The upcoming earnings reports from dollar store giants Dollar Tree Inc. and Dollar General Corp. this week will provide crucial insights into the challenges faced by lower-income consumers amidst rising grocery prices and reduced government aid. These results come at a time when discount retailer Ross Stores Inc. has already cautioned about the ongoing pressure on discretionary spending among low- to moderate-income customers.
Dollar Tree is scheduled to report its results on Wednesday, followed by Dollar General on Thursday. Both companies operate in a segment of the market that caters primarily to budget-conscious shoppers, and their performance will shed light on the affordability of essential goods for this demographic.
While wealthier consumers seeking bargains have increasingly patronized dollar stores, Dollar Tree’s CEO, Rick Dreiling, highlighted the significant impact of inflation, diminished government benefits, and depleted savings on lower-income consumers. Dreiling specifically pointed to cuts in SNAP benefits, which have adversely affected the purchasing power of Dollar Tree’s customers. The expiration of additional SNAP benefits provided during the pandemic and other restrictions imposed by a debt-ceiling bill have compounded the financial strain on these households.
The reduction in SNAP benefits has been particularly pronounced, with third-quarter benefits experiencing a substantial year-over-year decline of 23%, far exceeding earlier reductions. This decline has placed additional pressure on Dollar Tree’s customers, especially those shopping at its Family Dollar stores.
Moreover, both Dollar Tree and Dollar General will be reporting against the backdrop of a mixed economic landscape. While the U.S. economy added more jobs than expected in February, wage growth has slowed, and unemployment rates have edged higher. Analysts note that while the labor market is softening, it remains relatively tight compared to previous economic cycles.
Despite these economic headwinds, there are indications that corporate America’s concerns about a potential recession are diminishing. According to a FactSet report, the number of S&P 500 companies mentioning a recession during earnings calls in the fourth quarter was at its lowest level since the end of 2021. This suggests a growing confidence in the resilience of the economy among major corporations.
This week in earnings
Elsewhere, beauty-products chain Ulta Beauty Inc. reports results, after executives late last year called out “healthy but moderating” trends in demand. Results are also forthcoming from Kohl’s Corp. homebuilder Lennar Corp. and shoe maker Allbirds Inc.
The call to put on your calendar
Adobe Inc. faced a setback late last year when its plans for a significant expansion through a $20 billion acquisition of Figma fell through due to regulatory hurdles in Europe. As the design-software and analytics firm prepares to report its earnings on Thursday, investors are eager for insights into Adobe’s strategy moving forward.
The decision to abandon the Figma deal was prompted by regulatory concerns, with the U.S. Justice Department emphasizing the importance of maintaining competition in the market for designers, creators, and consumers. With this setback, Adobe is now focusing on leveraging artificial intelligence (AI) to enhance its offerings and maintain its competitive edge. One notable initiative is Adobe’s Firefly AI-backed design tools, which enable the creation of images and graphics through AI-driven processes.
However, Adobe faces stiff competition from tech giants and their supported ventures, such as OpenAI’s Sora, a program capable of generating short videos based on text commands. Despite some market turbulence following the emergence of Sora, analysts remain optimistic about Adobe’s prospects.
Oppenheimer analysts foresee a brighter future for Adobe, anticipating a gradual reduction in competitive concerns. They expect Adobe to roll out more comprehensive and compliant AI products and models, including text-to-video capabilities, alongside deeper design tools, collaboration features, workflows, and integrations across its Digital Media and Digital Experience products throughout the year. This optimistic outlook suggests the potential for Adobe to exceed expectations and deliver steady growth in fiscal year 2024.