Dive Brief:

• Dollar General, Dollar Tree and Five Below all kept sales growing in the second quarter despite mounting tariff pressure. Executives from these retailers warned at the end of the first quarter that tariffs would necessitate price increases. While Five Below and Dollar Tree are conducting "price elasticity" tests, all three are touting their success in mitigating most of the tariffs from the first three tranches. 
• "We have negotiated price concessions, canceled orders, modified specs, evolved product mix and diversified vendors. We are now taking actions to mitigate the recently announced tariff increases and will continue to assess the future impact of those tariffs," said Gary Philbin, CEO of Dollar Tree — enumerating a common laundry list of mitigation tactics emphasized by all three major U.S. discount chains on their second-quarter earnings calls.
• Five Below widened its guidance ranges for the balance of the year, reflecting increased uncertainty from the most recent round of tariff rate hikes. Dollar General raised its financial expectations for the remainder of 2019 despite tariff pressure. And while Dollar Tree had assessed the cost of the tariffs ($26 million) ahead of the call, the company had not adjusted its financial guidance to include the latest tariff changes. 

Dive Insight:

The balance between raising prices to protect margins from tariffs and diminishing sales has been a topic on many earnings calls as the second quarter shifts into the third, new tariffs go into enforcement Sept. 1 and peak season looms. 

"The things we’re doing are working pretty darn well. I would say the vendor community is stepping up," said Philbin regarding Dollar Tree's work to mitigate tariff impact on consumers. 

These deeply discounted retailers perceived themselves to be under considerable pressure not to raise prices beyond their advertised limits earlier in the year but sounded more optimistic after testing price "elasticity" in recent months. Five Below tested a $5.55 price point and a $10 Below! in select regions to positive results while Dollar Tree added $2, $3, $4 and $5 price points across roughly 200 SKUs, which it called "Dollar Tree Plus" items. Philbin said the customer feedback has been valuable. 

On the subject of the pricing test, Five Below CEO Joel Anderson said: "The elasticity was really in line with our expectations and while there was a slight decline in demand, there was an overall lift in sales and it was right in line with what we expected."

The Consumer Price Index rose 0.3% in July after two months of decline, and this measure is expected to see more upward movement in the back half of the year as list four tariffs hit more consumer goods. The Trump administration maintains China is bearing the brunt of the trade war burden and not U.S. consumers, though somewhat conversely, the administration delayed the implementation of some of the list four tariffs "for Christmas season just in case some of the tariffs would have an impact on U.S. customers," said Trump announcing the partial delay.