Shares of Dollar Tree and Dollar General Rise as Inflation Pushes Shoppers to Find Bargains

Shares of Dollar Tree and Dollar General Rise as Inflation Pushes Shoppers to Find Bargains
The Dollar Tree logo on its store in Bowie, Maryland on Nov. 23, 2021. (Jim Watson/AFP via Getty Images)
Bryan Jung

Shares of Dollar Tree Inc. and Dollar General Corp. surged on May 26 after upbeat financial news for 2022 from the two discount retail chains in the their first-quarter earnings reports.

Many shoppers are flocking to discount retailers as U.S. inflation rates hit a four-decade high.

"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 for sales and EPS for the quarter," said Dollar General CEO Todd Vasos.

"We're already starting to see our core customers start to shop more intentionally," Vasos said on a call with analysts, "and we're starting to see that next tier of customers start to shop with us a little bit more as well."

Dollar General's sales growth numbers for 2022 were revised upwards from 3 percent to 3.5 percent, an increase from its previous forecast of 2.5 percent growth.

Its latest quarterly report showed sales rising by 6.5 percent to $6.9 billion, and that customers are "responding favorably" to its increased $1.25 price point.

The discount store chain predicted its net sales in 2022 to be in the range of $27.76 billion to $28.14 billion, compared with its previous forecast of $27.22 billion to $27.85 billion.

Analysts on average forecast $27.95 billion in earnings for 2022, according to IBES data from Refinitiv.

The news was in contrast to last week's poor earnings reports from retailers like Target Corp. and Walmart Inc., which is a sign of how well shoppers are faring in the face of high prices for food and energy.

Record high gas prices, supply shortages, and disruptions due to the war in Ukraine and the pandemic are hitting home.

Consumer price inflation hit 8.3 percent in April, a slight decline its from 41-year high of 8.5 percent in March.

According to Dollar Tree Executive Chair Rick Dreiling, who spoke with CNBC, consumers are facing financial challenges due to the highest inflation levels since the early 1980s, and many "are living paycheck to paycheck."

"In tough times, value retail can be part of the solution to help families stretch their dollars to meet their evolving needs," he said.

Dollar General, which has more than 18,000 stores, has plans to open 1,100 new locations this year.

It will expand its new store concept, PopShelf, which is marketed at more high end customers and will expand its selection of more health-related merchandise.

The chain will expand into Mexico with 10 stores by the end of this year.

About 800 of the new locations will be built in a larger format of 8,500 square feet, with extra aisles for health and beauty items and more coolers to hold produce and other groceries, said Dollar General's Chief Financial Officer John Garratt.

Dollar Tree, which maintains more than 15,500 stores, will also open 590 stores in 2022, will add a wider range of goods by raising the price of $1 items to $1.25 and by adding merchandise with a $3 and $5 price tag.

Meanwhile, the two dollar chains are trying to strategize about ways to manage higher costs, while also furthering their expansion plans.

Shares in both companies had earlier lost ground this year, with Dollar General losing 17 percent at the beginning of 2022 through May 25, while Dollar Tree had declined by nearly 5 percent.

Dollar General stock rose 12 percent to $219.42 in early trading May 26, while shares of Dollar Tree surged 17 percent to $156.41.

Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.