Dollar General, Dollar Tree improves outlook as consumers grapple with inflation

Dollar General and Dollar Tree shops

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Actions of dollar general Other Dollar tree It popped up Thursday as discounters outperformed Wall Street’s quarterly earnings expectations, raised their outlook for next year, and spoke of consumers pouring into lower prices during inflationary times.

By noon on Thursday, Dollar General shares were up about 14% and Dollar Tree about 20%.

The two retailers said they see the opportunity to grow as Americans value more value in their buying decisions, whether it’s to buy groceries or seasonal decorations.

“We’re already starting to see our major customers start shopping more intentionally,” Dollar General CEO Todd Vasos said in an analyst call. And we’re starting to see that the next level of customers will also start shopping with us a little more. ”

Dollar Tree Executive President Rick Dreiling listed the many challenges consumers face, from the highest inflation levels since the early 1980s to high gas prices and the uncertainty of current events such as the war in Ukraine and the pandemic. He added that many consumers “are living from pay to pay.”

“In difficult times, value retailing can be part of the solution to help families stretch their dollars to meet their evolving needs,” he said.

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

Dollar Tree, which includes the Family Dollar banner, said it now expects net sales for the year to fluctuate from $ 27.76 billion to $ 28.14 billion compared to previous expectations of between $ 27.22 billion and $ 27. , 85 billion.

Dollar General said it expects net sales growth of around 10% to 10.5% from its previous expectation of around 10%. It raised its sales forecast in the same store to growth of around 3% to 3.5% from the previous expectation of 2.5%.

Here are three important conclusions from the two discounters’ first-quarter fiscal earnings reports:

A different product mix

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

A year ago, consumers were receiving extra dollars from stimulus checks and tax credits for children. This meant that some were born for impulse items or discretionary purchases. Those dollars have disappeared and other budget items, such as food and gas, have become more expensive.

Vasos said Dollar General’s same-store sales decreased in each of the seasonal, apparel, and homeware categories in the first fiscal quarter, but more supplies were sold. Overall, same-store sales They were down 0.1% from the prior-year period, beating the 1.3% decline forecast by analysts, according to FactSet.

At Dollar Tree, fizzy drinks, savory snacks, and cookies were some of the items that gained popularity, especially as the retailer expanded its food and drink assortment. The company is the parent company of Family Dollar, a banner that tends more towards food than the banner of the same name.

“We believe it is a traffic factor and as customers experience the items and appreciate the value we are offering them, over time we believe this will help drive traffic to the entire store, not just those categories,” Michael Witynski, CEO of Dollar Tree told analysts.

The companies’ sales models echoed those of Walmart Other Targettwo companies that in the first fiscal quarter also saw a shift towards food and the abandonment of goods in general.

Seize the day

Even before inflation peaked in four decades, Dollar Tree and Dollar General had plans to broaden their store footprints, expand into new categories and strategies to win more customers. Retailers doubled up on Thursday, saying the challenged business environment makes the timing right and offers more compelling.

Dollar General, which has more than 18,000 stores, will open 1,100 new locations this year. It will expand his new store concept, PopShelf, and move on by adding more health-related articles. And it will go global by opening up to 10 stores in Mexico by the end of this year.

The company is also getting bigger with its stores. About 800 of the new locations will be in its largest format of 8,500 square feet, with extra aisles for health and beauty items and coolers that contain products or other groceries, Chief Financial Officer John Garratt told analysts during the call. .

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

Dollar Tree, which includes over 15,500 stores, will open 590 stores this year. It’s adding a wider range of products by raising the price of items from $ 1 to $ 1.25 and adding merchandise priced at $ 3 and $ 5. And it’s brought in new executives to flip its Family Dollar banner.

Manage higher costs

Dollar Tree and Dollar General were not immune from rising costs in the first quarter, and some investors have expressed doubts about keeping prices low without hurting profits.

So far, retailers have managed to exceed Wall Street’s earnings expectations despite higher prices for fuel, goods and more. It’s something Walmart and Target haven’t done.

Vasos said Dollar General can trade for other items or shrink in size if certain goods go up in price. He said the company is closely managing inventory to avoid a high level of discounts and excess items that aren’t being sold.

Dollar General also has some other cost-saving and profit-driving measures underground. It added automatic checkout to over 8,000 stores at the end of the first quarter. It plans to turn around 200 shops into automatic checkouts this year alone. It’s more than doubling its private truck fleet since 2021, so by the end of the year they account for around 40% of its outbound haulage fleet. And this is carrying more health products, such as cough and cold medications, which have better margins than food.

At Dollar Tree, a price increase was a big boost to profitability. The retailer announced last year that it would raise the price of dollar items by a quarter. It is launching $ 3 and $ 5 items in more stores as well.

Witynski said a wider range of price points means new sales opportunities in key seasons, such as the holidays. He said Dollar General has seen strong sales around Easter and Valentine’s Day and expects a similar dynamic in the second half of the year with back to school, Halloween and the holiday season.

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