I think small box discounter Dollar Tree (DLTR) will collapse and possibly die during the Coronavirus Depression.
I have long viewed “dollar stores;” such as Dollar Tree (NASDAQ: DLTR), Dollar General (DG), and Dollar Tree’s subsidiary Family Dollar as dangerous stocks in a bubble. Strangely, income inequality, falling wages, and rising poverty in America drives that bubble. However, it is still a bubble.
I think dollar stores are in a bubble because Mr. Market overprices their stock. Dollar Tree (DLTR) was trading at $110.87 on 9 December 2020, for instance.
In addition, I believe there are too many dollar stores in North America. Dollar Tree claims to operate over 15,000 stores in the United States and Canada, for example. Moreover, Dollar General (NYSE: DG) claims to operate 16,720 stores in the United States.
Hence, I calculate two companies operate over 31,720 dollar stores in the United States and Canada. I think neither country can support that many dollar stores.
Retail Sales Collapse
I predict the Retail Apocalypse will kill thousands of stores and dozens of chains this winter because Black Friday 2020 was a bust.
The National Retail Federation estimates that average retail sales fell by 14% between Black Friday 2019 and Black Friday 2020. The Washington Post reports the average American Black Friday shopper spent $362 in 2019 and $312 in 2020.
Furthermore, the number of people shopping over Thanksgiving Weekend fell from 190 million in 2019 to 186 million in 2020, The Washington Post estimates. I think the true numbers are worse because the Post’s numbers include both online and in-store numbers.
Tellingly, in-store shopping on Thanksgiving Day 2020 was 55% lower than on Thanksgiving Day 2019. Plus, the National Retail Federation estimates In-store shopping fell by 37% between Black Friday 2019 and Black Friday 2020.
Thus, in-store shopping fell by 37% and online sales are the only thing keeping American retailers in business. I cannot see how ailing retailers such as Nordstrom (JWN), Macy’s (M), and Neiman Marcus can survive such a collapse.
Is the Retail Stock Apocalypse Upon Us?
Moreover, I cannot see how investors can justify the high stock prices for issues such as Dollar Tree (DLTR).
I predict retail stocks will collapse this winter. I think all it will take to trigger a retail stock apocalypse is the bankruptcy of one retail icon such as Macy’s (M) or the collapse of a supposedly successful retailer such as Dollar Tree (DLTR).
I think Dollar Tree could collapse because many of its customers could have no money because of the Coronavirus Depression. For instance, Statista estimates 10.74 million Americans were unemployed in November 2020. That number rose from 5.81 million in November 2019 and fell from 23.08 million in April 2020.
Pew Social Trends estimates 46% of lower income Americans; Dollar Tree’s probable customers admit they trouble paying bills since the pandemic began. In addition, 32% of lower-income adults admit they have a hard time making rent or mortgage payments.
Dollar Tree could Collapse without Stimulus
Plus, 25% of US adults tell Pew they or somebody in their household lost a job because of coronavirus. Moreover, 15% of Americans say they lost a job because of coronavirus. Notably, 42% of Americans say somebody in their household lost a job or had hours cut because of coronavirus.
Thus, Dollar Tree’s customers have less money, and politicians have no plans to help them. In particular, the US Congress’s latest $908 billion stimulus proposal includes no cash payments to ordinary.
Instead, the stimulus package could pay an additional $300 a week in unemployment benefits. I do not think the $300 will help because most jobless people cannot access unemployment insurance.
To his credit, outgoing President Donald J. Trump (R-Florida) wants a stimulus payment of $600 to $2,000, The Washington Post claims. However, Trump has done nothing to lobby for the stimulus.
I think Dollar Tree’s (DLTR) survival could rest on a higher stimulus payment. Since Congress refuses to approve more stimulus checks, I think it dooms Dollar Tree.
Is Dollar Tree Making Money?
Conversely, Dollar Tree Stores Inc. (NASDAQ: DLTR) makes some money. Dollar Tree reported a quarterly net income of $330 million on 31 October 2020.
Dollar Tree’s quarterly net income rose from $123 million on 31 January 2020 and $261.50 million on 31 July 2020. Thus, Dollar Tree is making more money in 2020.
Conversely, Dollar Tree’s quarterly revenues fell from $6.315 billion on 31 January 2020 to $6.177 billion on 31 October 2020. Moreover, Dollar Tree’s quarterly gross profit fell from $1.96 billion in on 31 January 2020 to $1.924 billion on 31 October 2020.
I think the revenues show Dollar Tree’s sales are falling because of coronavirus. Furthermore, I think the revenue show Dollar Tree’s business is shrinking.
Dollar Tree’s Business Shrinks
I think Dollar Tree’s business is shrinking because more Americans shop online. For instance, US Ecommerce sales grew by 37% in the 3rd Quarter of 2020, Oberlo estimates. In fact, Oberlo claims almost $1 of every $5 Americans spend at retailers goes to e-tailers.
I do not think people who buy most of their household essentials online will want to spend 15 or 20 minutes of time shopping at Dollar Tree. Additionally, I do not think those people want to expose themselves to coronavirus by going to Dollar Tree.
Finally, I predict many of those shoppers will never return to Dollar Tree after they realize they can order the same stuff through Amazon (AMZN) or Walmart (WMT) at a cheap price.
Dollar Tree generates Less Cash
Dollar Tree (DLTR) is generating less cash. For instance, Dollar Tree’s quarterly operating cash flow fell from $855.3 million on 31 January 2020 to $296.7 million on 31 October 2020.
Dramatically, Dollar Tree’s quarterly ending cash flow fell from $105.7 million on 31 January 2020 to -$632.00 million on 31 October 2020. Thus, Dollar Tree burned cash in the last quarter. However, Dollar Tree reported a $1.802 billion quarterly ending cash flow on 30 April 2020.
Conversely, Dollar Tree’s cash and short-term investments rose from $539.20 million on 31 January 2020 to $1.118 billion on 31 October 2020. Finally, Dollar Tree had some value in the form of $20.652 billion in total assets on 31 October 2020. In 2010, Dollar Tree’s total assets grew from $19.575 billion on 31 January 2020 to $20.671 billion on 31 July 2020.
I think Dollar Tree is a terrible stock because Mr. Market overprices its shares, it pays no dividend, and generates little cash. I think investors need to avoid Dollar Tree because I predict this company will collapse.
Originally published at https://marketmadhouse.com on December 9, 2020.