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Comparing Dollar General’s and Dollar Tree’s Valuations


Jun. 4 2019, Updated 7:00 a.m. ET

Valuations after Q1 results

Dollar General (DG) reported upbeat results (sales growth of 8.3% and adjusted EPS growth of 8.8%) for the first quarter of fiscal 2019. The retailer kept its previously issued fiscal 2019 guidance intact as it had taken into account the increase in the tariffs to 25% from 10% on $200 billion of Chinese imports, which became effective May 10.

Dollar Tree (DLTR) reported a 4.6% rise in its sales but adjusted EPS declined 4.2% in the first quarter due to higher expenses to support growth initiatives. Dollar Tree lowered its fiscal 2019 earnings guidance to reflect store closure costs and freight costs of $30 million and $15 million, respectively. As of May 31, Dollar General and Dollar Tree were trading at 12-month forward PE ratios of 19.3x and 19.0x, respectively. The forward valuation multiples of Dollar General and Dollar Tree rose 4.5% and 5.9%, respectively, after both these companies announced their first-quarter results on May 30.

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Analysts’ expectations

Analysts expect Dollar General’s sales to rise 7.3% to $27.5 billion and adjusted EPS to rise 8.2% to $6.46 in fiscal 2019. Dollar General’s enhanced non-consumable merchandise offerings, a continued focus on consumables, and store optimization plans are expected to drive its fiscal 2019 performance.

Analysts expect Dollar Tree’s sales to rise 3.6% to $23.6 billion in fiscal 2019 while adjusted EPS is expected to decline by about 5.0% to $5.18. Dollar Tree is expected to benefit from its transformational plans to improve its Family Dollar stores and efforts to further strengthen its Dollar Tree brand stores, including the continued roll-out of frozen and refrigerated items. However, its investments in strategic initiatives are expected to weigh down its profitability in fiscal 2019.

Overall, higher freight costs, growth investments, and tariffs are expected to be headwinds for Dollar General as well as Dollar Tree.


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