Inflation is causing Dollar General and Dollar Tree shares to spike

A sign marks the location of a Dollar Tree store on March 04, 2021 in Chicago, Illinois.
A sign marks the location of a Dollar Tree store on March 04, 2021 in Chicago, Illinois. Photo credit (Photo by Scott Olson/Getty Images)

(KNX) — As the U.S. struggled with inflation levels not seen for decades in the first quarter of 2022, consumers headed to “dollar” stores.

Two discount chains – Dollar Tree and Dollar General – both announced first quarter sales increases, beating Wall Street expectations and leading to a spike in shares.

Photo credit @KNXNews

According to CNBC, Dollar Tree shares jumped 21.87% to close at $162.80 Thursday and Dollar General shares rose 13.71% to close at $222.13.

This month, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for all urban consumers had increased by .3% in April. When it comes to $1, recent inflation has made what would cost $1 in April 2021 now cost $1.08. This is the steepest decrease in buying power of $1 in the past 10 years.

Although Dollar Tree and Dollar General had impressive sales so far this year, inflation has also impacted the businesses. For example, what $1 could buy when Dollar Tree opened its first store under the company name in 1993 would now cost $2.01 due to inflation.

In September, Dollar Tree announced it would increase prices to $1.25. According to CNN Business, Dollar General – which has around 17,000 stores located in mostly rural areas compared to Dollar Tree’s approximately 15,500 locations primarily in the suburbs – was holding on to its $1 price point as of March.

A press release form Dollar Tree, which also owns Family Dollar, said that consolidated net sales increased 6.5% to $6.90 billion from $6.48 billion in the prior year’s first quarter and gross profit increased 19.2% to $2.34 billion from $1.96 billion in the prior year’s first quarter. During the quarter, the company also increased its fleet of stores by 82.

“The team delivered a solid start to the year – with a 6.5% top-line sales expansion, a 19.2% lift to gross profit, and a 48.1% increase to earnings per share,” said Dollar Tree President and CEO Michael Witynski.

Through the remainder of the year, consolidated net sales for Dollar Tree are expected to range from $27.76 billion to $28.14 billion, compared to the company’s previously expected range of $27.22 billion to $27.85 billion.

“We are taking the necessary actions now to position ourselves for accelerated growth in what I view as the most attractive sector in retail, especially in the current economic environment, Wyszynski said. He added that the company will be working to improve associate and shopper experience.

For Dollar General, net sales increased by 4.2% to $8.8 billion during the first 13 weeks of the year, though sale-store sales decreased by .1% and operating profit decreased by 17.9% to $746.2 million.

Same-store customer traffic was down slightly, but there was an increase in transaction amount.

“We are pleased with our start to 2022, and I want to thank each of our team members for their ongoing commitment and dedication to serving our customers every day,” said Todd Vasos, Dollar General’s chief executive officer. “Despite ongoing headwinds due to supply chain pressures and heightened inflation, we remained focused on controlling what we can control and delivered solid financial results, which exceeded our expectations.”

As of April 29, total Dollar General merchandise inventories were up 13.3% year-over-year, partially due to inflation. However, the company still expects to see an approximately 10% to 10.5% increase in sales growth this year even as it is impacted by inflation and supply chain issues.

“We’re already starting to see our core customers start to shop more intentionally,” Dollar General CEO Todd Vasos said on a call with analysts, according to CNBC. “And we’re starting to see that next tier of customers start to shop with us a little bit more as well.”

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