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General Dollar
posted surprisingly strong sales and operating income for the second quarter, up 7.2% at the beginning of the session, while the shares of Dollar Tree, a competitive discount retailer, were stable.
Dollar General (symbol: DG) also showed that he was ready to handle rising tariffs on Chinese products. Withdrawals should not be detrimental to profits.
The story back. Dollar General's stock (ticker: DG) performed well in 2019. Even before Thursday's good report, it was up 31% for the year.
The company has been one of the few retail winners, expanding its store base as more brick and mortar chains close. And as concern grew over the economy, investors turned to stocks that performed well during the last recession. Dollar General's is revealed to be winning during tough economic times as consumers seek cheaper alternatives.
Dollar Tree (DLTR), meanwhile, is trying to recover Family Dollar, a distressed channel bought in 2015.
What's up. Dollar General's sales and profits both exceeded expectations. Earnings per share were $ 1.74, higher than the $ 1.57 expected by Wall Street. Sales reached $ 6.98 billion, more than the $ 6.89 billion expected by analysts. And the company's same-store sales increased 4%, exceeding the expectations of a 2.5% increase.
"In fact, in what was supposed to be the lowest quarter of the year, EBIT recorded the largest increase since the first quarter of 2016," he writes. Guggenheim analyst John Heinbockel in a note subsequent to the publication of the results, referring to earnings before interest and taxes.
Dollar Tree's earnings per share were 91 cents, far exceeding Wall Street's expectations of 83 cents. Same-store sales at Family Dollar were up 2.4%, twice as much as analysts expected, a sign that management is revitalizing the brand.
Same store sales also increased 2.4% in Dollar Tree stores, but were slightly lower than analysts' forecasts. Heinbockel called the results of Dollar Tree "mixture".
Look forward. Dollar General has increased its financial forecast for the full year to reflect the strong performance of the second quarter, which means that its guidance for the second half of the year more or less corresponds to what management had previously stated . It sounds smart, Heinbockel wrote.
"We believe that these directions are potentially conservative but cautious, particularly in light of the uncertain impact of tariffs on final demand, the shortening of the Christmas season and the fact that we are in the hurricane season, Dorian targeting Florida, Heinbockel wrote. "However, this minimizes the risks for the second half, in our opinion."
The new directive "also contemplates the recently announced list 4 tariffs and assumes that Dollar General can successfully manage the impact," he writes. BMO Capital Markets analyst Kelly Bania.
Write to Avi Salzman at [email protected]
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