Dollar Stores Increasingly Make Sense for Crunched Consumers

Luxury brands have a new, unlikely competitor for the well-heeled consumer’s wallet: the discount aisle.

Dollar General, the largest dollar store chain in the US, on Thursday reported 2.5% year-over-year increases in same-store sales and customer traffic during the third quarter. A day earlier, rival Dollar Tree reported a similarly rosy picture. Executives said consumer worries about affordability have earned them legions of new customers, especially from higher-earning brackets.

Out with the Old, In with the Nouveau Riche

Rising grocery, shelter and electricity costs helped hold annual inflation at 3% in September, the most recent monthly figure available from the Bureau of Labor Statistics. Consumer sentiment, according to the University of Michigan’s Surveys of Consumers, fell to a near record low in November amid concerns about high prices. The National Bureau of Economic Research estimates that this year’s tariff bonanza hasn’t helped, with import taxes adding 0.7% to the inflation rate between March and August.

Dollar General said Thursday that third-quarter revenue rose 4.6% to $10.6 billion and net profit climbed 44% to $283 million. On an analyst call, CEO Todd Vasos attributed the company’s latest success in part to “disproportionate growth coming from higher-income households,” making the chain the beneficiary of consumers whose tolerance for price hikes is at wit’s end. Dollar Tree made a similar assessment a day earlier, and offered more evidence of the trend:

• Dollar Tree CEO Michael Creedon, whose company reported a 4.2% year-over-year increase in third-quarter same-store sales, said it added 3 million new households to its 100 million-customer base. Of those new shoppers, 60% came from households with annual incomes over $100,000.
• Dollar General shares skyrocketed 14% on Thursday. At $125.29, a single share would buy you a pretty big grocery haul. Dollar Tree rose 2.9%, a day after rising 3.6% on its own results.

Room to Grow: Dollar General, which keeps about 25% of its items at or below $1, hiked its projected annual earnings per share to $6.30 to $6.50 from a previous $5.80 to $6.30 range, and said it expects same-store yearly sales to climb 2.5% to 2.7%, up from 2.1% to 2.6%. Dollar Tree also raised its outlook.