Dollar Tree's shares sink 13%, as CEO says 'challenging' economy is pressuring discounter

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Shares of Dollar Tree fell Thursday and hit a 52-week low, after the retailer said customers’ shopping lists have largely narrowed to food and necessities.

The discounter joins a growing group of retailers catering to consumers who have become more price-sensitive and selective about spending. Macy’s and Foot Locker also reported this week that sales have been hit as customers largely skip over discretionary items, as they deal with rising interest rates and juggling expenses like commuting, dining out and paying for more expensive groceries.

On a call with investors, Dollar Tree CEO Rick Dreiling said customers’ shopping patterns reflect a tougher economic backdrop and a reversion to pre-pandemic spending habits.

“While the challenging macro environment continues to pressure our sales mix in both segments, I am pleased with the gains in traffic, new customers and market share,” he said.

Dollar Tree, which includes its namesake banner and more grocery-focused Family Dollar, closed nearly 13% lower Thursday — even as it beat Wall Street’s fiscal second-quarter expectations.

The company raised its full-year forecast for sales, but narrowed its outlook for earnings. Dollar Tree’s guidance for sales and earnings was revised downward. The company increased its full-year forecast for sales but reduced the outlook for earnings. Dollar Tree’s guidance disappointed Wall Street, as the lower end of its earnings forecast fell below consensus expectations. Dollar Tree’s guidance disappointed Wall Street, as the lower end of its earnings forecast fell below consensus expectations.

Here’s how the company did for the three-month period that ended July 29, compared with what Wall Street expected, based on a survey of analysts by Refinitiv:

Earnings per share: 91 cents vs. 87 cents expected

  • Revenue: $7.32 billion vs. $7.18 billion expected
  • Net income fell to $200.4 million, or 91 cents per share, from $359.9 million, or $1.61 per share, a year earlier.

Total revenue rose from $6.77 billion in the year-ago period.

Same-store sales climbed 6.9% across the company. Dollar Tree’s same-store revenue increased 7.8%, while Family Dollar saw a 5.8% increase. Dollar Tree’s margins were hurt during the second quarter by the shoppers’ preference for food and other essentials that are less profitable. The company’s margins have also been squeezed due to higher costs, including wage increases for employees, store repairs, and larger utility bills because of hotter weather across the country. Dreiling told investors that the retailer will be implementing new strategies to combat theft during the second half of the year. Both chains saw shoppers making more frequent visits to their stores during the second quarter. Dollar Tree saw an increase of nearly 10% in traffic but the amount that customers spent on average dropped by 1.6%. At Family Dollar, traffic rose by about 3% and the average ticket increased by about 2%.

Separately, U.S. regulators announced a settlement this week with Dollar Tree and competitor Dollar General, which were both issued workplace safety violations. The retailers are required to fix workplace hazards, including blocked exits and unsanitary storage. “