We remain bearish on the dollar store space and like FDO on the short-side headed into Q4 earnings Wednesday. We don’t need Operating Margins to contract in order to build a short case but simply for the prior drivers of expansion to fade.
The following table encapsulates our call here for investors across multiple durations. Headed into tomorrow’s print, FDO is sitting at the top end of its Immediate-term risk range of $62.98-$66.09.
This SIGMA setup is about as bearish as it gets for gross margins.
Sentiment is neither here nor there, but management has been selling and we haven’t seen any meaningful purchases since last year.
Food stamp participation growth is on track to turn negative by year-end for the first time in 5-years eliminating what has been a nice tailwind for the dollar stores.