We’ve written extensively on the U.S. Dollar’s strength versus other currencies and how it affects markets and company earnings. We’ve also talked a lot about inflation and how the Dollar’s purchasing power isn’t quite what it once was, especially over the last couple of years. 🥶
So today, it only seems right to check in with two companies with ‘Dollar’ in their names: Dollar Tree and Dollar General. 💵
Retailers have had a very tough go this year, but these two give us an essential read on the behavior of low-to-middle-income consumers.
Dollar Tree shares fell 10% today after the company beat earnings by a penny and met revenue expectations. The issue, however, is that the company cut its financial outlook for the full year, citing a push to offer more competitive prices at its stores (wait, isn’t everything a dollar and 50 cents?). 🤔
Meanwhile, its largest competitor Dollar General seems to be firing on all cylinders. Not only did Dollar General beat earnings and revenue expectations, it expects 12 to 14% EPS growth this year and plans to spend $2.75 on share buybacks and another $1.4-$1.5 billion in CAPEX to drive growth.
The primary difference between the two is that Dollar Tree is an actual “dollar store,” whereas Dollar General is just low-priced items.*
Given the uptick in inflation, Dollar Tree has seen its margins struggle, mainly as consumer behavior shifted toward more food and grocery items with a lower margin. On top of that, its investment in offering more competitive pricing also pressures margins, hence the reduced forecast.
From a consumer activity standpoint, both companies confirmed what we heard from other major retailers: inflation and the macro environment are causing consumers to spend less on higher-margin discretionary items and more on lower-margin essentials.
And from a stock performance perspective, they continue to fight for superiority. After being the laggard for most of its time as a public company, Dollar General took the lead in 2019 and has kept the title of “Top Dollar” since. 🏆
*Dollar Tree does own Family Dollar, which is a low-priced item chain like Dollar General.