- Discount retailer downgrades 2022 guidance
- Price cuts to crimp margins
- Cash-strapped US shoppers prioritising essential items
Shares in Dollar Tree (DLTR:NASDAQ) dropped more than 10% to $149 on Wall Street after the US discount retailer cut annual guidance (25 Aug) despite second quarter earnings marginally beating estimates.
Dollar Tree pinned the outlook downgrade on planned price cuts at its Family Dollar store chain.
The Virginia-headquartered discount variety stores operator is reducing already-low prices as American and Canadian consumers feel the pinch from inflation and shift spend away from discretionary to essential purchases.
With thousands of stores across the US and Canada, Dollar Tree sells everything from budget clothing and cleaning products to cut-price snacks, drinks, toys and pet food and is benefiting as cash-strapped consumers tighten their belts and trade down to cheaper brands in tough times.
FULL YEAR DOWNGRADE
For the second quarter to July 2022, Dollar Tree earned a slightly better than expected $1.60 per share as revenue rose 6.7% to $6.77 billion, a smidgeon below estimates of $6.79 billion.
Same-store sales were up by a healthy 7.5%, indicating firm market share gains.
However for its 2022 financial year, Dollar Tree now expects earnings per share to be in the $7.10 to $7.40 range, significantly down from its earlier $7.80 to $8.20 per share guidance.
The retailer also narrowed its net sales guidance for the year to a range of $27.85 billion and $28.10 billion, down from previous guidance of $27.76 billion to $28.14 billion.
Focused on extreme value, Dollar Tree warned more competitive pricing is expected to pressure gross margins in the back half of the year.
MARGIN PRESSURE
CEO Mike Witynski commented: ‘Our second quarter performance reinforces the relevance of our brands for millions of households pressured by higher costs for food, fuel, rent and more.’
He then warned: ‘The combination of this pricing investment at Family Dollar and the shoppers’ heightened focus on needs-based consumable products will pressure gross margins in the back half of the year. We have therefore reduced our EPS outlook accordingly.’
Yet Witynski stressed that ‘following our price investment strategies at Family Dollar, our pricing gap with key competitors has closed’, a warning shot to rival Dollar General (DG:NYSE) no doubt, and ‘our value proposition is the most competitive it has been in the past ten years. We are confident these pricing and other investments will generate very attractive returns over the long term.’
