3 takeaways from Dollar General, Dollar Tree earnings that sent the shares soaring

Shares of Dollar General and Dollar Tree emerged on Thursday as low-cost carriers beat Wall Street’s expectations for quarterly results, boosting prospects for the coming year and talking about consumers flocking to lower prices during inflation.

At noon on Thursday, the shares of Dollar General were up approx. 1[ads1]4% and Dollar Tree was up approx. 20%.

The two retailers said they see the opportunity to grow as Americans weigh value more heavily in their purchasing decisions, whether they buy groceries or seasonal decor.

“We are already beginning to see our core customers begin to act more consciously,” Dollar General CEO Todd Vasos said in an interview with analysts. And we’re starting to see the next team of customers start shopping with us a little more as well. ”

Dollar Tree CEO Rick Dreiling listed the many challenges consumers face, from the highest levels of inflation since the early 1980s to record high gas prices and uncertainty over current events such as the Ukraine war and the pandemic. He added that many consumers “live paycheck to paycheck.”

“In tough times, value trading can be part of the solution to help families stretch their money to meet their evolving needs,” he said.

Dollar General and Dollar Tree beat expectations for revenue, revenue and sales in the same store in the first quarter.

The Dollar Tree, which includes the Family Dollar banner, said it now expects net sales for the year to range from $ 27.76 billion to $ 28.14 billion, compared to previous expectations between $ 27.22 billion to $ 27.85 billion.

Dollar General said they expect net sales growth of around 10% to 10.5% compared to the previous expectation of around 10%. This raised the forecast for sales in the same store to a growth of approximately 3% to 3.5% compared to the previous expectation of 2.5%.

Here are three important things from the two low-cost companies’ accounting reports for the first quarter:

Shoppers still come to stores, but buy different items. Food is a larger part of baskets and drove sales for Dollar General and Dollar Tree in the first quarter of the financial year.

A year ago, consumers had extra money from stimulus checks and tax deductions for children. This meant that someone ran for impulse goods or discretionary purchases. These dollars have disappeared and other budget items, such as groceries and gas, have become more expensive.

Vasos said that sales in the same store at Dollar General fell in each of the categories seasonal, clothing and home products in the first quarter of the financial year, but more consumer goods were sold. Overall, sales in the same store fell 0.1% compared to the same period last year, and the decline was 1.3% expected by analysts, according to FactSet.

At Dollar Tree, carbonated beverages, salty snacks and cookies were some of the items that increased in popularity – especially as the retailer expanded its food and beverage selection. The company is the mother of Family Dollar, a banner that leans more strongly towards food compared to the namesake banner.

“We believe it is a traffic driver, and as customers experience the goods and appreciate the value we give them, we believe over time that it will help drive traffic into the general store, not just these categories,” Dollar Tree CEO Michael Witynski told analysts.

The sales patterns of the companies reflected those of Walmart and Target, two companies that also saw a shift towards groceries and away from general goods in the first quarter of the financial year.

Even before inflation jumped to four decades high, Dollar Tree and Dollar General had plans for larger store footprints, expansion into new categories and strategies to woo more customers. The dealers doubled it on Thursday – and said that the challenging financial backdrop makes the time right and the offers more convincing.

Dollar General, which has more than 18,000 stores, will open 1,100 new locations this year. It will expand its new store concept, PopShelf, and continue to add more health-related items. And it will be global by opening up to 10 stores in Mexico by the end of this year.

The company is getting bigger with its stores as well. About 800 of the new locations will be the larger format of 8,500 square feet, with extra aisles for health and beauty items and coolers containing products or other groceries, CFO John Garratt told analysts during the interview.

Dollar General adds more end caps and displays that underline its cheaper private label and its $ 1 goods, Vasos said. He said the company has “seen an acceleration in our private label business” in recent weeks.

Dollar Tree, which includes more than 15,500 stores, will open 590 stores this year. It adds a wider range of items by increasing the price of $ 1 items to $ 1.25 and adding items with a $ 3 and $ 5 price tag. And it has brought in new leaders to reverse the Family Dollar banner.

Dollar Tree and Dollar General were not immune to higher costs in the first quarter, and some investors have raised concerns about whether they can keep prices low without hurting profits.

So far, retailers have managed to beat Wall Street’s earnings expectations despite higher prices for fuel, shipping and more. That’s something Walmart and Target did not do.

Vasos said the Dollar General can trade in other goods or trade down in sizes if certain goods rise in price. He said that the company manages its inventory carefully to avoid a high level of write-downs and surplus goods that are not sold.

Dollar General also has some other cost-saving and for-profit measures underway. It added self-check to more than 8,000 stores by the end of the first quarter. It plans to turn around 200 stores into self-checkouts earlier this year. It more than doubles its private truck fleet from 2021, so they account for about 40% of its outgoing transport fleet by the end of the year. And it has several health products, such as cough and cold medicines, which have better margins than food.

At Dollar Tree, a price increase has been a major boost to profitability. The retailer announced last year that they would increase the price of dollar goods by a quarter. It rolls out $ 3 and $ 5 items to more stores as well.

Witynski said that wider range of price points means new sales opportunities in important seasons, such as the holidays. He said that Dollar General had strong sales around Easter and Valentine’s Day and expects a similar dynamic in the back half of the year with school starting, Halloween and the holidays.