(Bloomberg) — Dollar-store chains provided different takeaways on the state of the US retail sector that’s facing increasing economic challenges.
At Dollar Tree Inc., the company mostly met Wall Street expectations last quarter and left its sales growth outlook for the year unchanged. Dollar General Corp. lifted its view for annual revenue after a quarterly sales beat.
Shares of Dollar Tree fell as much as 11% in New York trading on Thursday, the most intraday in almost a year, while Dollar General gained as much as 8%, hitting the highest level since March.
Dollar Tree likely faced a higher bar to impress investors heading into results after its shares have outperformed its larger peer in recent years. Dollar General’s store count rose to more than 21,000 in the latest quarter, while Dollar Tree now has around 9,400.
The results offer an important view into shopping habits — dollar stores often benefit when consumers cut back and seek out lower prices. Both retailers have had success expanding beyond lower-income shoppers amid elevated inflation, including for gasoline.
Several US retailers this earnings season have raised doubts about the remainder of the year amid sinking consumer confidence. Dick’s Sporting Goods Inc. cut its guidance‘, pointing to a rise in discounting. Walmart Inc. posted its slowest comparable sales growth at US stores in more than six years. And Kohl’s Corp. said shoppers are increasingly picky as a return to growth remained elusive.
Dollar General reported comparable sales growth of 3.5% in the second quarter, exceeding the most optimistic estimate among analysts polled by Bloomberg.
Those results were primarily driven by customer traffic, which grew 2%, while each of its product categories grew. One advantage the chain has over Dollar Tree is that it generates more of its revenue from consumables, which includes food.
The chain is also attracting a wealthier clientele. “We once again experience strong trade-in across middle- and high-income cohorts,” Chief Executive Officer Todd Vasos said on a call with analysts.
Dollar General’s focus on consumables has benefitted the company as shoppers feel pinched from higher gas prices. “Customers have continued to reduce trips and shop closer to home,” Vasos added. He noted the company’s store size and affordable assortment has continued to draw people in.
By contrast, Dollar Tree’s same-store growth was mostly driven by larger transaction sizes, while traffic rose only 0.4% in the quarter.
Dollar Tree has been pushing into higher-priced categories by adding a wider selection of products. That strategy has improved ticket size, while foot traffic has fallen in three of the last four quarters.
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(Updates share price, adds store counts and chart)
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