Dollar stores are seeing higher-income shoppers rush in the door. It's a warning sign for the US economy.
The S&P 500 is up about 1.8% this year, while Walmart stock has gained just less than 11%. Target shares are down almost 30%.
Over the past year, however, both dollar store giants remained laggards, with shares down more than 20%.
Tariffs give and tariffs take
Tariff uncertainty may be getting more customers in the door, but the story isn't all positive for Dollar Tree.
Dollar Tree stock fell as much as 10% in trading on Wednesday as the company outlined a profit hit on rising costs as a result of tariffs.
The company now expects its second quarter adjusted earnings to be down as much as 50% compared to a year ago, before reaccelerating in the third and fourth quarters, due to tariffs and the sale of Family Dollar.
Overall, direct imports make up 41% to 43% of Dollar Tree's total retail value purchases, and China supplies the majority of those imports, per a company filing.
When an analyst on the company's earnings asked how important China was to the company, Creedon said, "Global sourcing is critical." In the quarter, Dollar Tree's inventory increased 10%, or $247 million, to $2.7 billion due to "higher mark-on and inventory receipts as we expanded our multi-price assortment," CFO Stewart Glendinning said.
Dollar Tree does expect strong customer traffic, however, with same-store sales expected to rise "towards the higher end" of its 3%-5% full-year outlook. Dollar Tree also updated its adjusted diluted earnings outlook and now expects to end the fiscal year in the range of $5.15 to $5.65, compared to the previously projected range of $5.00 to $5.50.
Dollar General also raised its earnings forecast on Tuesday. The company now sees full-year adjusted earnings coming in between $5.20 and $5.80 per share, up from a range of $5.10 to $5.80. After a 15% rally on Tuesday, Dollar General stock was down about 1.5% in sympathy with Dollar Tree's slide on Wednesday.
Dollar General's exposure to tariffs is much lower than its rival's, as 80% of its sales are food items, most of which are nonperishable items made in the US, like canned soups, beans, and chips, Morningstar analyst Noah Rohr previously told Yahoo Finance.
Dollar General also directly imports less than 10% of what it sells, with less than 70% of that coming from China, Telsey Advisory Group analyst Joe Feldman wrote in a note to clients.
Indirectly, the company imports roughly 10%-18% of items, with less than 40% of those coming from China, Feldman added.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at
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