Dollar Tree Inc.’s third-quarter earnings forecast fell short of analyst estimates as the company contends with challenges such as higher wages and a less profitable sales mix, one year after introducing a higher price point.
(Bloomberg) — Dollar Tree Inc.’s third-quarter earnings forecast fell short of analyst estimates as the company contends with challenges such as higher wages and a less profitable sales mix, one year after introducing a higher price point.
The discount retailer also cited headwinds from “elevated shrink,” a retail-industry term that includes losses from theft. Adjusted earnings in the current quarter will be no more than $1.04 a share, the company said Thursday. That was far behind the $1.29 average of analyst estimates compiled by Bloomberg.
The cost pressures are crimping a turnaround pushed by activist investor Mantle Ridge and Chief Executive Officer Rick Dreiling, who joined the company as chairman last year and took the CEO job in January. Still, Dollar Tree stores and the company’s Family Dollar chain are scoring big sales gains, suggesting the overhaul is catching on with shoppers.
“Both the Dollar Tree and Family Dollar segments reported strong same-store sales trends, driven by increased traffic and accelerated market share gains,” Dreiling said in the statement.
The shares fell 11% at 9:44 a.m. in New York. Dollar Tree was little changed this year through Wednesday, while an S&P index of consumer-staples companies fell 2.2% and rival Dollar General Corp. tumbled 36%.
In the fiscal second quarter, which ended in late July, adjusted earnings fell to 91 cents a share. That was still enough to surpass the 87 cents projected by analysts. Comparable sales jumped 6.9%, easily topping the 4.8% analyst estimate.
Selling, general and administrative expenses rose to 25.3% of revenue, up more than a percentage point. Dollar Tree attributed the increase to a range of causes, including higher wages, investments in store repairs and maintenance, and utility costs from hotter-than-usual weather.
Dollar Tree launched a $1.25 price point in the prior year’s quarter, resulting in an “outsized margin benefit,” the company said.
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