Dollar Tree, meanwhile, has spent the last decade operating two brands: the eponymous brand, which offers a range of brands at very low prices, generally less than $1.25. The other, Family Dollar, was acquired in 2015 with the aim of targeting more customers and growing in a market where size is essential for efficiency. But as the years went by, management has failed to effectively manage the Family Dollar brand. The group began by closing stores before deciding to sell the entity last March - for a pittance - compared to the 2015 purchase price.

This explains why Dollar General has outperformed its competitor in terms of operational and financial performance for the past decade. However, the context of recent years has undermined all low-cost models with little room for maneuver in terms of costs. Raising prices amounts to sabotaging the value proposition that justifies their very existence in the market.

This is why the margins of our two protagonists have melted like snow in the sun in recent years. Inflation, economic pressure, weak consumption, and Donald Trump's trade policy have undermined business models that were already walking a tightrope.

Nevertheless, this week the market reacted in diametrically opposite ways to the two companies' earnings reports. Both reported quarterly results that exceeded analysts' expectations. However, Dollar General now appears to be in pole position and better organized than its rival, which will have to rebuild its model without Family Dollar.

Dollar General wants to accelerate the improvement of its operations by focusing on the fundamentals of retail: store cleanliness, inventory levels, workforce availability, and product availability on the shelves, such as the addition of a selection of fresh fruit and vegetables in some stores. This aims to enable the company to maintain its role as a convenience store for consumers (everyday items account for more than 80% of sales) and to better compete with grocery and discount food chains. Let's talk about consumers. The customer base remains a major asset—thanks to its loyalty—particularly in rural areas, even though some consumers are sensitive to price increases caused by customs duties. At the same time, the company has decided to close stores in urban areas in order to refocus on its rural customer base, which is considered more strategic.

All these prospects have obviously pleased the market. Especially since Dollar General has the size and financial capacity to achieve them, even if its interest expenses have doubled or even tripled in recent years. Annual forecasts have been raised following this strong quarter, which is undoubtedly the company's best since the start of the pandemic.

Dollar Tree has less leeway, mainly because the announced sale of Family Dollar will leave a hole in its accounts. Optimists hope that this will allow the company to focus fully on implementing a new growth strategy. The reality is that it will have to rebuild from scratch in a particularly challenging environment.

The low-cost retail sector is going through tough times. The pressure on the balance between cost structure and selling prices has probably never been greater, at a time when many are complaining about the poor quality of discretionary items and widespread shoplifting. Strong competitors such as Walmart and Costco—helped by its warehouse club model—are making it difficult to expand market share. Finally, despite strong results, customer traffic is down overall as more and more shoppers have switched to monthly visits, whereas previously these retailers benefited from frequent impulse purchases. But if you have to choose, Dollar General currently has the edge.

https://www.marketscreener.com/quote/stock/DOLLAR-GENERAL-CORPORATIO-5699818/news/Dollar-General-vs-Dollar-Tree-one-soars-the-other-tumbles-50168990/