Costco Stock At Wholesale Prices

So Costco (COST) pretty much crushes earnings – again – and the stock tanks. 

What gives? The Juice gets to that in a minute, but first… 

This economy continues to intrigue us. Particularly the impact of inflation on the consumer. 

After Costco’s earnings last week and Dollar General (DG) and Dollar Tree’s (DLTR) late last month, let’s dive into each company’s conference call to pull some nuggets. 

Our takeaway: Don’t judge this economy by what you think makes sense. 

While The Juice still believes we’re running in a dichotomous economy of haves and have nots, Dollar General and Dollar Tree threw a small wrench into this thesis. 

They Make $100,000, But Shop At A Dollar Store

Yes, it’s true. 

First, from Dollar Tree’s call, this tidbit: 

We see third-party data that we do have a lot of new customers coming into both banners over last year. And the majority of them are at a household income of $80,000 or higher… We also see a huge shift from cash into credit, which tells us the customer is pressured.

So, a higher-end consumer is hitting up Dollar Tree and Family Dollar stores (DLTR owns both). Interesting.

And DLTR consumers are increasingly relying on credit cards to pay. This prompts concern over the consumer debt bubble we warned might be brewing. We’ll update this story as the government releases the latest data on debt and savings over the next couple weeks. 

But back to the higher end consumer shopping at dollar stores. Dollar Tree didn’t provide much color beyond that blurb. However, Dollar General did, after indicating it’s seeing a similar trend.

Because the Dollar General CEO sort of rambled during this part of the call, we’ll summarize what he had to say: 

• Higher-end consumers making up to $100,000 are trading down to less expensive necessities, particularly consumables. Similar to the low-income cohort. 
• However, this consumer starts from a baseline of more money to spend so this trading down actually frees up cash to drop on discretionary items. 
• For example, Dollar Tree’s fall and Halloween products sales are “doing extremely well,” thanks in part to this relatively affluent shopper. 

On the lower end of the income spectrum at DG:

…our core customer has been buying more private brands, that $1 price point, very, very important to her. If you think about things that have accelerated greatly over the last quarter, if you think of basic proteins that our core customer needs, so what we’ve seen is 15% to 20% increases over the last couple of quarters in canned meat, seafood, dry pasta, soups, rice and beans. So those core proteins, eggs, all those things that the consumer needs to feed her family but can do it at a much-reduced price.

Super interesting. 

Makes The Juice think you should continue to look hard at DG and DLTR stock as long-term investments. As the chart we’ll show you in a second reveals, both stocks have outperformed even Costco over the last year. 

They’re superserving their core low-income consumers, but hoping and, in Dollar General’s case, expecting to retain wealthier consumers coming through the door thanks to inflation.