Dollar Store Debate
Dollar stores are one of the fastest-growing segments in retail. There are 34,000 currently in the US — more than all of the McDonalds, Starbucks, Target, and Walmart locations combined.
But, despite the immense growth, Dollar Tree’s (DLTR) stock dropped precipitously last week after the company fell short of its earnings expectations and cut its full-year outlook. Dollar Tree CEO Richard Dreiling, who formerly worked at Dollar General (DG), blamed the poor performance on an increase in damaged, lost, or stolen products, which hurt profits.
Dollar Tree also experienced a shift in consumer spending away from discretionary items and toward essentials, which tend to carry lower profit margins. While the number of locations might suggest the dollar store industry is rock solid, Dollar Tree’s report is a sign cracks could be forming in the foundation.
Notably, 1,000 of those US locations were opened last year by Dollar General alone. Now, with the other industry leader set to report earnings on Thursday, investors will be eager to see if Dollar General follows or bucks the trend. Here’s what else to expect.
Economic Data
Today the week will kick off with the release of the March home price index. In February, this reading rose only 0.4%, the smallest increase in more than a decade.
Tomorrow, investors will get updates on the number of mortgage applications from the previous week. For the week ended May 19, mortgage applications declined 4.6%. There will also be an update on the average mortgage rate, which currently sits at 6.69%. The JOLTS job openings report will also be released. In March, the number of open job opportunities dropped to 9.6 million, the lowest since April 2021.
On Thursday, the ISM Manufacturing PMI will be released. In April, this metric of economic activity rose to 47.1 from a low of 46.3 in March, showing economic activity in the manufacturing sector continuing to shrink for the sixth month in a row.
On Friday, investors will get insight into the state of the US job market from the updated unemployment rate. In April, unemployment matched its 50-year low of 3.4%. Additionally, investors will receive an update on the average hourly wage in the US which was $33.36 in April.
Earnings
Today, Hewlett Packard (HPE) and U-Haul Holding Co (UHAL) will welcome investors back from the long weekend with an update from their respective businesses. Investors may look to HP to address criticism of its HP+ subscription service. A trade association alleges HP+ printers prevent the use of third-party ink, in violation of EPEAT criteria.
Tomorrow, software giants Salesforce (CRM) and C3.ai (AI) will report earnings. Investors will surely have sky-high expectations for the AI-centric C3.ai. Last week, following blockbuster earnings, fellow tech titan NVIDIA’s (NVDA) CEO stated there has been a “fundamental shift” toward accelerated computing.
Thursday will be the busiest day of the week, with reports expected from discount retailers Dollar General (DG) and Five Below (FIVE). Athletic retailer Lululemon (LULU) and productivity platform Asana (ASAN) will also report.
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