Dollar Tree, Dollar General earnings drive gains for discounter stocks
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Discount stores are big gainers on Thursday after strong earnings results from Dollar General (NYSE:DG
+12.0%) and Dollar Tree (NASDAQ:DLTR
+18.7%).
Both dollar stores indicated that demand remained robust in the first quarter, with net and comparable sales for both retailers rising above estimates. Additionally, each company indicated it is able to navigate difficult inflationary and supply chain headwinds to maintain margins despite famously low sticker prices, breaking with more bearish commentary from Walmart (WMT
+1.8%) and Target (TGT
+3.1%) in recent weeks.
While the weakening of lower income consumers is cited as a problem for off-price retailers like Burlington Stores (BURL
+9.4%), trading down was seen as a major benefit for dollar stores. Indeed, as recent retail sales figures have outpaced inflation, the erosion in sales figures for many retailers is not evaporating, but instead being redirected. 
âWe are taking the necessary actions now to position ourselves for accelerated growth in what I view as the most attractive sector in retail, especially in the current economic environment,â Dollar Tree CEO Michael Witynski commented on Thursday. âValue and convenience are more important than ever to our shoppers and the communities we serve.â
The attractiveness of the sector is certainly reflected in the broader moves that reach beyond the two dollar store staples. Most immediately, the market is building optimism on the upcoming earnings results for Costco Wholesale Corporation
(COST
+4.1%), which could benefit as many consumers seek bargains by purchasing a subscription.
Other stocks rising on Thursday: Big Lots (BIG
+4.8%), Ollieâs Bargain Outlet Holdings (OLLI
+0.1%), BJâs Wholesale Club Holdings (BJ
+1.7%), and PriceSmart (PSMT
+2.1%).
Gains for these stocks are likely to be amplified in the case of a recession, as seen in 2009. Many Wall Street analysts are already highlighting the potential for another recession in early 2023, while some fund managers are pulling these bearish forecasts even further forward.
"I think the economy is going to cool off and we will have a recession by the end of this year or the beginning of next year," Hayman Capital Management CIO Kyle Bass said on Thursday.
Read more on his rationale for the recessionary forecast.