Lower-Income Shoppers Fuel Gains at Dollar Chains
August 29 2019 - 1:18PM
Dow Jones News
By Sarah Nassauer
Dollar-store chains Dollar General Corp. and Dollar Tree Inc.
said Thursday sales rose during the most recent quarter and that
executives are working to manage the cost of new tariffs on Chinese
goods.
Comparable sales at Dollar General, which has over 15,800 stores
mostly outside of big cities, rose 4% during the quarter ended Aug.
2. At Dollar Tree, which owns both the Dollar Tree and Family
Dollar chains, comparable sales rose 2.4% during the quarter ended
Aug. 3.
Executives at both chains said their core low- and middle-income
shoppers continue to spend amid low unemployment and rising
wages.
But Dollar Tree reported lower profits as expenses rose,
flattening its shares as rival Dollar General share's rose over 10%
in morning trading. Some investors also noted Dollar General's
higher sales lift, leading some analysts to say the
more-rural-focused chain is gaining ground on Dollar Tree.
There are signs "that Dollar Tree is treading water rather than
proactively taking market share in the same way as its rival is
doing," said Neil Saunders, managing director of GlobalData
Retail.
Dollar Tree has worked to turn around its Family Dollar chain
after purchasing the then-struggling dollar retailer for nearly $9
billion in cash-and-stock four years ago. It has closed hundreds of
Family Dollars and invested heavily to improve others. Those
efforts are starting to bear fruit, though they have added to
expenses, Dollar Tree executives said on a call with analysts
Thursday.
Executives blamed a global helium shortage for some sales
weakness at the Dollar Tree chain. Lost balloon sales during
Valentine's Day, Mother's Day and Father's Day, along with
gradations reduced comparable sales by 0.4%, said Gary Philbin,
chief executive at Dollar Tree, on a call with analysts.
Dollar Tree reported a profit of $180.3 million, or 76 cents a
share, down from $273.9 million, or $1.15 a share, in the
comparable quarter last year.
Goodlettsville, Tenn.-based Dollar General reported a profit of
$426.6 million, or $1.65 a share, up from $407.2 million, or $1.52
a share, in the comparable quarter last year.
Each chain raised profit estimates for the full year and said
they are working to mitigate Chinese tariff-related cost increases.
Dollar Tree said it expects net income per share to fall between
$4.90 and $5.11 for the full fiscal year, up from a previous
estimate of $4.77 to $5.07. Dollar General said annual earnings per
share will fall in the range of $6.36 to $6.51, up from a previous
estimate of $6.30 to $6.50.
"We've negotiated price concessions, canceled orders, modified
specs, evolved product mix and diversified vendors. We are now
taking actions to mitigate the recently announced tariff increases
and will continue to assess the future impact of these tariffs,"
said Dollar Tree's Mr. Philbin.
Overall, both chains -- which are focused on value and often
sell smaller amounts of products at lower dollar amounts than
big-box competitors -- have fared well as shoppers search out value
and convenience even as more shopping shifts online. In recent
weeks Walmart Inc., Target Corp. and T.J. Maxx parent TJX Cos. have
reported strong sales growth, while Macy's Inc., Nordstrom Inc. and
other middle-market mall-based retailers continue to struggle.
Dollar Tree and Family Dollar were among the three dollar-store
chains that reached a collective $1.2 million settlement on Monday
with the New York attorney general's office after undercover
investigators found expired over-the-counter drugs and obsolete
motor oil on store shelves in the state. The two chains settled for
$100,000.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
August 29, 2019 14:03 ET (18:03 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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