Dollar store stocks are feeling the heat on the back of the ongoing Covid-19 pandemic.
Dollar Tree and Dollar General reported earnings this week that disappointed investors, with Dollar Tree’s stock falling to lows not seen since November 2020. The companies cited ongoing supply issues and said they expected more problems related to freight and transportation in the coming months.
While other retail companies have been able to pass higher costs onto their customers as inflation creeps higher, dollar stores are a stark exception, Chantico Global founder and CEO Gina Sanchez told CNBC’s “Trading Nation” on Thursday.
“Margins have been expanding unless your whole value proposition is ‘We sell stuff cheap,’ and that is the whole Dollar General, Dollar Tree story,” she said. “As we see these freight costs rising and inflation generally hitting their inventory, they’re not able to pass it through and it just makes it more of a struggle.”
As consumer spending begins to move away from budget-consciousness, the dollar stores could be entering a difficult phase, said Sanchez, also chief market strategist at Lido Advisors.
“They’re getting hit with demand falling at the same time that their margins are getting squeezed. It’s going to be a tough ride,” she said.