Soaring Inflation Squeezing Sales in Dollar Stores

A shopper is pictured at a Dollar Tree store in Pasadena, Calif., on June 11, 2020. Mario Anzuoni/Reuters

Dollar stores, which have seen more customers shop at their establishments amid rising prices, are now beginning to feel the negative effects of inflation.

Dollar Tree and Dollar General, two of the leading stores in the United States, recently announced their second-quarter earnings. During the earnings call on Aug. 25, Dollar Tree CEO Mike Wytinski predicted the company’s gross margins would soon be negatively affected. Consumers are being burdened by inflation levels “not experienced in decades,” he pointed out.

“We are seeing a shift in consumable preferences as many shoppers are gravitating to needs-based consumables, which is impacting our margin through product mix.”

“Our suppliers are being hit by inflation as well. This, along with our commitments to competitive pricing and the value proposition, is expected to negatively impact our gross margins in the near term,” the CEO said.

The company also declared a reduction in guidance, with over half the reduction related to pricing actions taken at the firm’s Family Dollar chain. Inflationary cost increases on consumables also contribute to the guidance reduction, Wytinski stated.

Kevin Wampler, Dollar’s chief financial officer, announced that the diluted earnings per share for the full year is expected to be around $7.10 to $7.40, a decrease of $0.75 per share from the previous outlook.

Dollar General did not cut its outlook during the company’s second-quarter earnings call on Aug. 25. However, the company saw apparel sales fall by more than 20 percent in the quarter when compared to second quarter 2021.

Sales of home products and seasonal products also declined. Though apparel and these products contribute to just 20 percent of the company’s overall revenues, they have a wider profit margin. As such, any reduction in earnings in these categories is bad news for the company.

Increased Dollar Store Visits, Inflation Pressure

According to data from foot traffic analytics firm Placer.ai, visits to dollar stores like Dollar General, Five Below, and Dollar Tree and its subsidiary Family Dollar rose by 13.2 percent between the first two quarters of this year.

When compared to second quarter 2021, visits during the second quarter of 2022 were up by 8 percent. When compared to second quarter 2019, visits were up 20.5 percent. Foot traffic to dollar stores was above pre-pandemic levels.

While speaking to The Wall Street Journal, Phoenix Kamlo, 41, said that he has been depending on Family Dollar for groceries to take care of his family of five.

“Everything in there is super-duper sweet,” he said, meaning the high sugar content of goods, from tea to canned fruit. “But it’s nearby, and it’s cheap.”

A poll by Primerica found that three-quarters of middle-income Americans were finding it difficult to pay their cost of living with their income, with 49 percent planning to cut back or budget grocery expenses.