Dollar General and Dollar Tree stocks show signs of recovery

The uncertain macroeconomic landscape has caused consumers to rein in their spending and look for value. For this has proven to be a blessing Low-cost retailers in the Consumer discretionary sector like TJX Companies Inc. NYSE: TJX And Ross Stores Inc. NASDAQ: ROST But a disadvantage for deep discount retailers eg Dollar Tree Inc. NASDAQ: DLTR And Dollar General Co. NYSE: D.G. With deep discount dollar stores, you usually get what you pay for: lower quality for lower prices. Consumers want quality at a value that translates into premium brands at discount prices. However, there may be a turnaround with dollar stores, as indicated by improving bottom lines and stock prices, leading investors to wonder if it’s time to get back into Dollar General and Dollar Tree shares. is

Dollar General: Big Fish in Small Cities

The playbook is to be a big fish in a small pond, lots and lots of small ponds. In terms of retail, this means operating more than 19,000 stores in many small towns with an average store size of about 7,500 square feet. Does not compete with Dollar General Big box stores like Walmart Inc. NYSE: WMT or Target Co. NYSE: TGT. Instead, their stores are located in areas that big box stores can’t touch because the population is so small. Dollar General stores target populous towns with an average of less than 20,000 residents. Texas has the most Dollar Generals, accounting for about 9% of the total number of stores in the state.

Dollar General: More than a dollar store, a discount retail chain

While Dollar General has some items that sell for $1 with dollar deals, they are not technically dollar stores. It is a discount chain that offers mostly grocery and household items, as well as a limited range of electronics, apparel and toys. By apparel, it’s mostly basics like hoodies, t-shirts, sweatpants, socks and underwear.

The formula was successful until recent quarters when the economy took a toll on consumer spending with lower income shoppers. Residents of rural towns feel the pinch of inflation and high interest rates, which manifests itself in Dollar General’s bottom line. However, there are signs of change in its most recent quarter.

Despite the storms, the dollar rose to normal

For the third quarter of 2024, Dollar General reported EPS of 89 cents, which still missed consensus estimates by 5 cents. However, revenue rose 5% YoY to $10.18 billion, beating consensus estimates of $10.14 billion. Same-store sales rose 1.3% YoY. Selling, general and administrative (SG&A) expenses included $32.7 million in storm-related charges.

The company issued full-year 2024 EPS guidance of $5.50 to $5.90 vs. $5.82 consensus estimates. Full-year 2024 revenue is expected to rise 4.8% to 5.1%, compared with earlier forecasts of 4.7% to 5.3%, to $40.55 billion to $40.67 billion vs. consensus estimates of $40.52 billion. Same-store sales are expected to grow between 1.1% and 1.4% YoY.

Real estate projects are expected

The company expects 4,885 real estate projects, including opening 575 new stores in the United States and up to 15 in Mexico. Through Project Elevate, they expect to completely remodel 2,000 stores and upgrade 2,250 stores while relocating 45 stores.

Dollar General CEO Todd Vassos commented, “While we continue to operate in an environment where our core customer is financially constrained, we delivered same-store sales near the high end of our expectations for the quarter. done We believe our back to basics efforts contributed to these results, as we continue to improve our execution and customer experience in our stores.”

Dollar Tree: Dollar stores sell 90% of items for $1.25 or more

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

As part of its portfolio optimization review, the company has identified 970 Family Dollar stores to close, of which it has closed 670 stores so far, with 25 more scheduled to close in the remainder of 2024. The company is still considering strategic options for its Family Dollar stores. .

Things have improved for Dollar Tree recently as customers have adjusted to the $1.25 baseline price for 90% of items in its stores.

Solid Q3 results: EPS beats after 3 misses and revenue beats after 4 misses

Dollar Tree reported third-quarter 2025 EPS of $1.23, beating consensus estimates by 5 cents. It was the first EPS beat after missing the previous three quarters of EPS. Revenue rose 3.5% YoY to $7.57 billion, strongly beating consensus estimates of $7.45. Again, this was the first upside return after four misses.

Enterprise comp rose 1.8%, up from 0.7% in Q2. Enterprise comp was driven by a 1.6% increase in traffic and a 0.2% increase in average tickets. This was its first positive ticket since the fourth quarter of 2022.

Snacks, candy and beverages were the best sellers

Dollar Tree consumer comps were 6.2% which was impressive, compared to last year’s comp growth of 11.1% YoY. Family Dollar comps rose 1.9% vs. fell 0.1% in Q2, driven entirely by traffic. The average ticket was flat for the last three consecutive quarters. Consumable comp was the best category, including snacks, candy and beverages. Even family dollar consumable comps rose 1.3%, lapping last year’s 6.2% comp.

Discretionary headwinds continue

Dollar Tree management noted that customers are still buying for need and near the time of that need. There is still some degree of belt-containment for its budget-constrained low-income customers and even for its middle-income and upper-income families with young children. Lower middle-income households are shifting more of their spending toward home food.

Dealing with potential Trump tariff headwinds

Addressed the potential of the company Trump Tariffs and its plans to address them. A major part of its trade is taken from abroad. In 2018 and 2019, the company reduced Tariff effect By negotiating lower costs with suppliers, changing product pack sizes and specifications, and dropping uneconomic products. It has detailed backup plans to shift its supply chain to alternate countries for other products.

Before you consider Dollar General, you may want to hear this.

MarketBeat keeps track of Wall Street’s top-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified Five stocks That top analysts are quietly telling their clients to buy before the broader market comes in… and Dollar General was not on the list.

While Dollar General currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

Check out five stocks here