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Dollar store chains boost their outlooks as consumers grapple with high inflation

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Dollar General and Dollar Tree stores

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Shares of Dollar General and Dollar Tree popped Thursday, as the discounters beat Wall Street’s quarterly earnings expectations, raised outlooks for the coming year and spoke of consumers flocking to lower prices during inflationary times.

As of midday Thursday, shares of Dollar General were up about 14% and Dollar Tree were up about 20%.

The two retailers said they see opportunity to grow as Americans weigh value more heavily in their purchasing decisions, whether buying groceries or seasonal decor.

“We’re already starting to see our core customers start to shop more intentionally,” Dollar General CEO Todd Vasos said on a call with analysts. And we’re starting to see that next tier of customers start to shop with us a little bit more as well.”  

Dollar Tree Executive Chair Rick Dreiling listed the many challenges that consumers are facing, from the highest levels of inflation since the early 1980s to record high gas prices and uncertainty from current events such as the Ukraine war and the pandemic. He added that many consumers “are living paycheck to paycheck.”

“In tough times, value retail can be part of the solution to help families stretch their dollars to meet their evolving needs,” he said.

Dollar General and Dollar Tree beat expectations on fiscal first quarter earnings, revenue and same-store sales.

Dollar Tree, which includes the Family Dollar banner, said it now expects net sales for the year to range from $27.76 billion to $28.14 billion compared with its previous expectations between $27.22 billion to $27.85 billion. 

Dollar General said it expects net sales growth of about 10% to 10.5% compared with its previous expectation of about 10%. It raised its same-store sales forecast to growth of approximately 3% to 3.5% compared with its previous expectation of 2.5%.

Here are three major takeaways from the two discounters fiscal first-quarter earnings reports:

A different merchandise mix

Shoppers are still coming to stores, but are buying different items. Food is a bigger part of baskets and drove sales for Dollar General and Dollar Tree in the fiscal first quarter.

A year ago, consumers had extra dollars from stimulus checks and child tax credits. That meant some sprang for impulse items or discretionary purchases. Those dollars have disappeared and other budget items, such as groceries and gas, have become pricier.

Vasos said same-store sales at Dollar General dropped in each of the seasonal, apparel and home products categories in the fiscal first quarter, but more consumables sold. Overall, same-store sales dropped 0.1% versus the year-ago period, besting the 1.3% decline anticipated by analysts, according to FactSet.

At Dollar Tree, carbonated beverages, salty snacks and cookies were some of the items that surged in popularity — especially as the retailer expanded its food and beverage assortment. The company is the parent of Family Dollar, a banner that skews more heavily to food compared with the namesake banner.

“We believe that’s a traffic driver and as the customers experience the items and appreciate the value we’re giving them, over time we believe that that will help drive traffic into the overall store, not just those categories,” Dollar Tree CEO Michael Witynski told analysts.

Sales patterns at the companies echoed those at Walmart and Target, two companies that also saw a shift toward groceries and away from general merchandise in the fiscal first quarter.

Seizing the moment

Even before inflation jumped to a four-decade high, Dollar Tree and Dollar General had plans for larger store footprints, expansion into new categories and strategies to woo more customers. The retailers doubled down on that on Thursday — saying the challenged economic backdrop makes the time right and the offerings more compelling.

Dollar General, which has more than 18,000 stores, will open 1,100 new locations this year. It will expand its new store concept, PopShelf, and press ahead with the addition of more health-related merchandise. And it will go global by opening up to 10 stores in Mexico by the end of this year.

The company is going bigger with its stores, too. About 800 of the new locations will be its larger format of 8,500 square feet, with extra aisles for health and beauty items and coolers that hold produce or other groceries, Chief Financial Officer John Garratt told analysts on the call.

Dollar General is adding more end caps and displays that emphasize its cheaper private label and its $1 items, Vasos said. He said the company has “seen an acceleration in our private brand business” in recent weeks.

Dollar Tree, which includes more than 15,500 stores, is opening 590 stores this year. It is adding a larger range of goods by raising the price of $1 items to $1.25 and adding merchandise with a $3 and $5 price tag. And it has brought in new executives to turn around its Family Dollar banner.

Managing higher costs

Dollar Tree and Dollar General weren’t immune to higher costs in the first quarter, and some investors have raised concerns about whether they can keep prices low without hurting profits.

So far, the retailers have managed to beat Wall Street’s earnings expectations despite higher prices of fuel, freight and more. That’s something that Walmart and Target did not do.

Vasos said Dollar General can trade to other items or trade down in sizes if particular goods rise in price. He said the company is closely managing inventory to avoid a high level of markdowns and excess items that don’t sell.

Dollar General has a few other cost-saving and profit-driving measures underway, too. It added self-checkout to more than 8,000 stores as of the end of the first quarter. It plans to turn about 200 stores into self-checkout only this year. It is more than doubling its private fleet of trucks from 2021, so they account for about 40% of its outbound transportation fleet by the end of the year. And it is carrying more health care products, such as cough and cold medication, which have better margins than food.

At Dollar Tree, a price hike has been a big boost for profitability. The retailer announced last year that it would raise the price of dollar items by a quarter. It is rolling out $3 and $5 items to more stores, too.

Witynski said that wider range of price points means new sales opportunities in key seasons, such as the holidays. He said Dollar General had strong sales around Easter and Valentine’s Day and anticipates a similar dynamic in the back half of the year with back-to-school, Halloween and the holiday season.

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‘Minions: The Rise of Gru’ tops $108 million as parents flock back to cinemas, kids in tow

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“Minions: The Rise of Gru” is the sequel to the 2015 film, “Minions,” and spin-off/prequel to the main “Despicable Me” film series.

Universal

Families have gone bananas for “Minions: The Rise of Gru.”

Over the weekend, the Universal and Illumination animated feature tallied more than $108 million in ticket sales.

The fifth film in the Despicable Me franchise generated an additional $93.7 million from international markets, bringing its estimated opening weekend haul to $202 million globally.

“With the incredible success of ‘Minions,’ the notion that family audiences were avoiding movie theaters due to Covid concerns can be shelved,” said Paul Dergarabedian, senior media analyst at Comscore.

Box office analysts had wondered if this segment of moviegoers was still avoiding cinemas after Disney and Pixar’s “Lightyear” took in just $51 million during its domestic debut last month, below expectations of $70 million and $85 million.

It was unclear if tough box office competition led to “Lightyear’s” less than stellar debut or if consumers were confused about the film’s release. After all, there has not been a theatrical release of a Pixar film since 2020′s “Onward.” The last three from the animation studio, “Soul,” “Luca” and “Turning Red,” were all released on streaming service Disney+.

“Minions: The Rise of Gru” represented 54% of all domestic moviegoers over the weekend, with 68% of ticket holders being part of family groups, according to data from EntTelligence.

“What this weekend has showcased is a triumphant return to cinemas by families, laying to rest any lingering and outdated pandemic narrative that parents and kids only want to watch movies at home,” said Shawn Robbins, chief analyst at BoxOffice.com. “When the right content is out there, people will show up.”

The film is expected to add another $20 million in ticket sales in the U.S. and Canada on Monday, bringing its holiday weekend total to $128 million.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “Minions: The Rise of Gru.”

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American Airlines scheduling glitch allows pilots to drop thousands of July flights

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An American Airlines Boeing 787-9 Dreamliner approaches for a landing at the Miami International Airport on December 10, 2021 in Miami, Florida.

Joe Raedle | Getty Images

A glitch in a scheduling platform allowed American Airlines pilots to drop thousands of July assignments overnight Saturday, their union said, a headache for the airline as it tries to minimize flight disruptions during a booming travel season.

American said it didn’t expect the problem to affect its operation, including during the busy July Fourth holiday weekend. The union and airline are now discussing additional pay for pilots whose dropped trips the airline reinstated, the Allied Pilots Association said.

“As a result of this technical glitch, certain trip trading transactions were able to be processed when it shouldn’t have been permitted,” the airline said in a statement. “We already have restored the vast majority of the affected trips and do not anticipate any operational impact because of this issue.”

More than 12,000 July flights lacked either a captain, first officer, or both, after pilots dropped assignments, the Allied Pilots Association said Saturday. APA said the airline reinstated about 80% of the trips.

Pilots can routinely drop or pick up trips, but time off in the summer or holidays is hard to come by for airline employees as schedules peak to cater to strong demand.

On Saturday alone, American had more than 3,000 mainline flights scheduled and they were 93% full, according to an internal tally. Flights left unstaffed, however, are an additional strain on any airline.

The glitch occurred during a rocky start to the Fourth of July weekend when thunderstorms and staffing issues caused thousands of U.S. flight delays and hundreds of cancellations.

A similar issue occurred in 2017, when a technology problem let American’s pilots take vacation during the busy December holiday period. The carrier offered pilots 150% pay for pilots that picked up assignments.

American and its pilots’ union, whose relationship has been fraught, are in the middle of contract negotiations and the airline most recently offered nearly 17% raises through 2024.

Union president Capt. Ed Sicher, who started his term Friday, told American’s roughly 15,000 pilots Saturday night that American Airlines CEO Robert Isom said he is committed to paying an “inconvenience premium” to aviators whose trips American put back on their schedules after the glitch.

“To Mr. Isom’s credit, he called me four times today to commit to mitigating the damage from this debacle,” Sicher wrote late Saturday. “We started at a 200% override, although the details of this pay are still the subject of negotiations and there is no guarantee of the details or the amounts.”

American Airlines declined to comment on Sicher’s message to pilots.

American’s pilots have picketed recently against grueling schedules, something they want to be addressed in a new contract. Pilots at Delta and Southwest have picketed in recent weeks for similar reasons.

Sicher also struck an upbeat tone about contract talks with American, particularly about quality-of-life issues.

“Please understand that no firm commitments have yet been made, but I feel that we have, at least for the first time since negotiations began, received positive indications that management is motivated to achieve collaborative solutions to longstanding problems with our current contract that will greatly enhance our ability to trade our trips and consequently enhance our quality of life,” he wrote.

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Trump media company subpoenaed in federal criminal probe of SPAC deal

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Former U.S. President Donald Trump gives the keynote address at the Faith & Freedom Coalition during their annual “Road To Majority Policy Conference” at the Gaylord Opryland Resort & Convention Center June 17, 2022 in Nashville, Tennessee.

Seth Herald | Getty Images

Donald Trump’s media company was subpoenaed by a federal grand jury in connection with a criminal probe, according to the company with which the former president’s firm plans to merge.

Digital World Acquisition Corp. said in a filing Friday that Trump Media and Technology Group received a subpoena from the grand jury in Manhattan on Thursday. The Trump company also received a subpoena from the Securities and Exchange Commission regarding a civil probe on Monday, DWAC said.

DWAC also said some current and former TMTG employees have also recently received grand jury subpoenas.

The filing came days after DWAC said the government investigations could delay or even prevent its merger with Trump’s newly formed company, which includes Truth Social, a social media app intended to be an alternative to Twitter.

Neither TMTG nor a spokeswoman for Trump immediately responded to CNBC’s requests for comment.

The Justice Department and the SEC, which regulates the stock market, are investigating the deal between DWAC and Trump Media. By merging with DWAC, which is a kind of shell company called a special purpose acquisition company, or SPAC, Trump’s firm would gain access to potentially billions of dollars on public equities markets.

Trump established Truth Social months after Twitter banned him for his tweets on Jan. 6, 2021, when hundreds of his supporters stormed the U.S. Capitol in a bid to overturn Joe Biden’s victory in the presidential election. Trump Media’s CEO is former Rep. Devin Nunes, one of the former president’s most ardent loyalists in the Republican Party. Trump is also considering whether to run for president in the 2024 election.

Trump has continued to spread the lie that the election was stolen from him. His alleged involvement in the Jan. 6 insurrection is being probed by a House select committee that has accused the former president of being at the center of a multipronged conspiracy to block the peaceful transfer of power to Biden.

Early criticism of the Trump-DWAC deal came from Sen. Elizabeth Warren, D-Mass. In calling for an investigation, she wrote to SEC Chair Gary Gensler in November, telling him that DWAC “may have committed securities violations by holding private and undisclosed discussions about the merger as early as May 2021, while omitting this information in [SEC] filing and other public statements.”

DWAC shares are far off their highs, closing Friday at $24.20. The stock had surged above $90 in October, after the deal with Trump’s group was announced.

DWAC on Monday revealed in a securities filing that it learned June 16 that each member of its board of directors received subpoenas from the same federal grand jury.

The grand jury sought documents similar to those the SEC already requested as part of its civil probe, DWAC said. The company itself was served with a subpoena a week ago with similar requests, along with other requests relating to communications, individuals and information involving Rocket One Capital.

DWAC also revealed Monday that a board member, Bruce J. Garelick, had told management that he would quit the board during the previous week. Garelick said his resignation “was not the result of any disagreement with Digital World’s operations, policies or practices,” according to the company filing.

— CNBC’s Kevin Breuninger and Thomas Franck contributed to this story.

This is breaking news. Please check back for updates.

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