Dollar General, Dollar Tree boost outlook as consumers grapple with inflation
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Dollar General and Dollar Tree outlets
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Shares Dollar General Dollar TreeOn Thursday, the market exploded as discounters beat Wall Street’s quarterly earnings forecasts. This raised the outlook for next year and suggested that consumers will flock to lower prices in times of inflation.
Midday on Thursday saw Dollar General shares rise by approximately 14%, while Dollar Tree was up around 20%.
Two retailers indicated that they believe there is opportunity for growth, as Americans are more conscious of value when making purchasing decisions.
On a conference call with analysts, Todd Vasos, Dollar General CEO stated that “we’re already seeing our core customers begin to shop more intentionally.” We’re beginning to notice that the next level of customers are starting to shop with Dollar General a bit more.
Rick Dreiling, Dollar Tree Executive Chairman, outlined the numerous challenges consumers face. These include record-high gas prices, high inflation and uncertain future events such as the Ukraine war or the pandemic. He stated that consumers are “living paycheck to paycheck”.
He stated that “Value retail is a solution in tough times. It can help families increase their income to meet evolving needs.”
Dollar General, Dollar Tree and Dollar Tree surpass expectations regarding fiscal first quarter earnings and revenue.
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 with its previous expectations between $27.22 billion to $27.85 billion.
Dollar General stated that it anticipates net sales growth between 10% and 10%, compared to its prior expectation of 10%. This is an increase in its expected same-store sales growth from 2.5% to 3.5%.
The following are key takeaways for the discounters’ fiscal first-quarter earnings report:
A different merchandise mix
While they still visit stores, shoppers now buy different products. In the first quarter of fiscal 2011, food was a larger part of basket sales and drove Dollar General’s and Dollar Tree’s revenue.
Consumers had additional dollars thanks to child tax credits and stimulus checks a year ago. This allowed some to make impulse purchases or buy discretionary goods. These dollars are gone and budget-friendly items like groceries and gasoline have become more expensive.
Vasos stated that Dollar General saw a decrease in same-store sales in all three categories of seasonal, apparel, and home goods in its fiscal first quarter. However, there were more consumables. According to FactSet, the overall drop in same-store sales was 0.1%, which is more than the predicted 1.3% decrease by analysts.
At Dollar Tree, carbonated beverages, salty snacks and cookies were some of the items that surged in popularity — especially as the retailer expanded its food and beverage assortment. Family Dollar is the company’s parent, which focuses more on food than the banner with its name.
Analysts were told by Michael Witynski, CEO of Dollar Tree, that “we believe that’s traffic driver” and that customers will experience these items, and that over time, that will drive more traffic to the entire store.
These companies had similar sales patterns to the ones at Walmart TargetTwo other companies also witnessed a shift towards groceries in the first quarter.
Take advantage of the present
Dollar Tree and Dollar General were planning to expand their stores, offer new products and create more customer loyalty even before inflation reached a record four-decade high. The retailers doubled down on that on Thursday — saying the challenged economic backdrop makes the time right and the offerings more compelling.
Dollar General has 1,100 locations and currently operates more than 18,000 of them. The company will grow its new store concept, PopShelfContinue to add more products that are health-related. It will also open up to 10 Mexican stores by the end this year.
It is also expanding its retail outlets. John Garratt, chief financial officer, stated that 800 new stores will have a larger 8,500-square foot format. This includes extra aisles for beauty and health products, and coolers to hold groceries or produce.
Vasos stated that Dollar General has added more displays and end caps to emphasize the $1 private label’s lower prices. In recent weeks, Vasos said that there has been an “acceleration in our private branding business”.
Dollar Tree is expanding its network to 590 locations this year. The company has more than 15500 stores. Dollar Tree is increasing its range of products by increasing their price to $1.25 for some items and adding $5 and $3 merchandise. It has also hired new executive to help it turn the Family Dollar banner around.
Management of higher costs
Dollar General and Dollar Tree were not immune from rising costs during the first quarter. Some investors are concerned about how they will keep prices down without affecting profits.
Wall Street has not been disappointed with the retailer’s performance, despite increased fuel costs, freight, and other expenses. Target and Walmart did not achieve this feat.
Vasos stated that Dollar General is able to trade with other goods or reduce its size if certain items go up in price. To avoid excessive inventory and markdowns, Vasos said that they are closely monitoring it.
Dollar General also has other profit-driving and cost-saving measures in place. As of the close of quarter one, more than 8,000 locations had self-checkout. The company plans to convert 200 of its stores into self checkout by the end of this year. The private fleet will more than double by 2021 and account for approximately 40% of outbound transportation. It is. carrying more health care products,These include cold medicine and cough medication. They have greater margins than food.
Dollar Tree’s price increase has provided a huge boost to profitability. Last year, the retailer said it would increase the dollar item price by 25%. Additionally, it is distributing $3 and $5 products to additional stores.
Witynski explained that having a greater range of prices means there are more opportunities for sales in the key season, such as holidays. Witynski said Dollar General saw strong Easter and Valentine’s Day sales and expects the same dynamic for the second half of the year, with back-to school, Halloween, and the holiday season.
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