Dollar Tree and Dollar General, Two Discounters with Very Different Q2s

Discount retailers Dollar Tree and Dollar General both reported second quarter earnings Thursday, with the two value-focused chains noting strong sales of food and beverages.

But the reports told vastly different stories about the retailers, with Dollar Tree lowering its earnings forecast for the year while Dollar General raised its outlook.

By midday Thursday, Dollar General’s stock was down just over 1%, while Dollar Tree’s stock price had fallen nearly 10%.

Both retailers made executive announcements.

At struggling Dollar Tree, Jeffrey Davis was hired as CFO. Davis held a number of finance posts at Walmart as well as at Darden Restaurants. He joins a retailer that recently cleaned out its C-suite, with departures of the COO, CIO, chief legal officer and chief strategy officer early last month. Dollar Tree CFO Kevin Wampler said at the time he would stay on board until his successor was announced.

Dollar General, meanwhile, promoted John Garratt to president and CFO. Garratt had served solely as finance chief since 2015.

Both retailers also noted that broader inflationary trends were bringing shoppers into their stores looking for fresh food, frozen items, beverages and additional consumable products.

At Dollar Tree banner Family Dollar, same-store sales of consumable items increased 4% for the second quarter, while sales of discretionary products fell 4.1%. The Chesapeake, Virginia-based retailer noted a 150 basis point swing from discretionary items to consumables in the quarter vs. the year-ago period, with food and beverage now making up 77.3% of Family Dollar’s sales, compared with 75.8% a year ago.

Dollar Tree / Photo courtesy Shutterstock

At Dollar Tree, consumables made up 46.8% of purchases during the quarter. Food and beverage same-store sales rose 7.9%, while sales of discretionary items fell 6.7%, executives said.

The last time same-store sales of consumables surpassed those for discretionary items at Dollar Tree was during the very early days of the pandemic in 2020, the company said.

“This demonstrates the success we are seeing in key traffic-driving categories where our merchants have been active in enhancing value, such as carbonated beverage, snacks and cookies and food,” Dollar Tree CEO Michael Witynski told analysts Thursday. “There are signs of trade-down to our stores, and we are focused on the value proposition for both banners in this environment.”

Goodlettsville, Tennessee-based Dollar General also saw an increase in the sale of food and beverages during the second quarter.

“As the quarter progressed, we saw additional signs of our core customers shopping more intentionally and closer to need, as well as an increase in trade-down activity,” Dollar General CEO Todd Vasos told analysts. “Customers appeared to be making trade-offs of some of their food choices, contributing to an increase in private-brand penetration within our consumables business. We also saw growth in the number of higher-income households shopping with us, which we believe reflects more consumers choosing Dollar General as they seek value.”

Similarly, Walmart said last week it was seeing more mid- to higher-income shoppers coming through its doors looking for bargains.

For the second quarter, Dollar Tree reported same-store sales growth of 7.5%, while Family Dollar’s same-store sales increased 2%. Net income increased 27.4%, to $359.9 million, and the retailer opened 127 new stores and closed 57 locations.

The retailer said it would focus on “competitive pricing” at Family Dollar, even if that leads to short-term economic stress, as it needs to appeal to customers “coming to us to help them navigate difficult times.” That move prompted Dollar Tree to lower its fiscal 2022 revenue guidance to $27.85 billion to $28.10 billion.

For its second quarter, Dollar General reported same-store sales growth of 4.6%, with net income up 6.4% to $678 million. The retailer opened 227 new stores during the period. Dollar General raised its predicted net sales growth to about 11%, up from earlier estimates of 10% to 10.5%, and raised its same-store sales forecast from 4% to 4.5%, up from 3% to 3.5%.