"'Recession Means Boom' Formula Fails... 'American Daiso' Stock Plummets"

Dollar Store Lowers Profit Forecast for This Year
Inflation Drives Customers to Groceries Only... Decline in High-Margin Product Sales

The stock prices of dollar stores, known as the "American version of Daiso," have been sluggish. Due to soaring inflation, Americans visiting dollar stores are purchasing only low-margin groceries, leading to earnings that fall short of expectations. The long-standing retail industry formula that recessions benefit dollar stores no longer holds true.

According to Bloomberg on the 12th (local time), the stock price of Dollar General, one of the dollar stores, has fallen 38% so far this year. Dollar Tree dropped 6%. Five Below rose 5%, but since reaching its peak of $217.18 on April 11, it has declined 14.2%.

The poor earnings have weighed on dollar store stock prices. Consumers facing rising living costs due to inflation are focusing purchases on essentials like groceries, significantly reducing demand for high-margin products such as toys and party supplies.

Accordingly, last month Dollar Tree lowered its full-year earnings per share (EPS) forecast from $6.30?$6.80 to $5.73?$6.13. Rick Dreiling, CEO of Dollar Tree, stated, "(Sales) declines and inventory losses are accelerating, and unfavorable product sales are expected to persist throughout the year."

Bloomberg pointed out that this trend breaks the retail industry's conventional wisdom that dollar stores perform well during recessions. With disposable income sharply reduced among middle- and low-income groups due to inflation, spending is being cut back except on essentials like groceries.

In fact, the U.S. core consumer price index rose 5.2% in May compared to a year earlier, far exceeding the Federal Reserve's inflation target of 2%. According to Walmart estimates, grocery prices have surged more than 20% over the past two years. During the COVID-19 pandemic, wage increases failed to keep pace with inflation, intensifying economic hardship primarily among low-income groups.

On the other hand, excess savings accumulated during the COVID-19 pandemic amount to $500 billion, and amid a strong labor market, increased spending on dining out and travel is fueling inflation. Many companies selling high-priced products or services have raised their earnings forecasts, according to foreign media analysis.

Bloomberg analyzed, "The dollar stores' slump reflects the widening inequality caused by the pandemic. While it is positive that a resilient middle class and high-income groups may help escape recession, it simultaneously means millions of Americans are facing extreme hardship."

This content was produced with the assistance of AI translation services.