Dollar Tree and Dollar General sales soar despite pandemic fears forcing customers to limit shopping trips

• Consumers are continuing to shop at dollar stores as the coronavirus pandemic rages on.
• Both Dollar Tree and Dollar General reported strong earnings on Thursday, as a result.
• Dollar Tree — which also owns Family Dollar — saw a surge in discretionary spending in its latest quarter.
• Meanwhile, Dollar General continues to boost its fresh grocery capabilities as it focuses on expansion.

Even as coronavirus fears prompt consumers to rethink their shopping strategies, dollar-store giants Dollar Tree and Dollar General continue to win over deal seekers.

Both chains posted second-quarter earnings results on Thursday. Dollar Tree reported a 3.1% increase in year-over-year same-store sales, while subsidiary Family Dollar saw comparable sales climb 11.6%. Combined, the Virginia-based retailer's net sales increased 9.4% to $6.28 billion. Tennessee-based Dollar General's same-store sales also grew by 18.8%, with net sales jumping 24.4% to $8.7 billion.

The dollar-store segment of the retail market has long been known to thrive during tough economic times. Dollar stores have been soaring during the pandemic to date, even eclipsing rivals in the adjacent grocery market.

Dollar stores like Dollar Tree and Dollar General additionally represent "one of the few bright spots in the retail sector" in terms of customer store visits during the coronavirus, according to foot-traffic tracker Placer.ai.

'Shopping with a purpose'

Dollar Tree saw a big rebound in discretionary spending, which had been down at the company since Easter. Dollar Tree president and CEO Mike Witynski also said that shopping trends have shifted since the start of the pandemic.

"Consumer shopping patterns are evolving," Witynski said in a statement. "Customers are shopping with a purpose, while looking to minimize risk and exposure. As a result, we are seeing material increases in average ticket, while seeing a decline in average visits."

Dollar General CEO Todd Vasos highlighted the same trend, telling analysts that while spending was up, "customers consolidated trips in order to limit social contact."

In its earnings statement, Dollar General credited the COVID-19 pandemic for driving "consumer behavior" that has "had a significant positive effect on net sales and same-store sales." The company has seen a boost in consumables, seasonal, and apparel in recent months – with the largest sales increase in home products.

Despite the positive earnings results, the dollar stores did face a number of challenges during the last quarter. As an example, Dollar Tree said that pandemic and civil unrest-related spending — in the form of employee bonuses and repairs of stores damaged in riots — cost the company more than $150 million in the period. Witynski also said that both Dollar tree and Family Dollar saw inventory levels decline in certain categories, partly due to "high customer demand for paper towels and cleaning supplies."

What's next for the dollar store giants

Built up momentum during the pandemic has allowed both Dollar Tree and Dollar General to continue expanding. Dollar Tree opened up 131 new stores — while shuttering around 26 — during the quarter. Meanwhile, Dollar General has launched 500 new stores so far this year, and remodeled or relocated an additional 1,016.

Executives from both companies expressed optimism about the coming months. Witynski said that, while back-to-school spending underwent "volatility" due to uncertainty about school openings, the company hasn't seen overall sales in the category decline. He also expects similar results for Halloween, saying that consumers would likely shift spending from candies for trick-or-treaters to decorations.

"Since they're spending more time at home, they want to decorate their homes more and invest in their homes more," Witynski said on the earnings call.

Beyond seasonal items, Witynski said "anything related to stay at home, such as lawn and garden and outdoor grilling, has continued to perform very well" as consumers continue to congregate inside during the pandemic. In-demand products at Dollar Tree and Family Dollar also include apparel like loungewear, sleepwear, slippers, and athleisure garments.

Meanwhile, Dollar General is forging its path into e-commerce and grocery with its DG Fresh initiative, order pickup, and cooler expansion program. COO Jeff Owen told analysts that the company has already installed 60,000 cooler doors in its fleet of stores, up from its target of 55,000.

First introduced in January 2019, the DG Fresh initiative is the dollar-store giant's push to establish fresh and frozen-food options in its stores, which have traditionally lacked a grocery element. Currently, Dollar General delivers grocery products to more than 9,000 of its total 16,500 locations.

Owen added that Dollar General has added 55 new products to DG Fresh. The company has also doubled down on its push for new and improved private brands, as they represent "opportunities to further enhance our value proposition."

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