MW Higher-income consumers have been flooding dollar stores for bargains

By James Rogers

Dollar Tree saw a boost in sales from customers making over $100,000 a year, a day after Dollar General said it saw increased 'trade in' activity from higher-income consumers

As higher-income consumers expand their search for bargains, they are increasingly venturing into the world of deep-discount dollar stores.

Dollar Tree Inc. $(DLTR)$ reported quarterly results on Wednesday that beat expectations, and there was a big reason for that.

"Higher-income customers have been a meaningful growth driver for us," said Chief Executive Mike Creedon, according to a FactSet transcript of the post-earnings call with analysts. In particular, Creedon said there was a "meaningful traffic increase from customers with household incomes of more than $100,000."

He believes Dollar Tree's expanded product assortment appeals to all of its customers, while its low prices and smaller pack sizes are especially favored by families trying to manage tight household budgets.

Creedon's comments echoed those made on Tuesday by Todd Vasos, CEO of rival Dollar General Corp. $(DG)$, who said there has been increased "trade in" activity from new middle- and higher-income customers.

That marked a change for the retailer, as Vasos had previously noted that most of its customers were from households earnings less than $35,000 a year.

Also on Tuesday, Citi Trends Inc. (CTRN), which bills itself as an "off-price value retailer," said it learned that its customer base includes a "significant group" of average- and higher-income customers. Discount retail giant Walmart Inc. $(WMT)$ has also recently called out gains with higher-income households.

With the expanded customer base, both Dollar Tree and Dollar General said their customers were making more trips to the stores and spending more on each trip.

Dollar Tree said Wednesday that it witnessed a 2.8% increase in the average ticket during the first quarter, which ended May 3, a day after Dollar General said the value of the average transaction increased 2.7%.

Dollar Tree's stock sinks as profit outlook disappoints

While Dollar Tree's first-quarter results beat expectations, the stock was dropping 9.9% in morning trading Wednesday, enough to pace the S&P 500 index's SPX decliners, as the outlook for the current quarter disappointed Wall Street.

The company said that, over the balance of 2025, it expects to mitigate the earnings impact of the cost pressures it faces, including those from tariffs.

But in the near term, earnings should see some "volatility," as the company works out how it will balance rising costs with product prices. As a result, current second-quarter adjusted earnings per share could be down as much as 45% to 50% from last year, while the average analyst estimate compiled by FactSet had called for EPS to dip to 66 cents from 67 cents.

BMO Capital analyst Kelly Bania said the lower outlook suggests Dollar Tree may absorb the higher costs and eat the impact of the tariffs by not raising prices until the second half of the year, when the company said it expects earnings growth to accelerate.

The company raised its full-year EPS guidance range to $5.15 to $5.65 a share, from the range provided in March of $5 to $5.50 a share, with share repurchases providing a boost.

Meanwhile, Dollar Tree continues to expect net sales between $18.5 billion and $19.1 billion, based on comparable-store net sales growth between 3% and 5%.

"Our outlook assumes that the level of tariffs in place today, June 4, 2025, remains in effect for the balance of the fiscal year," the company said in the statement. "It further assumes that we will be able to mitigate most of the incremental margin pressure from higher tariffs and other input costs."

For the first quarter, Dollar Tree (DLTR) said it had net income of $343.4 million, or $1.47 a share, compared with $300.1 million, or $1.23 a share, in the same period last year.

Adjusted for one-time items, Dollar Tree had earnings of $1.26 a share, above the FactSet consensus estimate of $1.21 a share.

Share repurchases also had an impact on first-quarter results.

Dollar Tree's quarterly net income increased 14.4% from a year earlier, with Family Dollar results excluded, but EPS on this basis increased 16.7%. EPS increased more because the average diluted share count for the quarter was down 1.9%, as Dollar Tree spent $436.8 million on buybacks during the quarter. It has spent another $67.5 million on buybacks since then.

Net sales for the quarter to May 3 were $4.64 billion, up from $4.17 billion in the prior year's quarter. Analysts surveyed by FactSet were looking for revenue of $4.54 billion.

Overall comparable-store sales, or sales of stores open at least 15 months, grew 5.4% from a year ago, to beat the FactSet consensus estimate of 4% growth. Discretionary comparable sales, which are the most vulnerable when consumers grow cautious, rose 4.6% during the quarter, reaching the highest level since the fourth quarter of 2022.

Earlier this year, Dollar Tree announced the sale of its Family Dollar business to private-equity investors Brigade Capital Management and Macellum Capital Management for $1 billion.

During the conference call, Creedon said that the Family Dollar sale remains on track for an early summer close.

Dollar Tree shares have gained 16.3% in 2025, while Dollar General's stock has soared 45.7% and the S&P 500 index SPX has tacked on 1.7%.

Philip van Doorn and Tomi Kilgore contributed.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 04, 2025 11:16 ET (15:16 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.