Dollar stores have been one of the only sure bets in retail in this decade. However, as we near 2020 dollar store stocks are experiencing weakness in North America. Can investors still count on growth going forward? Let’s take a look at two stores that are based in Canada and the United States, respectively.
Dollarama (TSX:DOL) stock has plunged 17.4% in 2018 so far. Shares dropped after the company released its fiscal 2019 second-quarter results. Analysts pointed to softer comparable sales growth of 2.6% compared to 6.1% in the prior year. Overall sales were still up 6.9% year-over-year to $868.5 million and EBITDA increased 7.9% to $225.8 million.
Dollar Tree (NASDAQ:DLTR) stock has dropped 20.7% in 2018 so far. The company also missed comparable sales estimates as it reported 1.8% growth in this category in the second quarter. Margins fell by 70 basis points due to higher freight costs. Dollar Tree warned that this could weigh on earnings in the next two quarters. Other dollar store vendors are fighting to reduce costs but the escalating trade war between the United States and China is a lingering concern.
Compared to other retailers, dollar stores continue to be top performers. However, trade tensions and rate tightening could put increasing pressure on consumers in the coming months. The economic performance in the U.S. has spilled over for luxury retailers but has not translated for dollar stores, at least in comparison to previous year-over-year growth.
