A sign is posted in front of a Dollar Tree and Family Dollar store on March 13, 2024 in Rio Vista, California.
Justin Sullivan | Getty Images
Actions of Dollar tree It fell about 10% in premarket trading on Wednesday after the discount chain cut its full-year outlook, citing growing pressures on middle- and upper-income customers.
The retailer said it now expects its full-year consolidated net sales guidance to be between $30.6 billion and $30.9 billion. It expects adjusted earnings per share to be between $5.20 and $5.60. That compares with prior guidance of $31 billion to $32 billion in net sales and $6.50 to $7 billion in adjusted earnings per share.
In a news release, Chief Financial Officer Jeff Davis said the company lowered the forecast to reflect a more conservative outlook and costs associated with the conversion of the 99 Cents Only stores it recently acquired.
Davis placed most of the blame for the lower earnings per share in the quarter on general liability claims. The company said it has had higher costs to reimburse, settle and litigate claims related to customer accidents and other incidents in stores.
He said Dollar Tree has also seen weaker sales as customers of all income levels have been more careful with their purchases.
The Dollar Tree report comes about a week after its main rival… General dollar Dollar General slashed its full-year sales and profit forecasts, sending its stock tumbling. Dollar General CEO Todd Vasos blamed the weak sales on “a core customer feeling constrained financially.”
Dollar stores, in particular, have felt the squeeze as their core clientele — shoppers with lower incomes and little disposable income to spend on discretionary items — make concessions after a prolonged period of more expensive groceries and higher everyday costs. Walmart has won more business from price-conscious shoppers at all income levels, and new online players such as Temu have also attracted customers with cheap goods.
Dollar Tree includes two chain stores: the namesake store, which sells a wide variety of items at lower prices, such as party supplies, and Family Dollar, which offers more groceries.
The company's comparable-store sales increased 0.7% in the quarter. At Dollar Tree, comparable-store sales increased 1.3% and at Family Dollar, comparable-store sales fell 0.1%. The industry metric removes the impact of store openings and closings.
In addition to dealing with inflation-burdened shoppers, Dollar Tree has faced company-specific challenges. The retailer announced in March that it would close about 1,000 Family Dollar stores, citing market conditions and store performance. Then in June, the company said it is considering selling the Family Dollar brand.
Dollar Tree bought Family Dollar for nearly $9 billion in 2015 and has since struggled to strengthen the grocery-focused chain and better compete with Dollar General.
As of Tuesday's close, Dollar Tree shares had fallen nearly 43% year-to-date. The company's stock hit a 52-week low on Tuesday and closed the day at $81.65.
