Shares of Dollar Tree fell Thursday and hit a 52-week low, after the retailer said customers’ shopping lists have largely narrowed to food and necessities.
The discounter joins a growing group of shops catering to consumers who’ve turn into more price-sensitive and selective about spending. Macy’s and Foot Locker also reported this week that sales have been hit as customers largely skip over discretionary items, as they cope with rising rates of interest and juggling expenses like commuting, dining out and paying for costlier groceries.
On a call with investors, Dollar Tree CEO Rick Dreiling said customers’ shopping patterns reflect a tougher economic backdrop and a reversion to pre-pandemic spending habits.
“While the difficult macro environment continues to pressure our sales mix in each segments, I’m pleased with the gains in traffic, latest customers and market share,” he said.
Dollar Tree, which incorporates its namesake banner and more grocery-focused Family Dollar, saw its stock price fall 10% — at the same time as it beat Wall Street’s fiscal second-quarter expectations.
The corporate raised its full-year forecast for sales, but narrowed its outlook for earnings. Dollar Tree said the guidance reflects improved sales, and attributed the tighter profit range to more low-margin purchases akin to food, ongoing challenges with shrink, the term used for lost, damaged or stolen goods, and better diesel fuel costs.
Dollar Tree now expects consolidated net sales to range from $30.6 billion to $30.9 billion for the total fiscal yr, and earnings per share to range from $5.78 to $6.08. It had previously forecast consolidated net sales of between $30.0 billion and $30.5 billion and diluted earnings per share of between $5.73 and $6.13. Dollar Tree’s guidance disillusioned Wall Street, because the lower end of its earnings forecast fell below consensus expectations.
Here’s how the corporate did for the three-month period that ended July 29, compared with what Wall Street expected, based on a survey of analysts by Refinitiv:
- Earnings per share: 91 cents vs. 87 cents expected
- Revenue: $7.32 billion vs. $7.18 billion expected
Net income fell to $200.4 million, or 91 cents per share, from $359.9 million, or $1.61 per share, a yr earlier.
Total revenue rose from $6.77 billion within the year-ago period.
Same-store sales climbed 6.9% across the corporate. On the Dollar Tree chain, same-store sales increased 7.8% and for Family Dollar, same-store sales rose 5.8% yr over yr.
Dollar Tree is in the midst of a broader effort to revamp its stores and its price points. Dreiling, former executive chairman of the corporate’s board and ex-CEO of rival Dollar General, has spearheaded the turnaround since he was named chief executive of Dollar Tree early this yr.
The corporate has expanded its range of things to incorporate more that sell for a better price point, akin to frozen and refrigerated items that sell for $3, $4 and $5.
Throughout the second quarter, Dollar Tree’s margins got hurt by shoppers’ emphasis on buying food and essentials, which are inclined to be less profitable. Together with that spending shift, the corporate’s profits have gotten squeezed by higher expenses including wage increases for store employees, investments in store repairs and larger utility bills resulting from hotter summer weather in much of the country.
Its margins also decreased compared with the year-ago period when it phased in price hikes from $1 to $1.25.
More retailers have called out shrink as a challenge, too, as some thieves steal goods to sell on third-party marketplaces. On a call with investors, Dreiling said the retailer is rolling out latest approaches to try to stop theft within the back half of the yr. Those efforts include moving and locking up some merchandise and even discontinuing some heavily targeted items.
At each chains, shoppers made more frequent trips to stores within the second quarter. The Dollar Tree chain saw an almost 10% jump in traffic, but the typical amount spent by customers who visited the stores dropped by 1.6%. At Family Dollar, traffic rose by about 3% and the typical ticket increased by about 2%.
Individually, U.S. regulators announced a settlement this week with Dollar Tree and competitor Dollar General, which were each issued workplace safety violations. As a part of the settlement, the retailers must fix hazards for workers, akin to blocked exits and unsafe storage of materials.
In an announcement, Dollar Tree COO Mike Creedon said the corporate is “implementing substantial safety policies, procedures, and training, all intended to safeguard the wellbeing of our associates.”