Why Dollar General and Dollar Tree Are Similar Yet Different

Key Points

• Dollar General and Dollar Tree issued different earnings reports that showed their core lower-income consumers remain under pressure.  
• The reports were different, but both companies issued cautious 2024 guidance. 
• Both stocks feel fairly valued, but Dollar General seems to have fewer unanswered questions for consumers looking for possible upside if the economy improves in the second half of 2024.

This week, Dollar General Inc. NYSE: DG and Dollar Tree Inc. NASDAQ: DLTR issued earnings reports showing that the lower-income consumers that comprise a significant part of their customer base remain under pressure. Both retail stocks are down after their respective reports. 

It didn't help that the recent readings of the Consumer Price Index (CPI) and Producer Price Index (PPI) were hotter than expected. The PPI reading is particularly concerning because it suggests that the increased costs that producers are experiencing will be passed along to consumers in the coming months.  

The Two Discount Chains Issued Different Reports 

Dollar General had a mostly positive earnings report. Earnings per share (EPS) of $1.83 on revenue of $9.86 billion beat estimates of $1.74 and $9.77 billion, respectively. The company continues to struggle with right-sizing its inventory. That's creating a drag on profits, which the company expects to extend into 2024.  

Dollar Tree, by contrast, missed on both the top and bottom lines. Comparable store sales were up for the company's flagship Dollar Tree brands. However, that was partially offset by declining comparable store sales at its Family Dollar stores. 

The company also announced it would be closing 670 Family Dollar stores in the first half of 2024. An additional 370 Family Dollar and 30 Dollar Tree locations are under review to be closed in the next three years.  

Like Dollar General, Dollar Tree also issued full-year guidance that was slightly below analysts' estimates. 

The Consumer is Under Pressure 

As different as the earnings reports were, there was one common theme. The low-income consumer that is at the dollar store's core market is under pressure. Both companies also, although in different ways, remarked that they were dealing with inventory shrink.  

Dollar Tree implied that shrink was a factor in which stores were closing. Dollar General cited shrink as a reason the company would be removing self-checkout at many locations. 

Getting Involved with DG or DLTR Stock 

The Dollar General analyst ratings on MarketBeat give the stock a consensus Hold rating. However, the day after the report, two analysts have upgraded DG stock, with JPMorgan Chase & Co. NYSE: JPM raising their price target to $158 from $120. 

By contrast, the Dollar Tree analyst ratings on MarketBeat maintain a Moderate Buy rating on DLTR stock, but three analysts have lowered their price targets since the earnings report.  

As long as the consumer remains under pressure, it's likely to be a choppy time for both companies. A Hold seems like the way to play it for now.  

However, both stocks are trading near the middle of their 52-week range. If you think there's some upside if the economy gets stronger in the second half of the year, Dollar General may offer better value. The company's problems seem to be more of a question of the broader economy. Dollar Tree is closing stores, which may provide a quick boost to earnings but isn't likely to produce sustainable growth. 

Another factor to consider is the DG stock dividend, which the company has grown at an average rate of 18% over the past three years.