Discount retailers Dollar Tree (DLTR) and Dollar General (DG) report earnings Thursday morning. Shoppers are spending selectively as inflation pressures cut into their wallets. Retailer performances are mixed as a result. But Wall Street thinks lower end retailers, like dollar stores, could see a boost as consumers seek more affordable options. DLTR stock and DG stock hovered in narrowly mixed territory on Wednesday prior to the results.
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Walmart (WMT) beat estimates last week. And Target (TGT) missed earnings but hit revenue predictions. Both big-box giants reaffirmed guidance for the rest of the year. Discount retailer TJX (TJX) missed on revenue, while wholesaler BJ’s Wholesale Club (BK) topped views.
Dollar Tree Stock: Earnings Preview
Deutsche Bank raised its price target for DLTR stock to $185 from $181 on Wednesday, maintaining a buy rating on the shares. And analyst consensus sees Dollar Tree earnings jumping 30% to $1.60 per share, with revenue growing 7% to $6.79 billion for the period.
But Dollar Tree and its Family Dollar subsidiary face numerous lawsuits underscoring the challenges of sourcing inventory and maintaining staff levels in the midst of pandemic-snarled supply chains and worker shortages.
The company noted in its Q1 report that the FDA alleges Dollar Tree improperly sold over-the-counter topic products from China-based manufacturers with import “alert” restrictions. There are pending personal injury lawsuits over the sale of talc products, one of which is set for this year. Dollar Tree disclosed that it was able to resolve previous lawsuits regarding the cancer-causing ingredient in the past without material financial impact.
California has filed and threatened lawsuits for a host of labor violations. Those include failure to provide compliant rest and meal breaks, seating or overtime pay. Dollar Tree often failed to pay minimum wages for time worked or provide payment in a timely manner, and often gave inaccurate pay stubs to employees.
Still, Dollar Tree executives say the lawsuits shouldn’t have any material impact on company operations.
Dollar Tree stock slumped roughly 1% by midday Wednesday, but recovered slightly to close down just 0.08%. DLTR stock edged about 0.4% lower after market close. Shares are trading tight and pulled back in a test of support at their 10-week moving average. They are just below a 166.45 buy point from a cup-with-handle base, which remains in play following an early July breakout.
Dollar General Earnings Preview
Deutsche Bank and Wells Fargo both raised their price targets for DG stock on Wednesday ahead of the results. Deutsche Bank raised its target to $266 from $264, with a buy rating. It also increased its same store-sales expectations based on “favorable read-throughs and data throughout the quarter.”
And Wells Fargo raised its target $15, to $275. Analyst Edward Kelly says Dollar General is a “high-quality defensive name with an attractive multiyear outlook.” He predicts a modest earnings beat for the second quarter on comparative strength. But Kelly noted mix pressure could limit the upside for DG stock, which has been a popular long play. He rates the stock as overweight.
In its Q1 earnings report, Dollar General noted that consumer spending began shifting more toward its lower-margin consumables category in Q2 last year. The company is implementing initiatives to make up for the trend away from its non-consumables category, which tend to have higher gross margins. Among them, Dollar General is expanding its footprint to include more touch points with shoppers both through its digital app and brick and mortar stores.
Expectations: Watchers view DG earnings climbing 9.3% to $2.94 per share and revenue edging up 8.8% to $9.4 billion.
Shares of Dollar General reversed early losses was down 0.06% by Wednesday’s closing bell. DG stock rose more than 1% after hours. The stock is in a buy range, above a 240.07 entry in a cup-with-handle base.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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