Dollar store chains have seen an influx of higher-income shoppers in recent months as economic uncertainty surges and households look to save.
“Higher-income customers have been a meaningful growth driver for us,” Dollar Tree (DLTR) CEO Michael Creedon told investors, specifically noting the chain saw an increase in customers with household incomes of more than $100,000. The company reported that same-store sales rose 5.4% in the first quarter, with improvement across all income levels.
Earlier this week, Dollar General (DG) told investors it “saw the highest percent of trade-in customers” in the last four years during the first quarter. Its CEO, Todd Vasos, said the company saw increased trade-in activity, or consumers who would typically shop at higher-cost competitors, from middle- and high-income consumers, who came to Dollar General instead. Its same-store sales grew 3.4% in the quarter.
Data from Placer.ai shows that foot traffic to both retailers surged in April as some tariffs went into effect.
Read more: What Trump’s tariffs mean for the economy and your wallet
The rise in shoppers turning to dollar stores and other discount retailers comes as evolving trade policy has created heightened economic anxiety among both consumers and businesses.
A new report from ADP out Wednesday showed US private payrolls slowed significantly last month. “The weak numbers we’re seeing now does not point to a labor market that’s collapsing, but there is hiring hesitancy,” ADP chief economist Nela Richardson told reporters on a call.
Consumer confidence has also waned in recent months. It rose in May for the first time all year.
PwC’s Ali Furman told Yahoo Finance that while consumers showed “some resilience” month over month, they made more “discerning purchases.”
Dollar General expects its momentum to continue, as Vasos told investors, “Depending on where the macro environment goes, it should be very conducive to further trade-in, possibly as we move forward.”
Both dollar store chains tend to outperform when a weaker consumer and overall economy persist.
When inflation hit 40-year highs in 2022, Dollar General and Dollar Tree stocks surged. Dollar Tree shares reached a record in April of that year, while Dollar General shares topped out in November.
Year to date, Dollar General and Dollar Tree shares have handily outperformed the S&P 500 (^GSPC) — rising 45% and 18%, respectively — as well as larger rivals like Walmart (WMT) and Target (TGT), with the former calling out higher-income shoppers visiting more frequently in recent quarters.
The S&P 500 is up about 1.8% this year, while Walmart stock has gained just less than 11%. Target shares are down almost 30%.
Over the past year, however, both dollar store giants remained laggards, with shares down more than 20%.
Tariffs give and tariffs take
Tariff uncertainty may be getting more customers in the door, but the story isn’t all positive for Dollar Tree.
Dollar Tree stock fell as much as 10% in trading on Wednesday as the company outlined a profit hit on rising costs as a result of tariffs.
The company now expects its second quarter adjusted earnings to be down as much as 50% compared to a year ago, before reaccelerating in the third and fourth quarters, due to tariffs and the sale of Family Dollar.
Overall, direct imports make up 41% to 43% of Dollar Tree’s total retail value purchases, and China supplies the majority of those imports, per a company filing.
When an analyst on the company’s earnings asked how important China was to the company, Creedon said, “Global sourcing is critical.” In the quarter, Dollar Tree’s inventory increased 10%, or $247 million, to $2.7 billion due to “higher mark-on and inventory receipts as we expanded our multi-price assortment,” CFO Stewart Glendinning said.
Dollar Tree does expect strong customer traffic, however, with same-store sales expected to rise “towards the higher end” of its 3%-5% full-year outlook. Dollar Tree also updated its adjusted diluted earnings outlook and now expects to end the fiscal year in the range of $5.15 to $5.65, compared to the previously projected range of $5.00 to $5.50.
Dollar General also raised its earnings forecast on Tuesday. The company now sees full-year adjusted earnings coming in between $5.20 and $5.80 per share, up from a range of $5.10 to $5.80. After a 15% rally on Tuesday, Dollar General stock was down about 1.5% in sympathy with Dollar Tree’s slide on Wednesday.
Dollar General’s exposure to tariffs is much lower than its rival’s, as 80% of its sales are food items, most of which are nonperishable items made in the US, like canned soups, beans, and chips, Morningstar analyst Noah Rohr previously told Yahoo Finance.
Dollar General also directly imports less than 10% of what it sells, with less than 70% of that coming from China, Telsey Advisory Group analyst Joe Feldman wrote in a note to clients.
Indirectly, the company imports roughly 10%-18% of items, with less than 40% of those coming from China, Feldman added.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.