Dollar General is a stronger operator than Dollar Tree—and that doesn’t look set to change anytime soon.
Brett Hondow/Dreamstime.comWhen is a dollar not worth a dollar? When you invested it in one of the two dollar-store stocks a week ago. Depending on your choice, it’s now worth much more or less.
Dollar General (ticker: DG) and Dollar Tree (DLTR) reported fiscal-first-quarter results before the bell on Thursday, and both beat analysts’ expectations—but that’s where the similarities end. While the former forecast stronger full-year results, the latter warned freight costs could have a big impact on earnings. It’s the latest indication that Dollar General is the stronger operator—and that doesn’t look set to change anytime soon.
Dollar General earned $2.82 a share on revenue of $8.4 billion, above the EPS of $2.22 and revenue of $8.27 billion analysts had predicted, while same-store sales fell a smaller-than-expected 4.6%. It also raised its guidance for the full year.
Dollar Tree earned $1.60 a share on revenue of $6.48 billion, above the respective $1.42 and $6.28 billion consensus. Same-store sales of 0.8% edged ahead of analysts’ expectations, too, but its full year outlook, for earnings of $5.80 to $6.05 a share, was below the Street’s expected $6.23.
The retailer said higher freight costs would weigh on the remaining three quarters of the fiscal year to the tune of 70 cents to 80 cents a share above the year-ago period, roughly double what previous guidance had implied.
Dollar General rose 2.2% on Thursday following its report, while Dollar Tree slid 7.7%.
It isn’t so much that transport pressures are a surprise—Dollar General and other consumer-focused companies have also called out the issue. But they come at an inauspicious time for Dollar Tree. Dollar General and numerous other retailers, from Target (TGT) to Macy’s (M), reported robust earnings this season, with many striking an upbeat tone about the remainder of 2021. That makes Dollar Tree’s outlook stick out.
Another issue is that both retailers were big pandemic winners, and some question whether that momentum can continue. Higher labor costs associated with rising wages, tough comparisons, and the impact of inflation on their core lower-income consumers are among the potential headwinds.
Yet Dollar General, at $202.96, looks in a better position to withstand these pressures. When Barron’srecommended both stocks last July, we noted it was the healthier of the two, and its operational cushion seems to be serving it well as the discount sector enters a more challenging environment.
We also noted that Dollar Tree, now at $97.50, has turnaround appeal. Indeed, its long-troubled Family Dollar unit posted a smaller-than-expected same-store sales decline. There are other reasons to be hopeful, including the rollout of the enhanced child tax credit in the coming months.
Yet in the near term, Dollar General looks like it still has the edge.
Write to Teresa Rivas at teresa.rivas@barrons.com
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May 29, 2021 at 08:19AM
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Dollar General Had Strong Earnings. It Can Weather Postpandemic Pressures Too. - Barron's
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