UK markets open in 5 hours 12 minutes
  • NIKKEI 225

    28,807.79
    +260.81 (+0.91%)
     
  • HANG SENG

    20,136.27
    -39.35 (-0.20%)
     
  • CRUDE OIL

    91.66
    -0.43 (-0.47%)
     
  • GOLD FUTURES

    1,813.00
    -2.50 (-0.14%)
     
  • DOW

    33,761.05
    +424.35 (+1.27%)
     
  • BTC-GBP

    20,214.88
    -130.31 (-0.64%)
     
  • CMC Crypto 200

    585.74
    +14.46 (+2.53%)
     
  • ^IXIC

    13,047.19
    +267.29 (+2.09%)
     
  • ^FTAS

    4,149.90
    +18.64 (+0.45%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Inflation's pain is the dollar store's gain: Morning Brief

·Senior Markets Editor
·4-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, May 27, 2022

Today's newsletter is by Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn.

Inflation is at 40-year highs.

The challenge this presents consumers has manifested itself in different behaviors across the economy, and a segment of the retail landscape that appears to be a winner amid these shifts are the national dollar store chains.

On Thursday, both Dollar General (DG) and Dollar Tree (DLTR), the two largest dollar store chains in the U.S., reported results for their most recent quarter, and both companies raised their forecasts for the full year.

Shares of both companies rose more than 13% on Thursday.

Seen a certain way, these results are a concerning complement to what we heard from prominent retailers Target (TGT) and Walmart (WMT), which flagged slowing sales and bloated inventories last week.

In recessions, discount retailers like dollar stores often see traffic and sales rise as consumers "trade down" to save money as finances tighten. On a call with analysts, Dollar General CEO Todd Vasos said consumers have become more "intentional" with their purchases amid high inflation.

But taking into account the signal airlines and other travel players are sending about the desire of consumers to spend, it seems there's a bit more to the big box story. Speaking with analysts on Thursday, Vasos said "employment is still very healthy across all cohorts of customers that we serve," noting the differences between this environment and the recession that followed the financial crisis in '08-'09.

And when we look at the driver of sales growth at both dollar stores, we see consumables — i.e. food and grocery items — leading the way.

A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago September 21, 2011. The 27,000 square foot (2508 square meters) store is the first in Illinois with an emphasis on groceries and basic household goods.  REUTERS/Jim Young      (UNITED STATES - Tags: FOOD BUSINESS)
A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago September 21, 2011. REUTERS/Jim Young

At Dollar General, consumables sales grew 9.1% in the latest quarter, the only one of its four major categories — including seasonal, home products, and apparel — that grew sales during the period. At Dollar Tree, consumables sales grew 8% in the quarter against a 6.5% overall sales increase for the company.

Target and Walmart both have considerable food and grocery businesses — at Walmart, a little over 50% of U.S. sales are food and grocery; at Target, that mix is closer to 20%.

At last check, headline inflation was running at 8.3% in April, but the cost of food is rising even faster — food prices last month rose 9.4% over the prior year.

Combine a frequent purchase with faster-than-baseline inflation, and we see where dollar stores are fitting into the picture for consumers during this cycle. We also get a sense of why the takeaway from some softness at Walmart and Target is a bit more nuanced than a simple sign that consumer strength is beginning to completely crack.

Margins in grocery are famously thin, but the frequency with which consumers need to replenish food for their homes creates more trips to the store.

The more often someone walks into a store, or fills up an online shopping cart, the more likely it is they buy something in addition to what they actually came for. The problem for Walmart and Target, it seems, is that some customers are starting to make these trips somewhere else.

What to watch today

Economy

  • 8:30 a.m. ET: Advance Goods Trade Balance, April (-$114.8 billion expected, -$127.1 billion during prior month)

  • 8:30 a.m. ET: Wholesale Inventories, month-over-month, April preliminary (2.0% expected, 2.3% during previous month

  • 8:30 a.m. ET: Personal Income, month-over-month, April (0.5% expected, 0.5% during prior month)

  • 8:30 a.m. ET: Personal Spending, month-over-month, April (0.6% expected, 1.1% during prior month)

  • 8:30 a.m. ET: Real Personal Spending, month-over-month, April (0.5% expected, 0.2% during prior month)

  • 8:30 a.m. ET: Retail Inventories, month-over-month, April (2.0% during prior month)

  • 8:30 a.m. ET: PCE Deflator, month-over-month, April (0.2% expected, 0.9% during prior month)

  • 8:30 a.m. ET: PCE Deflator, year-over-year, April (6.2% expected, 6.6% during prior month)

  • 8:30 a.m. ET: PCE Core Deflator, month-over-month, April (0.3% expected, 0.3% during prior month)

  • 8:30 a.m. ET: PCE Core Deflator, year-over-year, April (4.9% expected, 5.2% during prior month)

  • 10:00 a.m. ET: University of Michigan Sentiment, May final (59.1 expected, 59.1 during prior month)

Earnings

Pre-market

  • Big Lots (BIG) is expected to report adjusted earnings of 99 cents per share on revenue of $1.46 billion

  • Pinduodo (PDD) is expected to report adjusted earnings of 1.54 yuan per share on revenue of 20.74 billion yuan

Post-market

  • No notable reports scheduled for release

Yahoo Finance Highlights

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting