Banking

Discounter Jumps On Strong Earnings, Guidance

Dollar General stock fell on Thursday, after the discount chain gave a more upbeat full-year outlook that still came up short of Wall Street’s expectations, while third-quarter same-store sales missed estimates.




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Dollar General also announced a big expansion plan that includes many more stores that sell higher-priced items and its first locations in Mexico — a move that arrives not long after Dollar Tree (DLTR) said it would raise prices on many items.

A day earlier, Five Below (FIVE), a teen and tween-centric off-price retailer, turned in third-quarter results that beat analyst forecasts. Both stocks were in bases.

 

The retailers reported amid upbeat holiday-sales forecasts and a rebounding economy. But higher shipping costs and rising wages have tested discounters’ commitment to low prices.

Dollar General Earnings

Dollar General, which sells groceries and other home essentials — many priced around $1 — earned $2.08 per share for the third quarter. That was above FactSet estimates for $2.01 per share. Revenue of $8.52 billion also topped estimates for $8.496 billion.

Same-store sales fell 0.6%. That was worse than the 0.3% dip forecast by Consensus Metrix. The company attributed the drop to a decline in customer traffic, and weaker trends in apparel and seasonal categories. But a stronger showing in categories like home products helped counterbalance those trends.

Dollar General raised the lower end of its full-year earnings-per-share forecast to $9.90 to $10.20, from an earlier range of $9.60 to $10.20. Wall Street, however, expected $10.19.

The chain forecast revenue growth of 1% to 1.5%. That was also more optimistic than a prior forecast for a 0.5% to 1.5% gain. But the midpoint there, as well, was below expectations. Analysts were expecting a 1.5% increase.

The company also narrowed its same-store sales forecast to a decline of 2.5% to 3%, compared an earlier outlook for a 2.5%-3.5% decrease. FactSet expected a 2.7% drop for the year.

The dollar store raised its stock buyback program by $2 billion. Earlier this week, its board declared a quarterly cash dividend of $0.42 per share.

Dollar General Stock, More Higher Priced Stores

Dollar General also announced plans to open up 10 stores in Mexico by the end of its next fiscal year. And it said it expected it planned to open a total of 1,110 stores over that time.

The expansion overall included nearly 3,000 “real estate projects,” it said, with plans to accelerate the rollout of a new store format called Popshelf, which sells items like home decor and party supplies largely priced at $5 or less.

Those stores are geared toward women customers in “diverse suburban communities” hunting for bargains. Dollar General is targeting around 1,000 Popshelf locations by the end of its fiscal 2025. The company introduced the stores last year.

Still, Dollar General stock fell 3.7% to 214.53 in the stock market today. Shares were in a cup-with-handle base with a 228.35 buy point.

DG stock has a 78 Composite Rating. Its EPS Rating is 73.

Dollar General’s efforts to sell more items at higher prices comes after rival Dollar Tree (DLTR) said it would soon begin selling most products for $1.25 at its namesake locations.

Dollar Tree Management said that “this is the appropriate time to shift away from the constraints of the $1 price point in order to continue offering extreme value to customers.” And it said charging $1.25 would help cushion it against surging freight costs and give it more leeway to offer a wider product assortment.

“Even with higher price points, we expect store traffic trends to remain robust since consumers are increasingly focusing on value amid broader inflation concerns,” CFRA analyst Arun Sundaram said in a research note.

Five Below Earnings

On Wednesday, Five Below earned 43 cents per share, up 19%. That beat FactSet expectations for 29 cents per share.

Revenue rose 27% to $608 million. The figure also surpassed forecasts for $564 million.

Same-store sales jumped 14.8%, above Consensus Metrix expectations for a 5.5% gain.

Five Below forecast full-year revenue of $2.837 billion to $2.857 billion, above expectations for $2.807 billion. The chain said it expected earnings per share of $4.82 to $4.94 over that time, with the midpoint above expectations for $4.83.

Five Below said it opened 52 new stores during the quarter, for 1,173 stores total in 40 states. Management sees the potential for more than 2,500 U.S. stores.

Shares rose 4.1% to 196.99 on Thursday. Five Below stock is in a cup-with-handle base with a 221.10 buy point.

Shares have an 84 Composite Rating. Their EPS Rating is 91.

Five Below sells toys, games, room decor and clothes, much of it priced between $1 and $5. Fidget toys known as poppers — which offer the same sensory appeal as popping Bubble Wrap — have remained popular.

More Five Below stores also have a section called Five Beyond that sells products, like karaoke speakers and earbuds, priced above $5. The chain has also collaborated with Kyle Giersdorf, the popular “Fortnite” gamer known as Bugha, to sell more affordable keyboards, headsets and other gaming items.

Five Below, like other businesses, has faced higher freight costs amid port backups and limited shipping container and trucking availability. Management, during its earnings call in September, said Five Beyond gave it flexibility to offset some of those costs.

“With Five Beyond as part of our arsenal today, it certainly gives us an opportunity to mitigate through pricing,” CEO Joel Anderson said then. “Having said that, we have always gone there last, and that will continue to be our strategy.”

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