Dollar Tree, Gen Gain from 99 Cents' Fall; Poised for 2024 Boost

Key Takeaway

• 99 Cents Only Stores files for bankruptcy, closing all 371 locations; Dollar Tree and Dollar General poised to benefit.
• Dollar Tree has a significant competitive edge with 57% of 99 Cents stores within a one-mile radius.
• Analysts optimistic about Dollar General and Dollar Tree's prospects despite economic challenges, citing potential market gains in 2024.

Bankruptcy and Store Closures

99 Cents Only Stores, a discount retailer based in Commerce, California, has filed for bankruptcy, planning to close all of its 371 locations across California, Texas, Arizona, and Nevada. This decision follows the company's announcement of winding down its business operations. The closures have sparked reactions from customers and employees on social media, highlighting the impact on the communities served by these stores. Interim CEO Mike Simoncic cited "significant and lasting challenges in the retail environment" as reasons for the bankruptcy, including the effects of the COVID-19 pandemic, shifting consumer demand, and macroeconomic pressures such as inflation.

Competitive Landscape Shifts

The bankruptcy of 99 Cents Only Stores is poised to benefit competitors Dollar Tree and Dollar General. Analysts note that Dollar Tree, in particular, may see a significant advantage due to its strong consumer overlap and the proximity of its stores to those of 99 Cents Only. Approximately 57% of 99 Cents Only stores have a Dollar Tree within a one-mile radius, and 99% within five miles. Dollar General, while having fewer stores in close proximity, is also expected to capitalize on the closures, especially as it plans to open about 800 new stores in 2024, with a focus on expanding its presence on the West Coast.

Economic Challenges and Opportunities

The closure of 99 Cents Only Stores underscores the operational and economic challenges facing dollar stores, including persistent inflationary pressures and the end of pandemic-era stimulus payments. These factors have particularly affected lower-income consumers, who form the bulk of dollar-store customers. Despite these challenges, there is a sense of optimism among analysts regarding the prospects for Dollar General and Dollar Tree. Factors such as job growth, disinflationary trends, and potential benefits from tax refunds and a new tax bill could provide a boost to the dollar store segment. Analysts have upgraded stocks and expressed a positive outlook for the fiscal year 2024, anticipating improvements in consumer spending and operational efficiencies at these retailers.

Street Views

• Tarlowe (Bullish on Dollar Tree and cautiously optimistic on Dollar General):

  "Dollar Tree could be the biggest beneficiary given its strong consumer overlap, and the proximity of its locations to 99 Cents Only stores... Proximity and convenience are key tenets of our Buy-rated thesis, given about 75% of the U.S. population lives within five miles of a Dollar General."

Management Quotes

• Mike Simoncic, interim CEO of 99 Cents:

  "The last several years have presented significant and lasting challenges in the retail environment, including the unprecedented impact of the Covid-19 pandemic, shifting consumer demand, rising levels of shrink, persistent inflationary pressures, and other macroeconomic headwinds, all of which have greatly hindered the Company’s ability to operate."