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U.S. dollar chains report profit surge as downturn makes shoppers thrifty

(Reuters) - America’s biggest dollar store chains reported better-than-expected quarterly profit on Thursday, as cash-strapped consumers sought lower priced groceries and household items in a coronavirus-induced economic downturn.

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Sales at Dollar General Corp DG.N and Dollar Tree Inc DLTR.O remained robust even after the panic-buying surge at the start of lockdowns, with high U.S. unemployment pushing demand for cheaper cereals, vegetables and daily essentials.

The two dollar stores said sales of more discretionary items including clothing were also up, as households spent government stimulus checks carefully.

But with talks over the new COVID-19 stimulus package stuck in a stalemate, Dollar General warned that comparable sales could moderate from the current 15% growth levels in the coming months.

Smaller rival Dollar Tree remained optimistic for the year, but did not provide a sales outlook.

“We’re going to be in a good position in the back half of the year and going into next year when customers are going to need us most as the extra benefits go away and with the unemployment rate where it is,” Dollar Tree’s new Chief Executive Officer Mike Witynski said.

While shoppers are spending more at dollar stores, they are making fewer trips, which according to Evercore ISI analysts is an opportunity for Walmart Inc WMT.N and Amazon.com Inc AMZN.O to pull away customers with their better developed e-commerce operations.

Interactive graphic on sales comparison here

Dollar General’s second-quarter same-store sales rose 18.8% and beat estimates of a 15.1% increase, but that of Dollar Tree was not as strong, rising 7.2% and sending its shares down 5%.

Net income at Dollar General rose 84.6% to $787.6 million, or $3.12 per share, beating expectations of $2.44. The company said it had begun share buybacks and would repurchase an additional $2 billion worth of stock.

Dollar Tree, which owns the Family Dollar chain, said net income rose 45% to $261.5 million, or $1.10 per share, beating analysts’ estimate of 92 cents.

Reporting by Uday Sampath in Bengaluru; Editing by Bernard Orr and Arun Koyyur

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