Signs are displayed in front of Dollar Tree and Family Dollar stores on March 13, 2024 in Rio Vista, California.
Justin Sullivan | Getty Images
Stock Dollar Tree Shares fell about 10% in premarket trading on Wednesday after the discounter cut its full-year outlook, citing increasing pressures on middle- and higher-income customers.
The company said it now expects its full-year consolidated net sales outlook to be in the range of $30.6 billion to $30.9 billion. Adjusted earnings per share are now expected to be in the range of $5.20 to $5.60. This compares with its previous outlook of net sales of $31 billion to $32 billion and adjusted earnings per share of $6.50 to $7.
Chief Financial Officer Jeff Davis said in a news release that the company lowered its guidance to reflect weaker sales and costs associated with converting 99 Cents Only stores. The company also said it had incurred higher claims, settlements and litigation costs related to customer accidents and other incidents at its stores.
Dollar Tree’s financial results for the second quarter ended August 3rd are as follows:
Earnings per share: 62 cents, but it was not immediately clear whether that was in line with what analysts surveyed by LSEG had expected. Revenue: $7.38 billion, but it was not immediately clear whether that was in line with what analysts surveyed by LSEG had expected.
Dollar Tree’s report came about a week after its larger rival. Dollar General The company sharply cut its full-year sales and profit outlook, sending its stock price plummeting. Dollar General CEO Todd Vasos blamed the sales slowdown on “major customers feeling cash pressure.”
Dollar stores, in particular, have struggled as their core customers — lower-income shoppers and those with little disposable income — are forced to make compromises after a long period of rising prices for food and household items. Walmart Inc. is winning more customers from price-conscious shoppers across income levels, and new online players such as Tem are also luring customers with cheaper goods.
Dollar Tree has two store chains: its namesake, which sells a variety of low-priced items such as party supplies, and Family Dollar, which carries more food items.
The company’s same-store sales increased 0.7% for the quarter. Dollar Tree saw same-store sales increase 1.3% and Family Dollar saw same-store sales decline 0.1%. This industry measure excludes the impact of store openings and closings.
On the earnings call, Davis said the company was experiencing sales weakness, particularly in the discretionary spending category, which he said “reflects increasing macroeconomic pressures on the purchasing behavior of Dollar Tree’s middle- and upper-income customers.”
“Our initial second-quarter outlook did not anticipate the level of pressure it would place on Dollar Tree’s customer base,” he said.
In addition to dealing with inflation-hit shoppers, Dollar Tree faces its own challenges: In March, the company said it would close about 1,000 Family Dollar stores, citing market conditions and store performance, and then in June said it was considering selling the Family Dollar brand.
Dollar Tree bought Family Dollar in 2015 for roughly $9 billion and has since struggled to bolster its grocery-focused chain and better compete with Dollar General.
Claims have also increased the company’s challenges. In the company’s earnings call, Davis said the outcomes of claims, particularly older claims, have become “increasingly difficult to predict due to rising settlement and litigation costs resulting from a more volatile insurance environment.”
“The rising costs of indemnifying, settling and litigating these claims continue to result in unfavorable claims, which is impacting our actuarially determined liabilities,” he said.
As of Tuesday’s close, Dollar Tree shares were down nearly 43% so far this year. The company’s shares hit a 52-week low on Tuesday, closing at $81.65.
