The trend: Sales at Dollar Tree and Dollar General picked up in Q3 even as lower-income consumers continued to tighten their belts by focusing on essentials rather than discretionary purchases.

• Dollar Tree faced headwinds from lower-income consumers’ financial struggles as they pull back on discretionary spend, interim CEO Michael Creedon said during the company’s earnings call.
• But by emphasizing a “strong value proposition” across both the Dollar Tree and Family Dollar banners, the retailer drove consumables spending by adjusting its product mix to focus on value-oriented, high-frequency purchases.
• Dollar General similarly noted that strong consumables spending partially offset declines in its home, seasonal, and apparel categories.

The numbers:

• Dollar Tree and Family Dollar sales grew 3.6% YoY to $7.57 billion in Q3, ahead of analyst projections of $7.45 billion. Same-store sales rose 1.8%.
• Dollar Tree’s sales increased 8.3% YoY to $4.34 billion, and same-store sales grew 1.8%.
• Family Dollar’s sales fell 2.5% YoY to $3.22 billion, and same-store sales rose 1.9%.
• Dollar General’s sales increased 4.2% YoY to $10.18 billion, ahead of the $10.15 billion analysts expected. Same-store sales grew 0.5%.

But while both companies reported top-line growth, their bottom-line results diverged.

• Dollar Tree grew its adjusted earnings by 15.5% to $1.12 a share, beating analysts’ expectations by 5 cents.
• But Dollar General’s diluted earnings per share fell 29.4% YoY to 89 cents, 5 cents short of analysts’ forecasts.

Looking ahead: The two companies are taking markedly different approaches to revamping their in-store experiences to spur growth.

• The Dollar Tree banner is in the midst of a large-scale program to convert stores to a more vibrant, multiprice format that features tailored product assortments, additional coolers, and expanded seasonal offerings.
• In Q3 alone, it converted 720 stores to its multiprice format, bringing its total number of converted stores to about 2,300 locations. Those stores accounted for an outsize share—about 30%—of its total net sales in Q3.
• The retailer continues to review its Family Dollar business, which could result in either a sale or a spinoff.
• Meanwhile, Dollar General’s “Back to Basics” strategy involves eliminating about 1,000 SKUs by the end of the year and removing half of the off-shelf displays, which aims to simplify employees’ work and keep store shelves neater and easier to navigate.

Our take: With roughly 2 in 5 low-income households finding it difficult to manage financially, per Ipsos, Dollar Tree and Dollar General should continue leaning into value-oriented everyday goods.

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