First Dollar General, Now Dollar Tree Shares Plunge As Both Discount Retailers Warn Of Core Customer Under Pressure 

Shares of Dollar Tree plunged nearly 12% in premarket trading in New York after the discount retailer, which operates thousands of stores nationwide, posted fiscal second-quarter earnings that fell short of Wall Street expectations. The company also slashed its full-year outlook, pointing to mounting financial pressures on middle-income and higher-income customers. This comes less than a week after major rival Dollar General reported a "financially constrained core customer" that sent shares crashing the most on record.

Dollar Tree reported this morning that the macroeconomic environment is pressuring its middle—and higher-income consumers. Traffic increased during the quarter, but the average ticket size decreased. It said second-quarter comparable sales and adjusted earnings per share missed Wall Street's expectations. 

Here's a snapshot of second-quarter earnings (courtesy of Bloomberg): 

• Adjusted EPS 67c vs. 91c y/y, estimate $1.05
• EPS 62c vs. 91c y/y

Enterprise comparable sales +0.7% vs. +6.9% y/y, estimate +1.45%

• Family Dollar comparable sales -0.1%, estimate -0.21%
• Dollar Tree Segment comparable sales +1.3% vs. +7.8% y/y, estimate +2.89%

Net sales $7.37 billion, +0.7% y/y

• Dollar Tree net sales $4.07 billion, +5% y/y, estimate $4.16 billion
• Family Dollar net sales $3.31 billion, -4% y/y, estimate $3.35 billion

Gross profit margin 30% vs. 29.2% y/y, estimate 29.9%

• Dollar Tree gross margin 34.2% vs. 33.4% y/y, estimate 34.1%
• Family Dollar gross margin 24.9%, estimate 24.6%

Total location count 16,388, -0.5% y/y, estimate 16,374

• Dollar Tree Locations 8,627, +5.5% y/y, estimate 8,294
• Family Dollar locations 7,761, -6.5% y/y, estimate 8,071

With nearly 16,400 stores nationwide, the discount retailer now expects its full-year consolidated net sales outlook between $30.6 billion and $30.9 billion versus the previous forecast of $31 billion to $32 billion. 

• Sees net sales of $30.6 billion to $30.9 billion, saw $31.0 billion to $32.0 billion
• Sees adjusted EPS $5.20 to $5.60, estimate $6.57 (Bloomberg Consensus)

Chief Financial Officer Jeff Davis wrote in a statement that the "increasing effect of macro pressures on the purchasing behavior of Dollar Tree's middle- and higher-income customers" was the main driver in slashing its full-year sales forecast. 

Here's Goldman's Eric Mihelc and Scott Feiler's take on Dollar Tree earnings:

"DLTR -13%...Low bar post DG results but the 20% guidance cut is worse than expected (a cut was expected but most we had heard from were not this low). Also, they spoke to weakness spreading to their middle and higher income (it's all relative) customers.  Details: 2Q EPS of $0.97 vs Consensus $1.04, with revenues 160 bps light. Comps of +0.7% vs Consensus +1.6%. Dollar Tree brand drove the comp miss. SG&A also missed by 200 bps. They spoke to the increasing effect of macro pressures on the purchasing behavior of Dollar Tree's middle- and higher-income customers. Guides 3Q EOS light at $1.10 (mid) vs Consensus $1.32 and revenues 1% light. Lowers 2024 EPS to $5.40 (mid) vs prior $6.75, a 20% cut, on a revenue cut as well." 

What's critical to note for the political strategist: Dollar Tree & Family Dollar and Dollar General stores are mostly concentrated in the eastern half of the US. Mangment's gloom about its core customer base should serve as a proxy for consumer sentiment for mid/low-tier consumers. In other words, there is a lot of gloom and doom among working-poor Americans in critical swing states.

Last week, Dollar General shares crashed the most on record after management warned that core customers "feel financially constrained."

DG's stores are primarily based in the eastern half of the US. Again, this should serve as a proxy for consumer sentiment.

In markets, shares of Dollar Tree in New York plunged 12%. 

Is the slide in Dollar Tree and Dollar General shares a signal for broader main equity indexes?

Meanwhile, both discount retailers are facing heightened competition from Aldi and Walmart as corporate America fights over the market share of the middle class that is imploding under Bidenomics.