Market Sentiment Boost Following Walmart’s Strong Q1 Results
The recent uptick in market sentiment for discount retailers, triggered by Walmart’s robust first-quarter results, has investors turning their eyes towards Dollar Tree and Dollar General. Both companies are set to unveil their Q1 earnings reports on Thursday, May 23, and Thursday, May 30, respectively.
Evaluating Q1 Performance and Expectations
Zacks estimates project a 4% increase in Dollar Tree’s Q1 sales to $7.64 billion. However, there’s a projected 1% decline in EPS to $1.45, with particular attention on inventory management as the company shutters 600 Family Dollar locations to enhance profitability.
On the other hand, Dollar General’s Q1 earnings are anticipated to drop to $1.57 per share from $2.34 in the prior year, matching a challenging quarter despite a forecasted 5% sales increase to $9.85 billion.
Price Performance Comparison
Dollar Tree’s stock has seen a 19% decline year-to-date, primarily driven by $2 billion in impairment charges linked to the Family Dollar closures. Meanwhile, Dollar General has shown a modest 5% YTD growth, albeit trailing behind Walmart’s impressive 22% rise.
Investors might be pondering a buy-the-dip strategy with both companies recording nearly 30% downturn over the last year. The decline, attributed to a loss in consumer appeal amidst inflationary pressure, presents an intriguing yet prudent investment opportunity given the companies’ promising growth and valuations.
EPS Projections and Growth
Dollar Tree holds an “A” Zacks Style Scores grade for Growth, while Dollar General sports a “B” grade for the trading indicator. Dollar Tree is forecasted to witness a 17% increase in annual earnings for fiscal year 2025, with a further 17% uptick in FY26 to $8.14 per share, showcasing an impressive 40% growth over the past five years.
Dollar General, on the other hand, is estimated to see a 3% decline in current FY25 earnings, followed by a 13% surge in FY26 to $8.23 per share. However, this would signify a 19% dip from the robust $10.17 EPS recorded in 2022.
Valuation Comparison
Both Dollar Tree and Dollar General boast an “A” Zacks Style Scores grade for Value. Dollar Tree’s stock trades at a 16.2X forward earnings multiple, whereas Dollar General sits at 18.9X. Despite this, both companies trade at a slight discount to the Zacks Retail-Discount Stores Industry average of 20.6X and Walmart’s 26.7X.
Final Thoughts on Investment Potential
The allure of buying into Dollar Tree and Dollar General’s stocks during their downturn is undeniable. However, it’s essential to note that both companies currently hold a Zacks Rank #3 (Hold). Consequently, the upcoming Q1 results will play a pivotal role in reaffirming their outlooks and potentially igniting a resurgence in their stock prices.