Dollar Tree forecast annual profit largely below estimates, owing to higher costs and a shift in spending towards lower-margin consumables.
Consumers, especially from low- and middle-income groups, are turning price-sensitive as they feel the pinch of a steady rise in the cost of everything from groceries to consumer durables, and are favouring consumables that carry low margins over non-essential goods.
Gross margins for the quarter declined 290 basis points over the previous year from a slump in demand for discretionary goods, typically more profitable than perishables like snacks and cookies.
Dollar Tree saw its expenses rise to 25.3% of total revenue in the second quarter compared to 24% last year, primarily driven by higher labor wages and higher cost of utilities from "unseasonably high temperatures".
Outlook
Chief financial officer Jeff Davis said the profit outlook was also impacted by unfavourable shrink trends and higher diesel fuel prices.
“We are bringing in the high and low end of our outlook range for diluted EPS to better reflect the balance of opportunities and risks we see in the current operating environment,” Davis added.
Dollar Tree, like retailers Target and Macy's, has been plagued by a rise in retail shrink, where inventory is lost, damaged, or stolen.
Latest results and forecasts from retailers ranging from Macy's to Foot Locker also offered fresh signs that US consumer spending is under stress heading into the second half of the year.
Dollar Tree said it now expects to earn in the range of $5.78 to $6.08 per share in fiscal 2023, compared with its prior outlook of between $5.73 and $6.13.
Analysts on average expect earnings per share of $6.03, according to Refinitiv IBES data.
Article by Reuters, additional reporting by ESM
