Tree within the fiscal first quarter.

A 12 months ago, consumers had extra dollars from stimulus checks and child tax credits. That meant some sprang for impulse items or discretionary purchases. Those dollars have disappeared and other budget items, equivalent to groceries and gas, have grow to be pricier.

Vasos said same-store sales at Dollar General dropped in each of the seasonal, apparel and residential products categories within the fiscal first quarter, but more consumables sold. Overall, same-store sales dropped 0.1% versus the year-ago period, besting the 1.3% decline anticipated by analysts, in keeping with FactSet.

At Dollar Tree, carbonated beverages, salty snacks and cookies were a number of the items that surged in popularity — especially because the retailer expanded its food and beverage assortment. The corporate is the parent of Family Dollar, a banner that skews more heavily to food compared with the namesake banner.

“We imagine that is a traffic driver and as the shoppers experience the items and appreciate the worth we’re giving them, over time we imagine that that may help drive traffic into the general store, not only those categories,” Dollar Tree CEO Michael Witynski told analysts.

Sales patterns at the businesses echoed those at Walmart and Goal, two corporations that also saw a shift toward groceries and away from general merchandise within the fiscal first quarter.

Seizing the moment

Even before inflation jumped to a four-decade high, Dollar Tree and Dollar General had plans for larger store footprints, expansion into latest categories and methods to woo more customers. The retailers doubled down on that on Thursday — saying the challenged economic backdrop makes the time right and the offerings more compelling.

Dollar General, which has greater than 18,000 stores, will open 1,100 latest locations this 12 months. It is going to expand its latest store concept, PopShelf, and press ahead with the addition of more health-related merchandise. And it would go global by opening as much as 10 stores in Mexico by the top of this 12 months.

The corporate goes larger with its stores, too. About 800 of the brand new locations might be its larger format of 8,500 square feet, with extra aisles for health and wonder items and coolers that hold produce or other groceries, Chief Financial Officer John Garratt told analysts on the decision.

Dollar General is adding more end caps and displays that emphasize its cheaper private label and its $1 items, Vasos said. He said the corporate has “seen an acceleration in our private brand business” in recent weeks.

Dollar Tree, which incorporates greater than 15,500 stores, is opening 590 stores this 12 months. It’s adding a bigger range of products by raising the value of $1 items to $1.25 and adding merchandise with a $3 and $5 price tag. And it has brought in latest executives to show around its Family Dollar banner.

Managing higher costs

Dollar Tree and Dollar General weren’t resistant to higher costs in the primary quarter, and a few investors have raised concerns about whether or not they can keep prices low without hurting profits.

To this point, the retailers have managed to beat Wall Street’s earnings expectations despite higher prices of fuel, freight and more. That is something that Walmart and Goal didn’t do.

Vasos said Dollar General can trade to other items or trade down in sizes if particular goods rise in price. He said the corporate is closely managing inventory to avoid a high level of markdowns and excess items that do not sell.

Dollar General has a couple of other cost-saving and profit-driving measures underway, too. It added self-checkout to greater than 8,000 stores as of the top of the primary quarter. It plans to show about 200 stores into self-checkout only this 12 months. It’s greater than doubling its private fleet of trucks from 2021, so that they account for about 40% of its outbound transportation fleet by the top of the 12 months. And it’s carrying more health care products, equivalent to cough and cold medication, which have higher margins than food.

At Dollar Tree, a price hike has been a giant boost for profitability. The retailer announced last 12 months that it will raise the value of dollar items by 1 / 4. It’s rolling out $3 and $5 items to more stores, too.

Witynski said that wider range of price points means latest sales opportunities in key seasons, equivalent to the vacations. He said Dollar General had strong sales around Easter and Valentine’s Day and anticipates an analogous dynamic within the back half of the 12 months with back-to-school, Halloween and the vacation season.

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