Inflation Drives Americans to Negotiate Retail Chains

NEW YORK — Dollar Tree and Dollar General reported higher second-quarter sales on Thursday as a result of four-decade high inflation, which drove more customers to chain stores for everything from light bulbs to groceries.

Dollar stores tend to sell items in small quantities, allowing low-income customers to buy little by little. As with past recessions, higher-income buyers are returning to bargain chains to cut spending where possible.

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

Dollar Tree and Dollar General are also struggling with rising costs rippling through their supply chains. Profits are under pressure as shoppers narrow their focus on necessities like groceries, which have smaller profit margins.

Dollar Tree, based in Chesapeake, Virginia, reported second-quarter earnings that beat expectations, although sales were a little shy of projections. It lowered its profit forecasts for the year and narrowed its sales forecasts.

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

“Inflation is at its highest point in decades as shoppers experience increased costs related to food, fuel, rent and more,” Richard Dreiling, the company’s executive chairman, said in a conference call on Thursday. “Supply chains are tense and inconsistent. Levels are higher in retail and consumer shopping patterns continue to zigzag.”

dollartree inc. reported second-quarter earnings of $359.9 million or $1.60 per share for the three-month period ended July 30. That compares to $282.4 million or $1.23 per share in the same period a year ago.

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

Revenue was $6.77 billion, which was better than last year but a fraction less than the Wall Street projections.

For the current quarter ending November, Dollar Tree expects revenues 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 were up 7.5%. Same-store Family Dollar 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, full-year earnings per share were expected to be $7.80 to $8.20. Consolidated net sales for the year were expected to range from $27.76 billion to $28.14 billion.

Neil Saunders, director of GlobalData Retail, said Dollar Tree is a “two-company story”.

“The bad company is Family Dollar, which continues its long period of underperformance,” he said. “At a time when consumers want to trade-in and save money, we believe Family Dollar should deliver much better numbers.”

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

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

The results beat industry analysts’ per share forecasts of $2.93.

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

The company now expects same-store sales growth of about 4% to 4.5%; increased from 3% to 3.5%.

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

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

San Francisco-based Gap reported a second-quarter tax loss of $49 million, or 13 cents a share, after a gain in the same period a year earlier. Earnings, adjusted for one-off costs, were 8 cents per share.

The results exceeded Wall Street’s expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for a loss of 4 cents a share. The clothing retailer recorded an 8% decline in sales to $3.86 billion in the period, which also beat Street’s forecasts. Six analysts surveyed by Zacks expected $3.82 billion.

Comparable store sales decreased by 10% year-on-year. Online sales decreased by 6% compared to last year.

Dollar General shares fell $1.37 to close at $246.08, while Dollar Tree 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 the results were announced.

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Elements of this story were generated by Automated Insights (using data from Zacks Investment Research. Visit a Zacks stock report on DLTR at