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Here's what booming dollar store sales say about America right now

Brian Sozzi
Editor-at-Large

The stock market may be back to being on autopilot, but the U.S. consumer is far from being back to full financial health.

Talk about a major disconnection here. While stocks are in rally mode, sales at America’s dollar stores are exploding right now as households endure real financial stress emanating from the COVID-19 pandemic. Dollar General (DG) — which operates 16,500 stores spanning 46 states — said Thursday that first quarter sales exploded 27.6% to $8.4 billion in the first quarter. Same-store sales - a closely watched retail metric that measures sales from stores open longer than a year — boomed 21.7% on the back of strong store traffic and spending on daily essentials.

Same-store sales through May 26 have gained an impressive 22%, despite states across the country opening back up and people returning to work.

These are unprecedented results for a Dollar General, underscoring the current plight of the low-income consumer that typically frequents a dollar store. But it also goes to show how higher income households are trading down in the uncertain climate, not unlike what happened during the Great Recession of 2008-2009.

“That we have seen an increase in customers is no surprise. Right. When the going gets tough we know that our customers need us more. But we also know from past recessionary times that we have a customer that also starts to trade into Dollar General. We saw that in a very big way,” Dollar General CEO Todd Vasos told analysts on an earnings call.

The same demand explosion was also seen at Dollar General rival Dollar Tree (DLTR) in the first quarter.

Dollar Tree’s same-store sales rose 7% in the quarter, paced by a 15.5% surge at the Family Dollar banner. Dollar Tree brand same-store sales fell 0.9% due to a rough Easter selling season.

Explained Dollar Tree CEO Gary Philbin on a conference call, “So we really saw the impact of shelter in placement, a traffic drop and obviously Easter was not on anyone's mind going into the holiday. So the bigger impact at Dollar Tree was the Easter holiday basically evaporating.”

The company operates more than 15,000 stores across 48 states and five Canadian provinces.

“This suggests that the consumer priority had shifted down market as they looked to get the most out of each dollar as uncertainty persisted around the coronavirus and the economy,” SunTrust chief markets strategist Keith Lerner says on the dollar store results.

Shopping bags rest in a shopping cart from a Richland, Miss., Dollar Tree store on Tuesday, Nov. 26, 2019. (AP Photo/Rogelio V. Solis)

That dollar stores are so hot shouldn’t be a surprise, provided you look at things other than the rallying stock market and earnings call of big cap tech companies.

Another 2.123 million Americans filed for unemployment benefits in the week ending May 23. Over the past 10 weeks, more than 40 million Americans have filed for unemployment insurance.

“We think that the reported unemployment rate may be around as high as 20% in May,” Barclays chief U.S. economist Michael Gapen said on Yahoo Finance’s The First Trade. Gapen thinks the U.S. economy may contract a whopping 40% annualized in the second quarter, then grow by 25% in the third quarter and 8% in the fourth quarter.

Either way, it still may be a good backdrop for the dollar stores.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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