DLTR, DG: What are the discount stores’ expectations for the near term?

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) and Dollar General Corporation (NYSE: DG) have gained 33% and 28% respectively, over the past three months. In a challenging macroeconomic environment, consumers turn to discount stores for value and opt to spend more on essentials, while putting discretionary purchases on hold. Here’s a look at how these leading discount stores performed in their recent quarters and what they expect for the near term:

Q3 performance

In the third quarter of 2023, Dollar Tree’s consolidated net sales increased 5.4% year-over-year to $7.3 billion while its enterprise same-store net sales grew 3.9%. The company’s EPS fell 19% to $0.97.

Dollar General’s net sales in Q3 2023 rose 2.4% YoY to $9.7 billion but its same-store sales dropped 1.3% due to a decline in average transaction amount. EPS decreased 46% to $1.26 compared to last year.

Category trends

During the third quarter, the macro environment remained challenging as inflationary pressures and reduced government benefits weighed on consumer spending. Consumers prioritized their spending on food and essentials and put off discretionary purchases. The softness in discretionary categories took a toll on margins.

In this environment, discount stores continued to attract customers seeking value. In Q3, both Dollar Tree and Dollar General saw growth in customer traffic but witnessed declines in average transaction amount.

During the third quarter, Dollar Tree saw same-store sales growth of 5.4% in its namesake segment and 2% in its Family Dollar segment, driven by a rise in traffic. Meanwhile, average ticket declined for the Dollar Tree banner but rose slightly for Family Dollar.

In Q3, Dollar General saw sales decline across its seasonal, home products, and apparel categories while its consumables category posted a growth of 3.6%.   

Outlook

For the fourth quarter of 2023, Dollar Tree expects consolidated net sales of $8.6-8.8 billion. Enterprise same-store sales are expected to increase in the low-single-digits, with a mid-single-digit increase for the Dollar Tree segment. Same-store sales growth for the Family Dollar segment is expected to range between a decrease of 1% and an increase of 1%. EPS is expected to be $2.58-2.78 in Q4.

For the full year of 2023, Dollar Tree expects consolidated net sales of $30.5-30.7 billion. Comparable store sales are estimated to increase in the mid-single-digits, with a mid-single-digit increase in the Dollar Tree banner and a low-single-digit increase in the Family Dollar banner. EPS is expected to range between $5.81-6.01.

For fiscal year 2023, Dollar General expects net sales growth of 1.5-2.5%. Same-store sales growth is expected to range between a decline of approx. 1% to flat. EPS is expected to range between $7.10-7.60, which represents a decline of 29-34%.