Last week, the robust first-quarter performances of Walmart WMT gave a lift to the sentiment surrounding discount retailers. Investors are now turning their attention to Dollar Tree DLTR and Dollar General’s DG as they gear up to release their Q1 earnings reports on May 23 and May 30 respectively.
With the stage set, it’s prudent to analyze whether now presents a favorable moment for investors to consider diving into the stocks of these iconic discount retailers.
Q1 Outlook and Future Projections
Zacks estimates suggest that Dollar Tree’s Q1 sales may witness a 4% uptick to $7.64 billion. However, the projections hint at a 1% decline in Dollar Tree’s Q1 EPS to $1.45, with a spotlight on its inventory management due to the ongoing closure of 600 Family Dollar locations this year. This strategic move aims to bolster profitability by rerouting surplus inventory from higher-priced Family Dollar items to Dollar Tree stores.
On the other hand, Dollar General is anticipated to report a drop in Q1 earnings to $1.57 per share compared to the $2.34 per share in the previous year’s highly lucrative quarter. Despite this, quarterly sales are predicted to rise by 5% to $9.85 billion.
Stock Performance and Trends
While Dollar Tree’s stock has suffered a year-to-date decline of 19%, attributed largely to the $2 billion impairment charges linked to the Family Dollar store closures, Dollar General’s shares have shown a modest 5% increase year-to-date, albeit lagging behind broader market indices and Walmart’s 22% rise.
Investors find themselves at a crossroads contemplating a potential entry point as both DLTR and DG plummeted by close to 30% in the past year. The waning allure tied to consumer cost-saving drives has subdued their former rapid ascent, despite enduring appeal in terms of growth prospects and valuation.
EPS Analysis for Growth Potential
An insightful revelation is that Dollar Tree boasts an “A” Zacks Style Scores grade for Growth, whereas Dollar General secures a “B” grade for the trading indicator.
Looking ahead, Dollar Tree’s annual earnings are anticipated to surge by 17% in the ongoing fiscal year 2025, followed by another 17% jump in FY26 to reach $8.14 per share. Notably, the FY26 EPS forecasts would translate to a remarkable 40% growth over the past five years.
Valuation Insights
Both Dollar Tree and Dollar General proudly carry an “A” Zacks Style Scores grade for Value. Dollar Tree’s stock is priced at a 16.2X forward earnings multiple, whereas Dollar General is valued at 18.9X. Interestingly, both stocks trade at a slight discount to the Zacks Retail-Discount Stores Industry average of 20.6X and Walmart’s 26.7X.
Final Considerations
The allure of seizing the prevailing downturn in Dollar Tree and Dollar General’s stock is certainly tempting. However, both stocks currently hold a Zacks Rank #3 (Hold). Hence, the upcoming Q1 results will play a pivotal role in gauging if these major discount retailers can reaffirm a positive outlook and set the stage for a potential resurgence in their stock performance.