Stocks of dollar stores feel the heat.
Dollar Tree and Dollar General heavyweights reported earnings this week that disappointed investors as Dollar Tree shares fell to unprecedented lows since November 2020. Companies cited restrictions on ongoing supply and said they expected more transportation and transportation problems in the coming months.
While other retail companies have been able to pass on higher costs to their customers as inflation rises, dollar stores are a stark exception, the founder and CEO of Chantico Global told CNBC’s “Trading Nation.”
“Margins have been expanding unless your whole value proposition is‘ We sell cheap stuff ’and that’s the story of General Dollar, Dollar Tree,” he said. “As we see these transportation costs rise and inflation generally reaches their inventory, they are not able to get through it and it makes it harder.”
As consumer spending begins to drift away from budget awareness, dollar stores could enter a difficult phase, said Sanchez, also chief market strategist at Lido Advisors.
“They will be affected by falling demand at the same time as their margins are reduced. It will be a difficult journey,” he said.
This could create a buying opportunity at General Dollar, Inside Edge Capital Management founder Todd Gordon said in the same interview.
“It really needed support of about $ 223,” around its recent highs, Gordon said, citing the chart.
“If we close below 220 this week, I think we’ll go down and maybe test this bullish trend support on the chart around 200, which could be a good buy zone,” Gordon said.
General Dollar fell about 1% to surpassing $ 223 in Friday’s trading.
The “very strong” gains from the world’s largest shipping company, Maersk, fueled Gordon’s optimism around dollar stores.
“They are up 58% year-on-year in terms of revenue and profits. They cited this exceptional situation, which is supply constraint. They expect it to continue until the end of the year. They have announced two major acquisitions to facilitate the supply chain said Gordon.
“This idea that the supply restriction is transient I think is real, confirmed by the world’s largest shipping company,” he said. “So maybe we’ll find a bottom and the margins will come back.”
Exemption from liability