Analyst Eyes Dollar General's Recovery And Dollar Tree's Steady Health Ahead Of Quarterly Reports

Renowned U.S. discount retailers Dollar Tree, Inc. DLTR and Dollar General Corporation DG are expected to report their quarterly earnings results on March 13th and 14th, respectively.

Piper Sandler analyst Peter J. Keith presented a placer foot traffic analysis of these companies to assess directional movements in traffic, which can be insightful.

For Dollar General, the analyst sees a solid improvement in foot traffic on a quarter-to-date basis in the first quarter versus the fourth quarter. However, Dollar Tree’s first-quarter analysis deciphers a slight downtick from the fourth quarter.

Supplemental Nutrition Assistance Program or SNAP benefits represent ~7.5% of sales at both Dollar General and Dollar Tree’s Family Dollar, the analyst notes.

However, while Dollar Tree’s management called out declining SNAP benefits as a headwind to Family Dollar in the third quarter, Dollar General didn’t cite SNAP headwinds in the most recent quarter but did cite them in the first quarter of 2023, Keith noted.

The analyst reiterated the Overweight rating on Dollar Tree, with a forecast of $171. Keith expects fourth-quarter earnings per share of $2.72 versus the consensus of $2.67 and guidance of $2.58-$2.78.

According to the analyst, fundamentals on core-Dollar Tree look quite healthy and suggest comp may have accelerated from the third quarter comp of +5.4% (ongoing multi-price initiatives and better holiday offering y/y). Meanwhile, FDO fundamentals appear to have stepped down in the fourth quarter for Dollar Tree, such that consensus and the midpoint of comp guidance at 0% seems appropriate.

For Dollar General (Neutral rating, $127 price target), the analyst sees fourth-quarter EPS of $1.66 versus the consensus of $1.72, as sales trends seem to improve during the fourth quarter. 

Sales trends appear to be showing continued improvement into early first quarter for Dollar General as compares continue to ease, the analyst adds. 

Certainly, the new Back to Basics strategy implemented by Dollar General CEO Todd Vasos is likely to have some positive benefits with SKU rationalization and reallocating labor investment, Keith writes.

Retailer Savers Value Village, Inc. SVV is also reporting its quarterly results soon (March 7th). The analyst maintained an Overweight rating on the stock with a forecast of $24.

Price Action: DG shares are trading higher by 3.26% to $150.04 and DLTR shares are higher by 1.39% to $148.72 on the last check Friday. 

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