Dollar Tree misses estimates, cuts forecast
Dollar Tree reported disappointing second-quarter earnings and sales, citing pressure on middle- and higher-income customers. The discounter also cut its full-year guidance.
Net income fell to $132.4 million, or $0.62 a share, for the quarter ended Aug. 3, from $200.4 million, or $0.91 a share, in the year-ago period. The company cited higher costs related to managing and settling legal claims to arising from in-store accidents and incidents as affecting profitability.Adjusted earnings were $0.67 a share, below analysts’ estimates of $1.04.
“Our adjusted EPS of $0.67 was $0.38 below the midpoint of our previous outlook range,” stated Dollar Tree CFO Jeff Davis. “While the vast majority of this variance was attributable to an adjustment of our general liability accrual, a portion was attributable to a comp shortfall which reflected the increasing effect of macro pressures on the purchasing behavior of Dollar Tree’s middle- and higher-income customers.”
On the chain’s earnings call, executives said demand from Family Dollar’s core lower-income customer remains weak. At the same time, the more affluent customers that shop Dollar Tree are feeling the impact of inflation, interest rates and other macro pressures.
Net sales edged up to 0.7% to $7.37 billion, missing estimates of $7.49 billion. Same-store sales rose 0.7%. Traffic increased 1.1%, but the average ticket decreased by 0.5%.
By banner, same-store sales rose 1.3% at Dollar Tree and were down 0.1% at Family Dollar. Traffic rose 1.4% at Dollar Tree stores and increased 0.7% at Family Dollar stores. The average ticket fell 0.1% at Dollar Tree and was down 0.8% at Family Dollar.
“We are encouraged by the continuous progress we are making in the transformation underway at Dollar Tree and Family Dollar, despite immense pressures from a challenging macro environment,” said Rick Dreiling, chairman and CEO. “Customers are responding favorably to initiatives like our expanded multi-price offering and we are already seeing a meaningful sales lift at the 1,600 Dollar Tree stores that have been converted to our newest in-line multi-price format. With thousands of stores left to convert, we believe we are still in the very early innings of this rollout, with many years of runway left ahead of us.”
In June, Dollar Tree said it launched a review of strategic alternatives for Family Dollar, which could include a potential sale or spin-off.
In the earnings release, the company said there was no set deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be "no assurance that this process will result in any transaction or particular outcome."
Earlier this year, Dollar Tree, which initiated a review of its Family Dollar business in November, said it planned on closing approximately 600 Family Dollar stores in the first half of fiscal 2024, with another approximately 370 Family Dollar and 30 Dollar Tree stores to close over the next several years as each store's current lease term expires.
As of Aug. 3, the company has closed approximately 655 stores identified under the review and expect to close an additional 45 during the remainder of fiscal 2024.
“We are updating our full-year outlook to reflect second quarter results, including the general liability charge, a more conservative sales outlook at Dollar Tree for the balance of the year, and incremental start-up costs associated with the conversion of our recently acquired portfolio of 99 Cents Only Stores leases,” Davis said.
[READ MORE: Dollar Tree acquires leases for 170 of 99 Cents Only Stores locations]
Dollar Tree now expects its full-year net sales outlook to range between $30.6 billion and $30.9 billion, down from its previous guidance of $31 billion to $32 billion. It expects adjusted earnings per share to range from $5.20 to $5.60, compared to its earlier outlook of adjusted earnings per share of $6.50 to $7.
Dollar Tree operated more than 16,300 stores across 48 states and five Canadian provinces as of Aug. 3, 2024. Stores operate under the brands of Dollar Tree, Family Dollar and Dollar Tree Canada.
