U.S. dollar stores expect higher sales as inflation turns shoppers frugal

By Praveen Paramasivam

(Reuters) -Top U.S. dollar store chains on Thursday raised their sales expectations for the year as bargain-hunting Americans increasingly shop at discounters with inflation at a four-decade high, sending shares of the retailers at least 15% higher.

Shares of Dollar Tree Inc and Dollar General Corp rebounded from a slide last week that wiped off nearly a fifth of their value after huge profit declines at industry bellwethers Walmart Inc and Target Corp.

The dollar stores also reported better-than-expected results for the first quarter, which analysts believe should bring respite to the battered retail sector.

Low-income families are increasingly browsing the aisles at discount stores for cheaper tissues and cereals - as they did during the financial crisis of 2008 - after COVID-19 stimulus payments stopped coming in and prices of essentials soared.

Dollar General Chief Executive Officer Todd Vasos said the next tier of customers was starting to buy more at its store, and he expects more frequent visits from such higher-income consumers as inflation squeezes spending.

Dollar Tree executives also said their stores would continue to focus on value as customers live "paycheck to paycheck".

The Family Dollar parent increased its fiscal 2022 per-share earnings forecast to between $7.80 and $8.20 from $7.60 to $8, as it also benefits from raising product prices by 25% to $1.25 at Dollar Tree.

"Bulls will be heartened by today's sales and profit beat as the power of pricing becomes more evident," Evercore analyst Michael Montani said.

Dollar Tree's forecast raise came despite the retailer flagging a 35-cent per share knock related to a pest and sanitation problem at its now-closed West Memphis distribution center.

Dollar General, on the other hand, stopped short of raising its annual earnings forecast, as sales from low-margin food and cleaning products rose and high-margin discretionary goods fell.

(Reporting by Praveen Paramasivam in Bengaluru; Editing by Shinjini Ganguli)