In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche
This means that like many discounters, Dollar Tree operates fairly close to the death spiral. That is too close for my tastes because it had just $870.4 million in cash and short-term investments at the end of the last quarter.
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Revenue growth has peaked at this retailer; making both its stock price and current business are unsustainable. Expect to see a major contraction in both share prices and footprints in the dollar store segment with DLTR leading the way. We’ve reached peak dollar store, so the collapse is about to begin.
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Walmart’s online discounting is undercutting Dollar General’s prices and competing directly for rural customers. The recent acquisition of Jet.com gives Walmart even greater online discounting capabilities. Much of Dollar General’s success is in offering convenient local stores in small towns where there is no Walmart. Now Walmart can serve those customers without building a store. This should really worry DG investors because the National Retail Federation reported that more Americans shopped online than instore on Black Friday.
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The revenue shrinkage at Sears is incredible, if it keeps up the retail icon might soon be smaller than dollar stores and rival department store operators.
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It might be a coincidence but Jet’s revenue claims seem to match the drop in revenues at Target. In February 70% of Jet sales were from first time buyers. Particularly to worrisome to Target should be the fact that 81% of shoppers were unaware of Jet’s existence. That means it has a lot of room to grow and Walmart is now behind it.
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My take is that both Dollar Tree and Dollar General are overpriced stocks. Dollar Tree is a slightly safer investment because it has more cash but neither is a good long-term investment. The market they are in is simply too competitive and unstable to support their business models.
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Dollar General (NYSE: DG) just reported another quarter of phenomenal revenue growth. That raises the question: is the company making enough money to sustain; or justify, its ambitious expansion plans?
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