4 Telling CEO Quotes on the Economy

Investing is sometimes like an open-book test. All you have to do is read and listen. When you listen, make sure you pay special attention to the CEOs. This is a prime example.

Jul 20, 2014 at 10:08AM


Below are four quotes from the CEOs of Wal-Mart U.S. (NYSE:WMT), Family Dollar (NYSE:FDO), Dollar Tree (NASDAQ:DLTR), and Dollar General (NYSE:DG). Two of these quotes might frighten you, and the other two might make you feel a little greedy. 

Most people, and many investors, think that a slowing US economy is good for Wal-Mart's domestic operations. This used to make sense because more consumers would look for low-priced merchandise when times were tough. However, now that the US government has slowed down its assistance for low-income consumers (at least 20% of Wal-Mart's shoppers), Wal-Mart is no longer a lock for increased traffic and sales when the economy is struggling. That might sound bad, and the following quote might make it sound worse, but there's more to the story. First, read the quote that Wal-Mart U.S. CEO Bill Simon gave to Reuters:

People think we do better in a down economy; we don't. We do better when the GDP is growing, and we really need that in the long run for our business to improve.

Sounds pretty gloomy. However, he went on to say that Wal-Mart's US business isn't getting any better, but that's it's also not getting any worse for the middle class and down. If that's the case, then it's likely that Wal-Mart will continue to show low-to-modest revenue and net income gains over the next several years.

On the top line, Neighborhood Market (46 consecutive quarters of comps growth) should play an increasingly important role, as should e-commerce (sales increased 27% in the first quarter year over year). On the bottom line, Wal-Mart has the ability to improve by closing underperforming Sam's Club and supercenter locations.

While the business changes, Wal-Mart should continue to reward its shareholders via share buybacks and dividend payments. Investors shouldn't see this as a big win, but it's a win, nonetheless.

More concerning
Howard Levine, Family Dollar's Chairman and CEO, recently stated:

Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment. We are pleased that our comparable store sales for the third quarter in all of our merchandise categories improved relative to our second quarter results. Although our sales remain below our expectations, we are encouraged by the improving trends.

That might sound optimistic, but always be wary of CEOs finding positive comparisons in negative news. If you're wondering about that negative news, it pertains to the third quarter.

Net income declined to $81.1 million from $120 million in the year-ago quarter, and comps declined 1.8% on fewer transactions. This indicates a lack of efficiency and declining demand. Though they weren't terrible numbers, the CEOs of Family Dollar's peers released very different types of statements.

A still-growing tree
Dollar Tree's first-quarter revenue increased 7.2% year over year, earnings per share improved to $0.67 from $0.59, and comps improved 2%.

These numbers might not be substantial, but they're impressive in a difficult consumer environment. This relates to CEO Bos Sasser's recent comment:

Our first quarter grew as the result of increases in both traffic and average ticket with our discretionary business growing slightly faster than consumables.

Additionally, Dollar Tree expects full-year comps growth in the low-to-mid single digits, which isn't easy in today's consumer environment.

The General has spoken
With intense competition, severe winter weather, and a hesitant consumer, it's very difficult for a retailer to deliver on sales, comps, and net income, but Dollar General has managed to pull it off.

In the company's first quarter, sales increased 6.8%, comps improved 1.5%, and net income came in at $222 million versus $220 million in the year-ago quarter.

Rick Dreilng, CEO of Dollar General, recently stated:

We continue to grow our customer traffic and average transaction amount as our merchandising initiatives reinforce our affordability and value messaging.

For the fiscal year, Dollar General expects sales to increase 8%-9% and comps growth at a 3%-4% clip. Rick Dreiling will retire next year, which leads to some question marks, but the company has established an effective business model. 

The bottom line
Dollar Tree and Dollar General are still doing well. A hesitant consumer is a concern, but the bigger concern should be the expansion of Wal-Mart's small-box stores (Neighborhood Market and Walmart Express). For now, however, all is well. Speaking of Wal-Mart, you won't see the same type of top-line growth potential of Dollar Tree and Dollar General in the near future, but Wal-Mart has more levers to pull to increase its profits. This is good news for investors.

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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