Shares of Dollar tree fell more than 22% on Wednesday after the discounter cut its full-year outlook, citing growing pressure on middle- and higher-income customers.
The retailer said it now expects its full-year consolidated net sales outlook to be between $30.6 billion and $30.9 billion. It expects adjusted earnings per share to range from $5.20 to $5.60. That compares with previous guidance of $31 billion to $32 billion in net sales and $6.50 to $7 in adjusted earnings per share.
In one news bulletin, Chief Financial Officer Jeff Davis said the company lowered the forecast to reflect lower sales and costs associated with converting 99 Cents Only stores. The company also said it had higher expenses to indemnify, settle and litigate claims related to customer accidents and other in-store incidents.
Here’s how Dollar Tree fared in its fiscal second quarter ended Aug. 3 compared to Wall Street expectations, according to analysts surveyed by LSEG:
- Earnings per share: 97 cents adjusted vs. $1.04 expected
- Annuity: $7.38 billion versus $7.49 billion expected
The earnings figure of 97 cents per share does not include a 30 cents per share charge for general liability claims.
Dollar Tree’s report comes about a week after major rival Dollar General cut its full-year sales and earnings outlook, sending its shares lower. Dollar General CEO Todd Vasos attributed weak sales to “a core customer that feels financially strapped.”
Dollar stores, in particular, have felt the pinch as their core customer — shoppers with lower incomes and little money left over to spend on discretionary goods — compromises after a prolonged period of higher food and everyday expenses. Walmart has won more business from value-conscious shoppers across all incomes, and newer online players like Temu have also attracted customers with cheap merchandise.
Dollar Tree includes two chain stores, the namesake, which sells a wide variety of items at lower prices, such as party supplies, and Family Dollar, which carries more food.
Same-store sales for the company rose 0.7% in the quarter. At Dollar Tree, same-store sales rose 1.3% and at Family Dollar, same-store sales fell 0.1%. Industry measurement eliminates the impact of store openings and closings.
On an earnings call, Davis said the company saw weaker sales, particularly on the discretionary side of the business. He said it “reflected the growing impact of macroeconomic pressures on the shopping behavior of Dollar Tree’s middle- and upper-income customers.”
“Our original outlook for the second quarter did not anticipate these pressures shifting across Dollar Tree’s customer base to the degree they did,” he said.
Along with contending with inflationary shoppers, Dollar Tree has faced company-specific challenges. The retailer announced in March that would close about 1,000 Family Dollar storesreporting market conditions and store performance. Then in June, the company said it was considering selling the Family Dollar brand.
Dollar Tree bought Family Dollar for nearly $9 billion in 2015, and since then, it’s been struggling to strengthen the grocery-focused chain and better compete with Dollar General.
Liability claims also added to the company’s challenges. On the company’s earnings call, Davis said the outcome of claims, particularly older ones, “has become increasingly difficult to predict given the higher settlement and litigation costs that have resulted from a more volatile insurance environment.”
“Claims continued to develop unfavorably due to the increasing costs to indemnify, settle and litigate these claims, which impacted our actuarially determined liabilities,” he said.
As of Tuesday’s close, Dollar Tree shares are down nearly 43% so far this year. The company’s stock hit a 52-week low on Tuesday and closed the day at $81.65.
— CNBC’s Robert Hum contributed to this report
