Dollar General and Dollar Tree Shares Show Signs of Recovery News ad

The uncertain macroeconomic situation has forced consumers to control their spending and seek benefits. This has been a boon for discount retailers in the consumer goods sector such as TJX, Inc. New York Stock Exchange: TJX And Ross Stores Inc. NASDAQ: GROWTH but this hurts deep discount retailers like Dollar Tree Inc. NASDAQ: DLTR And Dollar General Co. New York Stock Exchange: DG. At deep discount dollar stores, you usually get what you pay for: low quality at low prices. Consumers want quality at a price, which means premium brands at discounted prices. However, the tide may be turning in favor of dollar stores, as evidenced by improvements in net earnings and stock prices, leading investors to wonder if it’s time to return to Dollar General and Dollar Tree stocks.

Dollar General: Big Fish in Small Towns

The Action Book is to be a big fish in a small pond, many small ponds. From a retail perspective, this means operating more than 19,000 stores in many smaller cities with an average store size of approximately 7,500 square feet. Dollar General does not compete with big box stores like Walmart Inc. New York Stock Exchange: WMT or Target company New York Stock Exchange: TGT. Instead, their stores are located in areas that are not touched by big box stores because the population is too small. Dollar General stores target cities with an average population of less than 20,000 people. Texas has the most Dollar Generals stores, with nearly 9% of the state’s total stores.

Dollar General: More than a Dollar Store, a discount store chain

Although Dollar General has some items that sell for $1 through Dollar Deals, they are not technically dollar stores. It is a discount chain that offers primarily groceries and household goods, as well as a limited selection of electronics, clothing, and toys. As for clothing, it’s mostly basics like hoodies, t-shirts, sweatpants, socks and underwear.

This formula was successful until recent quarters, when the economy began to weigh on consumer spending by low-income buyers. Residents of rural towns felt the pinch of inflation and rising interest rates, which showed up in Dollar General’s profits. However, the latest quarter shows signs of improvement.

The general dollar rate is rising despite hurricanes

Dollar General reported third-quarter 2024 earnings per share of 89 cents, still missing the consensus estimate by 5 cents. However, revenue rose 5% YoY to $10.18 billion, beating the consensus estimate of $10.14 billion. Same-store sales rose 1.3% YoY. Selling, general and administrative (SG&A) expenses included $32.7 million in hurricane-related expenses.

The company issued full-year 2024 EPS guidance of $5.50 to $5.90 versus consensus estimates of $5.82. In 2024, revenue is expected to grow 4.8% to 5.1%, up from previous estimates of 4.7% to 5.3%, representing $40.55 billion to $40.67 billion, versus $40.52 billion consensus. estimates. Same-store sales are expected to grow 1.1% to 1.4% YoY.

Expected real estate projects

The company expects to complete 4,885 real estate projects, including the opening of 575 new stores in the United States and up to 15 in Mexico. As part of Project Elevate, they plan to completely renovate 2,000 stores, modernize 2,250 stores, and relocate 45 stores.

Reinstated Dollar General CEO Todd Vasos commented, “While we continue to operate in an environment where our core customer is experiencing financial distress, we delivered same-store sales close to the high end of our expectations for the quarter. We believe our Back to Basics efforts contributed to these results as we continue to improve our operations and the customer experience in our stores.”

Dollar Tree: Dollar stores selling 90% of their items for $1.25 or more.

As the name suggests, Dollar Tree stores are actually stores that sell items for $1, but are actually $1.25 (or more). Dollar Tree also owns Family Dollar stores. The company operates more than 16,590 stores in 48 states and five Canadian provinces.

As part of its portfolio optimization analysis, the company identified 970 Family Dollar stores to close, with 670 stores currently closed and an additional 25 expected to close by the end of 2024. The company is still considering strategic alternatives for its Family Dollar stores. .

Things have improved for Dollar Tree lately as shoppers have moved to a base price of $1.25 on 90% of items in its stores.

Strong Q3 results: EPS up after 3 misses and revenue up after 4 misses

Dollar Tree reported third-quarter 2025 earnings per share of $1.23, beating consensus estimates by 5 cents. This was the first EPS hit after three previous quarters of EPS misses. Revenue rose 3.5% YoY to $7.57 billion, well above the consensus estimate of $7.45. Again, this was the first increase in earnings after four misses.

Enterprise shares rose 1.8%, up from 0.7% in the second quarter. The growth in corporate indicators was due to an increase in traffic by 1.6% and an increase in the average check by 0.2%. This was the first positive result since the fourth quarter of 2022.

Snacks, candies and drinks became top sellers

Dollar Tree’s consumer revenue growth was 6.2%, which was impressive, beating last year’s 11.1% YoY sales growth. Household dollars rose 1.9%, up from a 0.1% decline in the second quarter, driven entirely by traffic. The average check has remained unchanged for the last three quarters in a row. The top performing category was consumer products, which included snacks, candy and beverages. Even Family Dollar supplies rose 1.3%, up 6.2% from last year.

Discretionary barriers continue to persist

Dollar Tree executives noted that customers are still buying out of necessity and that the time for that need is approaching. Low-income clients on a budget, and even to a lesser extent, middle- and high-income families with young children, still have to tighten their belts. Lower-middle-income households shift more of their spending to food at home.

Fighting potential obstacles to Trump tariffs

The company reviewed the potential of Trump’s tariffs and its plans to address them. The bulk of goods are supplied from abroad. In 2018 and 2019, the company mitigated the impact of tariffs by negotiating cost reductions with suppliers, changing product sizes and packaging specifications, and eliminating wasteful products. The company has detailed contingency plans to move its supply chain for more products to other countries.

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