00:00 News Anchor
Well, Dollar General is climbing after topping first quarter expectations and raising its outlook for the year, boosted by demand for affordable essentials and economic uncertainty. The discount retailer expecting to be able to mitigate the potential cost impacts of tariffs. Joining us with more, James Gellert, Rapid Ratings Executive Chair. Great to have you here. I know you rated Dollar General’s financial health at 64 out of 100. It’s above the retail sector average of 55. Walk us through how you’re viewing these results.
00:44 James Gellert
So, Matty, these results I think are indicative of a couple of things. One, from a tariff perspective, Dollar General has done a pretty good job of forecasting that they would have limited effects from tariffs. They buy a pretty small percentage of their goods from overseas non-US entities. So, that’s positive. The other is that it this is definitely a sign that the more budget-oriented consumer is is active and is active in more budget-targeted stores. So, I would expect to see some good results from Dollar Tree tomorrow as well as Dollar General today. And these are these are I think quite quite strong. The markets obviously reacting well, and their forecasts were also lifted. So, I think they’re talking now about a 2.5% same-store sales figure for the balance of the year, which is which is up from analyst expectations earlier this year.
02:28 News Anchor
How do you anticipate going forward that this business is going to be able to navigate some of the inventory issues, especially knowing how it could change on a dime and they’re going to have to be forced to figure out, do we have enough inventory to get us through not just summer, but maybe even into the back-to-school season, and then into fall as well? How is the company talking about this?
03:01 James Gellert
The company’s been focused on inventory management and better inventory management, having more inventory on on shelves really all year. It’s been I think a part of the company’s focus overall. That said, every retailer is facing a similar problem right now, which is that their suppliers and those whose goods they have on the shelves are having a very difficult time forecasting their own inventory management. And as you go up in the supply chains of these companies, they you’re getting into smaller and smaller and more private companies. 75% of most companies’ supply chains are made of private companies. And these are the entities that are being really affected the most by the the actual costs of tariffs, but also the difficulty of planning their businesses around the specter of tariffs and the the difficult time that everyone’s having in determining exactly what their cost base is going to look like for the balance of the year. That said, a a 64 financial health rating is a is a very solid and it’s a low risk one, which means it’s a company Dollar General that is better positioned than many to withstand the shocks that that it’s currently receiving and that it will through the balance of the year.
05:11 News Anchor
30 seconds left. What’s the read through to Dollar Tree?
05:15 James Gellert
So, Dollar Tree is rated slightly higher than Dollar General, but it’s had a more volatile ratings trend over the last couple of years. The divestiture of Family Dollar is going to be really all-consuming for them. So, I think they are also well-positioned from an FHR, financial health rating perspective, to deal with some of the volatility that will be coming. They also have tariff issues that they need to deal with. But from a corporation from a corporate standpoint, they’re certainly distracted with very significant corporate finance activities coming up.
