By Emily Bary
Shares of Dollar General Corp. and Dollar Tree Inc. surged toward their best single-day performances on record after the discount retail chains offered upbeat outlooks for the year ahead.
Dollar Tree shares /zigman2/quotes/203712248/composite DLTR +1.34% were up 20% in Thursday afternoon trading, while Dollar General shares /zigman2/quotes/200691429/composite DG -0.05% were ahead 14%. The gains come as both companies topped expectations with their latest quarterly results.
“We are in the midst of a very challenging time for consumers as many are living paycheck to paycheck,” Dollar Tree Chairman Rick Dreiling said on the company’s earnings call. “They are facing the highest inflation since the early 1980s, record high gas prices, the effects from the pandemic, geopolitical uncertainty and much more. In tough times, value retail can be part of the solution to help families stretch their dollars to meet their evolving needs.”
While macro and geopolitical developments are causing some challenges for the company, including increased diesel costs and a helium shortage, Dollar Tree signaled that it is having success with business initiatives. The company recently moved to a $1.25 price point , a change that it said helped sales and margins.
See more: Dollar Tree profit climbs 43%, shares jump
The company now expects $7.80 to $8.20 in earnings per share for the full fiscal year, whereas its prior outlook called for $7.60 to $8. Dollar Tree also models $27.76 billion to $28.14 billion in sales for the year, compared with its prior outlook that called for $27.22 billion to $27.85 billion.
Dollar General also exceeded the consensus view with its Thursday results, and though the company maintained its earnings outlook, it upped its sales expectations. Dollar General anticipates 3.0% to 3.5% growth in same-store sales, up from a prior expectation of 2.5%, and it also models 10.0% to 10.5% sales growth, whereas it was previously calling for 10.0%.
Chief Executive Todd Vasos said that while traffic declined in the company’s fiscal first quarter, that was “mostly offset by growth in average basket size driven largely by inflation.”
Vasos shared that Dollar General’s core customers are starting “to shop more intentionally,” while “that next tier of customers” is shopping a bit more with the company.
“When you look at the COVID customer, I would call it, the one that we attracted and now have retained since COVID, it is still running at or slightly above where we thought we would be right now, and that’s a little higher-end consumer,” he said on the earnings call. “So that tells you that, that trade down and trade in is well and is starting to probably pick up steam as we move through Q2 and into the back part of the year as things continue to tighten up.”