By Avi Salzman
A buck won't buy what it used to, and nowhere is that more clear than at the dollar store.
Inflation and tariffs have made it near impossible for discount chains Dollar Tree and Dollar General to sell many items for $1 or less. The good news, as seen in earnings reports by both chains this week, is that consumers aren't turned off when prices go above $1.
Nowhere is that more clear than in their stock prices. Barron's recommended Dollar General stock earlier this year, and the stock has jumped about 80% since then. Dollar Tree has also done well -- it's up 60% in 2025 -- but the stock could be in for more gains as it takes advantage of consumer trends and puts a bad acquisition behind it.
Results are already starting to improve. Dollar Tree posted better-than-expected earnings on Wednesday and grew its same-store sales by 4.2%, ahead of analysts' expectations. The days when just about everything at the store cost a buck went away in 2022, but the company says it's seeing strong consumer interest for items that cost considerably more. Some items in the stores sell for $7 or so -- a sticker-shock price at a dollar store, but a major bargain when compared with just about anywhere else.
And consumers are clearly hunting for bargains today. In the latest quarter, Dollar Tree's "discretionary items" gained traction with a range of customers. The company said that three million more households shopped at its 9,000 stores in the third quarter than had shopped there in the same quarter last year, and 60% of those extra customers were from households earning over $100,000. It's the latest company to highlight a trade-down effect, with wealthier households seeking out deals at a time when many consumers have been tightening their belts.
"Today, we serve an increasingly broad spectrum of shoppers, from core value-focused households to middle- and higher-income shoppers who are making deliberate choices about how and where they spend," said Dollar Tree CEO Michael Creedon Jr. on the company's earnings call.
Creedon joins a chorus of CEOs who have been warning investors that consumers have been hunting for deals with renewed urgency. Walmart CEO Doug McMillon also recently said his company "continue[s] to benefit from higher-income families choosing to shop with us more often." Procter & Gamble Chief Financial Officer Andre Schulten said this week that U.S. consumers were hurt by the government shutdown and other factors.
That kind of penny-pinching environment tends to be good for dollar stores -- and should be good for Dollar Tree. Earnings per share are expected to rise 16% next year, and the stock trades at 17 times expected EPS in fiscal 2026, which ends in January 2027 -- well below the S&P 500's 2026 multiple of 23 times.
Dollar Tree has momentum for another reason. In July, it completed the sale of Family Dollar, the competing chain it had purchased in 2014 for $8.5 billion. The merger had never really worked, and the sale fetched just $1 billion from two private-equity firms. Getting past it should serve as a catalyst for the stock.
A buck isn't worth much these days. Dollar Tree stock might be a better bet.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 05, 2025 11:05 ET (16:05 GMT)
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