Shares of Dollar Tree plummeted over 15% in early trading on Wednesday after the retailer revised its full-year outlook due to increasing pressures on middle-income and higher-income customers. Dollar Tree now anticipates its full-year consolidated net sales to be in the range of $30.6 billion to $30.9 billion, with adjusted earnings per share ranging from $5.20 to $5.60. This is a significant decrease from the previous guidance of $31 billion to $32 billion in net sales and $6.50 to $7 for adjusted earnings per share.
One of the main reasons cited for the downward revision in forecasts was softer sales and costs linked to converting 99 Cents Only stores. The company also mentioned higher expenses related to reimbursing, settling, and litigating claims associated with customer accidents and incidents in stores.
In Dollar Tree’s fiscal second quarter, which ended on August 3, the company fell short of Wall Street expectations. The earnings per share were 97 cents adjusted versus the anticipated $1.04, with revenue totaling $7.38 billion versus an expected $7.49 billion. The 97 cents per share earnings figure excludes a 30 cents per share charge for general liability claims.
This disappointing performance was further exacerbated by the fact that Dollar General, a major competitor, had previously reduced its full-year sales and profit outlook, leading to a decline in its share value. Dollar General CEO Todd Vasos attributed weakened sales to financial constraints felt by the core customer demographic.
Dollar stores have been facing challenges, especially with their core customer base being shoppers with lower incomes who have limited discretionary spending. Factors such as rising food and everyday costs have caused these customers to make trade-offs, impacting the bottom line of companies like Dollar Tree. Additionally, the emergence of value-conscious options like Walmart and online platforms like Temu have further intensified the competition in the budget shopping sector.
Dollar Tree operates two distinct store chains, its namesake store offering a wide range of lower-priced items, and Family Dollar, which focuses more on food items. While Dollar Tree saw a 1.3% increase in same-store sales, Family Dollar experienced a 0.1% decline. This disparity reflects the differing impacts of the ongoing economic challenges on the two chains.
Apart from external economic pressures, Dollar Tree has faced company-specific hurdles. In March, the retailer announced plans to close around 1,000 Family Dollar stores due to market conditions and poor store performance. Additionally, the company is contemplating selling the Family Dollar brand, which it acquired for nearly $9 billion in 2015. The struggles to enhance the grocery-focused chain and compete effectively with Dollar General have also weighed heavily on Dollar Tree’s performance.
The issue of liability claims has further compounded the company’s challenges. On the earnings call, Chief Financial Officer Jeff Davis highlighted the difficulties in predicting the outcome of these claims due to escalating settlement and litigation costs in an increasingly volatile insurance environment. These challenges have significantly impacted Dollar Tree’s liabilities and financial performance.
Dollar Tree’s struggles in the current economic and competitive landscape are evident. From softer sales to escalating expenses, the company is facing a myriad of challenges that have resulted in a revised outlook and a significant drop in share value. As Dollar Tree navigates through these tough times, it will need to strategize effectively to regain its momentum and bounce back from the setbacks it has encountered so far.