Dollar Tree Shares Drop After Lowering Full-Year Forecast

Shares of Dollar Tree fell nearly 10% in premarket trading on Wednesday after the discount retailer lowered its full-year financial forecast, citing increasing pressures on its customer base and rising operational costs, CNBC reports.

Dollar Tree revised its full-year consolidated net sales outlook to a range of $30.6 billion to $30.9 billion, down from its previous estimate of $31 billion to $32 billion. The company also reduced its expected adjusted earnings per share to between $5.20 and $5.60, compared to earlier guidance of $6.50 to $7.

Chief Financial Officer Jeff Davis attributed the forecast adjustment to weaker-than-expected sales, particularly among middle-income and higher-income customers. He also highlighted the rising costs associated with converting 99 Cents Only stores and the increased expenses related to customer accident claims and other incidents at stores.

In its fiscal second quarter, which ended on August 3, Dollar Tree reported earnings per share of 62 cents and revenue of $7.38 billion, though it was not immediately clear how these figures compared to analysts’ expectations.

This downward revision comes shortly after Dollar Tree’s competitor, Dollar General, also cut its full-year sales and profit outlook, citing financial constraints on its core customers. Both companies have faced challenges as their primary customer base, typically lower-income shoppers, continues to feel the squeeze from prolonged inflation and higher everyday costs.

Despite a slight increase in same-store sales for Dollar Tree as a whole—up 0.7% in the quarter—the company’s Family Dollar chain saw a 0.1% decline in same-store sales, while the Dollar Tree brand experienced a 1.3% increase. These figures indicate a broader trend of struggling discretionary spending among Dollar Tree’s customers, which Davis acknowledged during an earnings call, noting that the company did not anticipate the extent of these pressures.

Adding to the retailer’s challenges are company-specific issues, including the planned closure of about 1,000 Family Dollar stores and the potential sale of the brand. Dollar Tree acquired Family Dollar in 2015 for nearly $9 billion, but the grocery-focused chain has struggled to compete with rivals like Dollar General.

Liability claims have also created additional financial strain. Davis mentioned that the rising costs to reimburse, settle, and litigate these claims have made it increasingly difficult to predict outcomes, further impacting the company’s financial position.

As of the close of trading on Tuesday, Dollar Tree’s shares have declined nearly 43% year-to-date, hitting a 52-week low of $81.65.