It is learned from Zhitong Finance that the well-known American "dollar store" giant Dollar Tree (DLTR.US) will announce its second-quarter financial performance before the pre-market trading on Wednesday. Wall Street analysts predict that Dollar Tree's EPS for the second quarter will reach $1.04, a 14.3% increase compared to the same period last year; the revenue is expected to be $7.51 billion, a 2.5% increase year-on-year.

Analysts predict that Dollar Tree brand sales will reach $4.16 billion, a 7.5% increase year-on-year; Family Dollar brand sales are expected to be $3.33 billion, a 3.3% decrease year-on-year. Analysts predict that other income will be $5.65 million, an 8.7% increase year-on-year.

Analysts predict that "Enterprise Same-Store Sales" will increase by 1.7%, a significant decrease from the 6.9% growth rate in the same period last year. Among them, analysts predict that Family Dollar brand same-store sales will remain flat, with a growth rate of 5.8% reported by the company in the same period last year. Analysts predict that Dollar Tree same-store sales will increase by 3.1%, a significant decrease from the 7.8% growth rate in the same period last year.

Analysts generally estimate the number of "store total" to be 16,380, compared to 16,476 in the same period last year. In the past 30 days, the general expectation for EPS this quarter has been lowered by 2.6% to its current level.

Weak consumer spending in the United States has led to a smaller "market cake" for discount stores.

Last Thursday, another 'dollar store' giant, Dollar General (DG.US), saw its stock price plummet by 32% after announcing its performance, marking the worst trading day in history. The company issued a warning about the demand of 'financially strapped' customers, with disappointing second-quarter earnings, including a substantial downward revision of annual guidance, indicating a challenging outlook for Dollar Tree, another giant in the dollar store retail sector.

The post-performance stock price plunge of Dollar General caused a collapse in the discount store sector. Dollar Tree dropped more than 10% last Thursday, while Target (TGT.US), Ollie's Bargain Outlet Stores (OLLI.US), BJ's Wholesale Club Holdings (BJ.US), and other discount retailers fell by 2% to 8%. Meanwhile, Walmart's stock price only fell by 0.20% last Thursday, remaining very close to its historical high.

According to Dollar General's financial report for the second quarter of the 2024 fiscal year, the company's revenue increased by 4.2% year-on-year, reaching $10.2 billion, slightly lower than analysts' expected $10.37 billion. More concerning is the company's earnings per share (EPS) dropped by 20.2%, standing at only $1.70, far below the Wall Street estimate of $1.79. This result indicates that despite the low EPS expectation from Wall Street, Dollar General still failed to meet the target.

Furthermore, Dollar General's previous earnings per share guidance for the full 2024 fiscal year was $6.80 to $7.55, but now the company expects the full-year earnings per share to be only $5.50 to $6.20. This downward revision further intensified investors' concerns.

It is worth noting that Dollar General's sales trend in the second quarter of 2024 was weak, partly due to core customers experiencing financial strain. Dollar General CEO, Todd Vasos, stated that inflation is one of the main challenges the company is facing, and 'financially strapped' customers are one of the main reasons for the company to lower this year's sales target.

Since 2021, inflation has become a persistent challenge in the global economy. Although the inflation rate has fallen in many major Western countries, this economic phenomenon continues to have profound effects on people's lives.

Data from the University of Michigan shows that the sentiment of the poorest one-third of the US population has dropped to the level of the most severe financial crisis period, and even the most affluent one-third still faces challenges. This widespread pessimism, even against the backdrop of declining inflation rates, has not been relieved.

Dollar General's same-store sales growth has been almost entirely driven by essential life necessities such as food, while the performance of discretionary consumer goods such as outfits, seasonal commodities, and housewares has been poor. Company executives specifically noted that sales were worst in the last week of each month, reflecting an increase in economic pressure on consumers at the end of the month.

"The phenomenon of a larger proportion of sales coming from consumer categories" indicates that consumers are more inclined to purchase low-priced disposable products, such as food, rather than high-priced goods. In times of economic stress, consumers tend to reduce their purchases of non-essential items, which is a disadvantage for dollar stores.

The price reduction promotions by retail giants have increased competitive pressure, resulting in erosion of market share for dollar stores.

To make matters worse, dollar store retailers also face dual pressures from external competition. Reports indicate that competitors such as Walmart (WMT.US) and Aldi are intensifying their competition, especially as Aldi, the German low-cost store, expands in the United States and gains market share from Dollar General in certain areas. Walmart is also providing more low-priced products, offering more choices for budget-conscious consumers.

Wells Fargo's viewpoint is that Dollar General's revenue generation efforts have clearly encountered problems. Wells Fargo analyst Edward Kelly pointed out, "We believe that macroeconomic factors, competition, and underinvestment are causing losses." Although the management of Dollar General seems prepared to take more proactive action, Kelly warned that challenges still exist. Specifically, Kelly believes that retailers need to make significant investments in labor (hours/wages) to restore confidence in the chain stores.

Clearly, the macroeconomic backdrop and the pressure of low-income consumers are factors that contribute to the difficult expansion of dollar store companies like Dollar General. However, Kelly also emphasizes that intense competition, especially from Walmart (WMT.US), is also a factor to consider. Furthermore, Amazon (AMZN.US) competes directly with these emerging competitors by establishing its own low-cost fashion, housewares, and general retail stores, while dollar stores, due to the limitations of their business model, cannot easily make the corresponding changes.

The business model of dollar stores focuses on expanding the coverage of physical stores to be closer to low-income customers in rural areas. However, it is evident that dollar store companies currently lack the ability to compete with emerging threats, at least in the short term. This has been reflected in Dollar General's financial guidance.

For example, Evercore ISI analyst Michael Montano states that Dollar General's performance shows that maintaining market share is a challenge in an environment of slowed economic growth in the United States, and Walmart will come out ahead.

Furthermore, analyst Leo Nelissen, who focuses on major economic developments in the supply chain, infrastructure, and commodities sectors, indicated that low-cost brands such as Walmart, Aldi, and Temu are disrupting Dollar General's business model by offering consumers more affordable products and achieving economies of scale.