Dollar Tree Inc said it would start selling more products for $1.25 at all its stores and forecast holiday-quarter profit below expectations as the discounter grapples with rising costs triggered by the pandemic.
The retailer said on Tuesday the new price point, which will be fully rolled out by the first quarter of 2022, would allow it to return to 'its historical gross margin range' of 35% to 36% next year.
Chief executive officer, Michael Witynski, said the higher price point allows the discounter to expand assortments, introduce new products and sizes as well as bring back "traffic-driving" products.
Dollar Tree, known for selling everything from make-up to homeware at the $1 price-point, in September said it planned on adding new price points above $1 across some of its stores.
The price increase is a good thing, as the third-quarter results, and our first-quarter outlook indicate freight headwinds are worse than anticipated, Evercore analyst Michael Montani said.
Supply Chain Disruptions
Rising freight costs from global supply chain disruptions have dented profits for most of Corporate America, further pressuring many retailers already grappling with higher labor and raw material costs.
Dollar Tree said that freight costs were significantly higher than anticipated in the third quarter and expects this to continue in the near term.
It projected fourth-quarter earnings per share of $1.69 to $1.79. Analysts on average were anticipating $1.75, according to Refinitiv IBES data.
Net income for the company fell to $216.8 million, or 96 cents per share, in the quarter ended Oct. 30 from $330.0 million, or $1.39 per share, a year earlier.
Net sales rose 3.9% to $6.42 billion, edging past expectations of $6.41 billion.
Last week, Target Corp raised its sales forecast for the holiday season, boosted by early Christmas shopping, even as the retailer grappled with higher costs stemming from the supply chain crisis.