Dollar stores' results may shelter battered retail shareholders

Wed May 25, 2016 3:36pm EDT
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By Noel Randewich

SAN FRANCISCO (Reuters) - Investors shell-shocked by dismal quarterly reports from department stores will look for new signs of hope for brick-and-mortar retailers on Thursday as discount sellers Dollar General Corp (DG.N: Quote) and Dollar Tree Inc (DLTR.O: Quote) hand in their results.

Macy's (M.N: Quote), Nordstrom (JWN.N: Quote) and other department stores have been crippled by a consumer shift away from spending on apparel, and they have also been victims of's (AMZN.O: Quote) relentless expansion.

But strip mall retailers like Dollar Tree and rival Dollar General that sell ramen noodles, dish soap and toothpaste have been doing relatively well as a sluggish U.S. economy keeps many consumers living paycheck to paycheck.

While their products may sell at discounts, their stocks do not. Shares of Dollar General and Dollar Tree both recently traded at just under 20 times expected earnings, above their five-year averages, according to Thomson Reuters data.

On Wednesday, Dollar Tree's stock rose 1.3 percent while Dollar General added 0.9 percent. Options on each traded faster than normal and appeared to lean toward bets the stocks would rise, according to options analytics firm Trade Alert data.

Both companies have likely lost less business than department stores to Amazon than because their customers tend to make small, day-to-day purchases of staples and often cannot afford Amazon's $99-a-year Prime delivery membership, analysts say.

"They're in a very different place relative to the Macy's, Kohl's and Nordstroms of the world," BB&T analyst Anthony Chukumba said of the discount sellers. "While Macy's is closing stores, these guys are still opening stores."

Helped by the addition of around 8,000 shops last year through the acquisition of Family Dollar Stores, Dollar Tree is expected by analysts to post a 134 percent surge in revenue when it reports first-quarter results early on Thursday. Dollar General's revenue is seen increasing by 7.4 percent, according to Thomson Reuters data.   Continued...

A sign is seen outside a Dollar General store in Chicago, Illinois, U.S. May 23, 2016.   REUTERS/Jim Young