With unemployment rising and consumer budgets shrinking, analysts predict higher sales in dollar stores such as Dollar General Corp., Dollar Tree Inc. and Family Dollar.
Weekly unemployment claims in the US rose more than 2.1 million on Thursday. Around 48 million Americans have been applying for unemployment benefits since mid-March, when the country started bans to stem the spread of the coronavirus.
Even if that number fell from 2.4 million the week before, it is the 10th consecutive week that is above the two million mark.
Read: Unemployment claims are rising again by over 2 million, but the data offer a glimmer of hope
Analysts predict that bad unemployment will continue for the foreseeable future.
“Unfortunately, we think increased unemployment is likely, at least on the balance sheet of the year,”
and dollar tree
Both earnings and sales were above expectations. The Family Dollar chain also belongs to the Dollar Tree portfolio.
As more and more consumers consider or limit their spending, low store prices in US dollars are attractive. As consumers flocked to large stores, the smaller area of these dollar stores is less stressful for customers looking for a way to avoid large crowds.
Dollar General has 16,000 stores within eight kilometers of more than 75% of the US population, said Todd Vasos, general manager of Dollar General, on Thursday. According to a FactSet transcript, these stores have a “practical small box format that enables them to get on and off quickly and a limited number of people who promote social distance”, as well as goods that are essential to everyday life cover.
GlobalData has determined that many Dollar General locations are located in rural or suburban areas where the distance to a competing retailer may be greater.
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“This location was a great advantage during the crisis, when many households were reluctant to travel too far and some were nervous to go to large stores where it was very difficult to shorten the time spent,” wrote Neil Saunders, Managing Director of GlobalData Retail .
In addition, dollar stores had items in stock that were sold out in places like Walmart Inc.
and Costco Wholesale Corp.
in the middle of the buyer’s pantry.
Dollar General in particular, which Saunders said could attract customers from across the income spectrum, could gain market share from the pandemic.
“According to our data, this crisis has offset demographics even more and Dollar General has gained new buyers across the income spectrum,” said Saunders.
“Some of this was born out of necessity – because other stores were out of stock or impractical to reach – but the rollout has now taken place and there is no doubt that some of these new customers will stay, even if only for irregular ones Business applies to shopping trips. From our perspective, we see the pandemic as a long-term benefit for Dollar General. “
Although all of these names fall under the broader umbrella of the “Dollar Store”, there are significant differences between them.
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The Dollar Tree chain of the same name recorded a 0.9% drop in sales in the same store in the quarter, while Family Dollar sales in the same store increased 15.5%.
Dollar Tree attributed this performance to decreases around Easter and in the party and candy categories.
Dollar General’s revenue in the same store increased 21.7%.
“Dollar Tree stores are much less dependent on food and groceries and much more general goods, including seasonal assortments of gifts, decor and other frills,” Saunders wrote in a separate note.
“Not only did this make Dollar Tree a less of a target during the pandemic, it also meant that the chain was suffering from less unnecessary spending on Easter holidays, which are usually a busy trading period for the company.”
Vasos from Dollar General, on the other hand, spoke about the 55,000 coolers that are expected to hit stores by the end of the year.
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The coming months look pretty good for the discount category, even though the battle for buyers continues.
“These companies are doing very well in difficult times,” said Zois of Quo Vadis. “Accordingly, we would expect these companies to continue to experience a traffic and (possibly) profit boost in the foreseeable future. We would buy both Dollar Tree and Dollar General today. “
Dollar General’s stock fell 1.7% on Thursday, but has risen 18% over the year.
The Dollar Tree share rose 11.6% on Thursday and rose 3.8% by 2020.
And the S&P 500 index
has fallen by 6.2% so far this year.