Key points
- Dollar Tree operates under the Dollar Tree and Family Dollar brands, which sell items for $1.25, but has raised its higher price of $3 and $5 items to offer greater product diversity.
- Dollar Tree will close nearly 1,000 stores in 2024.
- Dollar General sells products for $1, but is primarily a higher-priced discount chain that aims to become the go-to big-box store in rural towns of 20,000 people or fewer.
- 5 stocks we like better than Dollar Tree
In uncertain macroeconomic climates, conscious consumers look to spend their money at stores that sell dollars. These micro-environments should be strong drivers for these discount retail stocks. However, a rift has formed between two of the largest dollar store franchises, where they are taking different paths on the same coin. Here are two dollar stores with different results on their path to profitability.
Dollar Tree Stock Outlook
Dollar Tree Inc. (NASDAQ DLTR) operates two brands in the dollar store segment, Dollar Tree and Family Dollar. These stores sell household products, food, candy, frozen foods, seasonal items, greeting cards, toys and party supplies. Most items on Dollar Tree cost around $1.25 or more. The average store size ranges from 8,000 to 12,000 square feet with a minimum of 70 feet of frontage.
Migration to Dollar or more stores
The dollar no longer seems to buy what it did in the past. To keep margins from plummeting, Dollar Tree has signaled it will raise its prices in several dollar increments. The $3 and $5 merchandise at Central Stores is now available in nearly 5,000 Dollar Tree stores. The $3, $4 and $5 frozen refrigerated items are available at more than 6,500 Dollar Tree stores.
Swing and Miss for Dollar Tree
On March 13, 2024, Dollar Tree reported EPS of $2.55, missing analysts’ consensus estimates of $2.67 by 12 cents. Diluted loss per share was $7.85. Revenue rose 11.9% year over year to $8.63 billion, below analysts’ consensus estimates of $8.66 billion. Company net same-store sales increased 3%, led by a 4.6% increase in traffic and partially offset by a 1.5% decrease in average tickets. The findings include a $594.4 million portfolio optimization charge, a $950 million trade name intangible asset impairment charge and a $1.07 billion goodwill impairment charge.
Store closures identified
Dollar Tree segment comps increased 6.3% year-over-year, led by a 7.1% increase in traffic offset by a 0.7% decline in average tickets. Dollar household comps fell 1.2% year-over-year, led by a 0.7% increase in traffic, partially offset by a 2% decline in average ticketing. The company has identified 600 Family Dollar stores to close in the first half of 2024 and an additional 370 stores as their leases expire. The company opened 219 new stores in the quarter, for a total of 641 new openings in 2023. AI-powered insights on MarketBeat.
Guide lowered
Dollar Tree lowered its fiscal first-quarter 2024 EPS guidance from $1.33 to $1.48 versus consensus analyst estimates of $1.71. Expected revenues are between $7.6 billion and $7.9 billion versus consensus estimates of $7.68 billion. The guidance is based on low-to-mid single-digit same-store sales growth for the Enterprise and Dollar Tree segments and approximately flat same-store sales growth in the Family Dollar segment.
For full-year 2024, the company expects EPS of $6.70 to $7.70 versus consensus estimates of $7.04. Full-year 2024 revenues are expected to be in the range of $31 billion to $32 billion versus consensus estimates of $31.72.
Comments from the CEO
Rick Dreiling, CEO of Dollar Tree, commented: “While we are still in the early stages of our transformation journey, I am proud of what our team has accomplished in 2023 and see a long road of growth ahead of us. As we look Looking forward to 2024, we are accelerating our multi-price launch on Dollar Tree and taking decisive actions to improve profitability and unlock value on Family Dollar.”
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Daily breakdown of the ascending triangle
The daily candlestick chart on DLTR illustrates an ascending triangle breakdown pattern. The ascending trend line started at $102.77 on October 5, 2023. DLTR rose to the flat upper trend line resistance at $148.69 in earnings. However, the lack of earnings and the downward revision in guidance have caused a gap along the ascending triangle. The 14% downside gap formed at $133.37 as shares continued to sell off afterward. The daily relative strength index fell sharply through the 30 band, but may try to trigger a rebound. The pullback support levels are at $118.60, $111.91, $102.77, and $94.01.
General Dollar Stocks View
Dollar General Co. NYSE:DG operates more than 17,000 stores in 46 states across the country. Although Dollar General is a discount retailer, products and merchandise are priced above $1, usually falling into the $5 or more category. Because of the high prices, Dollar General is able to provide more goods, including groceries, fruit, deli meats and dairy products. In fact, Dollar General operates as a small box store averaging 7,400 square feet located in small, rural towns with populations of 20,000 or less. It is a model of a large fish in a small pond. Obtain AI-powered insights on MarketBeat.
A quarter better than the dollar tree
Dollar General reported fourth-quarter 2023 earnings per share of $1.83, beating analysts’ expectations of $1.73 by 10 cents. Revenue fell 3.4% year over year to $9.86 billion, beating consensus expectations of $9.77 billion. Same-store sales in the fourth quarter increased 0.7% year over year, while same-store sales in the fiscal year increased 0.2%. The company returned to positive same-store sales after two previous quarters of negative same-store sales. Customer traffic increased 4%, offset by a decline in average tickets starting at just a few items per cart. This underlines the sense that consumers are still reeling from inflation, causing a decline in trade in stores. The Board of Directors declared a cash dividend of 59 cents per share.
Mixed guidance for the general dollar
Dollar General gave downward guidance for first-quarter 2024 EPS of $1.50 to $1.60 versus consensus analyst estimates of $1.88. Retail store sales are expected to increase 1.5% to 2%. Full-year 2024 EPS is forecast between $6.80 and $7.75 versus consensus estimates of $7.42. Full-year revenue is expected to increase 6% to 6.7%, or $41 billion to $41.3 billion from $40.27 billion. Same-store sales growth is expected to range between 2% and 2.7%.
Expansion plans
In 2023, Dollar General executed more than 3,000 real estate projects, including 987 new stores, 129 relocations and 2,007 renovations. This momentum is expected to continue into 2024 as the company plans nearly 2,385 projects, which include 800 new store openings, 1,500 renovations and 85 relocations. Stores scheduled to open include 30 high-end stores and up to 15 stores in Mexico.
CEO Insights
Dollar General Todd Vasos noted that the revenue decline was primarily driven by consecutive sales of $678 million from the 53rd week in 2022. Its net sales performance was highlighted by accelerating growth in its market share in units and dollars of consumer product sales. The fresh produce is available in 5,400 stores, and up to 1,500 additional stores are expected to sell it in 2024.
Vasos commented, “As we enter our 85th year in business, and with stores within five miles of approximately 75% of the U.S. population, we are uniquely positioned as a growing company that is privileged to be here for what matters to millions of people. customers across the country.”
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Daily analysis of channels on the rise
The daily candlestick chart on DG illustrates a potential rising channel breakdown. The ascending channel is composed of parallel trend lines formed from the swing low at $130.37 on February 14, 2024. The breakout attempt when the upper resistance channel line initially attempted to break out over a 6% price gap, only to fade on the gap and lousy reaction that sent the stock down 5%. The daily RSI is attempting to bounce from the 50 band. The pullback support levels are at $145.38, $141.04, $137.68, and $130.37.
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