Dollar store stocks are feeling the heat.
Heavyweights Dollar Tree and Dollar General reported earnings this week that disappointed investors as Dollar Tree stock has not fallen since November 2020. The companies cited supply constraints and said they were expected more freight and transportation problems in the coming months.
While other retail companies are able to pass higher costs on to their customers because inflation is high, dollar stores are an exception, Chantico Global Founder and CEO Gina said Thursday. Sanchez, at CNBC’s “Trading Nation”.
“Margins go up as long as your value proposition is ‘we sell cheap stuff’, and that’s the whole story of Dollar General, Dollar Tree,” she said. “As we see these freight costs rise and inflation usually kills their inventory, they are not able to pass them on and that makes it more difficult.”
As consumer spending begins to move away from budget awareness, dollar stores could enter a difficult phase, said Sanchez, also chief market strategist at Lido Advisors.
“They are impacted by the drop in demand as well as by the drop in their margins. It’s going to be a tough race, ”she said.
Inside Edge Capital Management founder Todd Gordon said in the same interview that this could create a buying opportunity at Dollar General.
“It really needs to maintain around $ 223 support,” Gordon said, citing the chart.
“If we close this week below 220, I think we’ll go down and maybe test that uptrend support on the chart around 200, which could be a good buy zone,” Gordon said.
The broad dollar fell nearly 1% to settle above $ 223 early in Friday trading.
The “very strong” earnings of Maersk, the world’s largest shipping company, fueled Gordon’s optimism about dollar stores.
“They are up 58% year over year in terms of revenue and profits. They mentioned this exceptional situation, which is a supply constraint. They expect this to continue until the end of the year. They announced two big acquisitions. to simplify the supply chain, ”Gordon said.
“The idea that the supply bottleneck is fleeting, I think it’s real, is being confirmed by the world’s largest shipping company,” he said. “So maybe we’ll find a bottom and the margin will come back.”