Inflation is driving Americans to bargain chain stores

Aug 24, 2022, 8:50 PM | Updated: Aug 25, 2022, 3:04 pm
FILE - A clerk brings in a shopping basket at a Dollar Tree store in Richland, Miss., Tuesday, Nov....

FILE - A clerk brings in a shopping basket at a Dollar Tree store in Richland, Miss., Tuesday, Nov. 26, 2019. Dollar Tree and Dollar General both reported sales increases for the fiscal second quarter, Thursday, Aug. 25, 2022, as inflationary pressures draw low income shoppers to their stores for groceries and other necessities. Just like the last recession in 2008, dollar stores are again benefiting from shoppers focusing on low priced items and higher income shoppers trading down. (AP Photo/Rogelio V. Solis, File)

(AP Photo/Rogelio V. Solis, File)

NEW YORK (AP) — Dollar Tree and Dollar General reported higher second-quarter sales Thursday resulting from four-decade high inflation driving more customers to bargain chain stores for everything from lightbulbs to groceries.

Dollar stores tend to sell items in small quantities, allowing low-income customers to buy a little at a time. As with previous recessions, higher-income shoppers are returning to bargain chains to cut spending where they can.

Meanwhile, clothing chain Gap Inc., which operates its namesake chain, Banana Republic, Old Navy and Athleta stores, withdrew its financial forecast for its current fiscal year, citing economic uncertainty and its continued search for a CEO.

Dollar Tree and Dollar General are also grappling with rising costs that are rippling through their supply chains. Profits are being squeezed as shoppers narrow their focus on necessities like groceries, which have more slim profit margins.

Dollar Tree, based in Chesapeake, Virginia, reported second-quarter profits that exceeded expectations though sales were a bit shy of projections. It cut its profit expectations for the year and narrowed its sales projections.

Dollar Tree is still trying to incorporate the Family Dollar business that it acquired in 2015.

“Inflation is at its highest in decades as shoppers are experiencing higher costs related to food, fuel, rent and more,” Richard Dreiling, the company’s executive chairman, said on a conference call Thursday. “Supply chains have been strained and inconsistent. Inventory levels are higher across retail, and consumer shopping patterns continue to zig and zag.”

Dollar Tree Inc. reported a second-quarter profit of $359.9 million or $1.60 per share for the three-month period ended July 30. That compares with $282.4 million, or $1.23 per share in the year ago period.

Wall Street had projected earnings of $1.58 per share, according to Zacks Investment Research.

Revenue was $6.77 billion, which was better than last year, but a sliver short of Wall Street projections.

For the current quarter ending in November, Dollar Tree said it expects revenue in the range of $6.75 billion to $6.87 billion. Analysts surveyed by Zacks had expected revenue of $6.77 billion.

Comparable store net sales for Dollar Tree increased 7.5%. Family Dollar same-store sales increased just 2.0%.

The company now expects full-year earnings to be $7.10 to $7.40 per share, with revenue ranging from $27.85 billion to $28.1 billion. Previously, earnings per share for full-year were expected to be from $7.80 to $8.20. Consolidated net sales for the year were projected to range from $27.76 billion to $28.14 billion.

Neil Saunders, managing director at GlobalData Retail, said Dollar Tree is a “tale of two companies.”

“The bad company is Family Dollar, which continues its long run of underperformance,” he said. “At a time when consumers are looking to trade down and save money, we believe Family Dollar should be punching out much better numbers.”

He said Family Dollar has done nothing to make its stores more attractive and they offer “a somewhat jumbled selection of products.” He said the “dingy and depressing environment in many stores is not conducive to attracting or retaining customers, nor is it helpful for increasing average basket size.”

Dollar General Corp., based in Goodlettsville, Tennessee, reported fiscal second-quarter net income of $678 million, or $2.98 per share, for the three-month period ended July 29. That compares with $637 million, or $2.69 per share, in the year-ago period.

The results surpassed per-share projections from industry analysts of $2.93.

Revenue was $9.43 billion, which also beat Street forecasts and topped last year’s $8.65 billion.

The company now expects same-store sales growth of approximately 4% to 4.5%; up from between 3% and 3.5%.

Dollar General CEO Todd Vasos said that sales of groceries and other consumables were strong, but that was offset by a decline in sales of discretionary goods. The chain is also seeing more high income customers in its stores.

More customers are trading down to private label goods, Vasos said, which tend to be less expensive than national brands.

San Francisco-based Gap reported a fiscal second-quarter loss of $49 million, or 13 cents per share, after reporting a profit in the same period a year earlier. Earnings, adjusted for non-recurring costs, were 8 cents per share.

The results beat Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for a loss of 4 cents per share. The clothing chain posted revenue drop of 8% to $3.86 billion in the period, which also topped Street forecasts. Six analysts surveyed by Zacks expected $3.82 billion.

Comparable sales were down 10% year-over-year. Online sales declined 6% compared to last year.

Shares of Dollar General fell $1.37 to close at $246.08, while Dollar Tree’s shares fell more than 10%, or $16.97 to $149.01 per share.

Gap’s shares rose more than 10% in after-hours trading after its results were announced.

______

Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio

______

Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on DLTR at https://www.zacks.com/ap/DLTR

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Treasury Secretary Janet L. Yellen tours the Ford Rouge Electric Vehicle Center before speaking abo...
Associated Press

States get final OK to build highway EV charging network

WASHINGTON (AP) — Attention, potential car buyers: New electric vehicle charging stations are on their way to highway locations near you. All 50 states received final approval Tuesday to begin construction on a first nationwide network of EV charging stations that places one roughly every 50 miles (80 kilometers) along interstate highways, part of the […]
1 day ago
Members of the Afro Brazilian faith, Candomble, dance during a ritual honoring Obaluae, the deity o...
Associated Press

Bolsonaro campaign to evangelicals: Brazil’s soul at stake

SALVADOR, Brazil (AP) — Off a byway outside Salvador, past an evangelical church and down a short path, Thiago Viana was preparing a celebration. Two new members of his temple would soon emerge from months of seclusion, marking initiation into his Afro Brazilian faith, Candomble. Then his phone started pinging with messages: Michelle Bolsonaro, the […]
1 day ago
Associated Press

Walmart to cover fertility treatments under insurance plan

NEW YORK (AP) — Walmart is teaming up with a fertility startup to offer benefits under its insurance plan that will help its workers expand their families. The nation’s largest retailer and private employer said Tuesday it’s partnering with New York-based Kindbody to offer benefits such as in vitro fertilization as well as fertility testing […]
1 day ago
FILE --People from Ukraine, most of them refugees fleeing the war, wait in front of the consular de...
Associated Press

German population hits a record 84M due to Ukraine refugees

BERLIN (AP) — The influx of Ukrainian refugees to Germany has pushed the country’s population to a new all-time high of more than 84 million, the German Federal Statistical Office said Tuesday. By the end of June, the country’s population increased by 843,000 people, or 1%, compared to the end of 2021. In comparison, the […]
1 day ago
Associated Press

Biogen pays $900M to settle doctor kickback allegations

BOSTON (AP) — Biogen has agreed to pay $900 million to resolve allegations that it violated federal law by paying kickbacks to doctors to persuade them to prescribe its multiple sclerosis drugs, federal prosecutors said. The agreement announced Monday settles a whistleblower lawsuit brought by former Biogen employee Michael Bawduniak, according to a statement from […]
1 day ago
FILE - Author James Patterson appears at an event to promote his joint novel with former President ...
Associated Press

James Patterson donates to PEN America, Howard University

NEW YORK (AP) — Howard University, PEN America and Scholastic Book Clubs are among the latest recipients of donations from James Patterson, the bestselling author who has given over $100 million to literary and literacy programs. On Tuesday, Patterson announced $5.3 million in cash awards. They include $2 million to PEN to support the organization’s […]
1 day ago

Sponsored Articles

Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
Swedish Cyberknife 900x506...

June is Men’s Health Month: Here’s Why It’s Important To Speak About Your Health

According to the Centers for Disease Control and Prevention, men in the United States, on average, die five years earlier than women.
...

Anacortes – A Must Visit Summertime Destination

While Anacortes is certainly on the way to the San Juan Islands (SJI), it is not just a destination to get to the ferry… Anacortes is a destination in and of itself!
...

Ready for your 2022 Alaskan Adventure with Celebrity Cruises?

Celebrity Cruises SPONSORED — A round-trip Alaska cruise from Seattle is an amazing treat for you and a loved one. Not only are you able to see and explore some of the most incredible and visually appealing natural sights on the planet, but you’re also able to relax and re-energize while aboard a luxury cruise […]
Inflation is driving Americans to bargain chain stores