Dollar Tree Lowers Earnings Forecast Amid Customer Spending Struggles

The logo for Dollar General appears on a screen above a trading post, on the floor of the New York Stock Exchange, Thursday, July 13, 2023. (AP Photo/Richard Drew, File)

Dollar Tree has revised its full-year earnings and sales forecasts downward as its customers face challenges with higher prices and reduced spending. The company's shares experienced a significant drop of over 10% before the market opened on Wednesday, following a recent decline to a 52-week low. This trend mirrors that of Dollar General, a competitor in the bargain chain sector, which also saw a substantial decrease in its stock value after a disappointing quarter.

The revised guidance from Dollar Tree now predicts adjusted earnings for the year to fall between $5.20 and $5.60 per share, a decrease from the previous range of $6.50 to $7 per share. Similarly, the company expects annual sales to range from $30.6 billion to $30.9 billion, down from the initial forecast of $31 billion to $32 billion.

Analysts surveyed by FactSet had anticipated full-year earnings of $6.56 per share on revenue of $31.17 billion, indicating a gap between expectations and the company's projections. Dollar Tree has been striving to attract customers with competitive pricing, but faces challenges as major retailers like Walmart and Target also adjust prices to accommodate consumer pressures.

Competitor Dollar General also experienced a significant decrease in stock value.

Dollar Tree's shares dropped over 10% following revised earnings forecast.

Adjusted earnings for the year expected to fall between $5.20 and $5.60 per share.

In the second quarter, Dollar Tree reported revenue of $7.38 billion, slightly below the $7.5 billion expected by analysts. Adjusted revenue stood at $7.37 billion. The company's earnings for the period ending Aug. 3 were $132.4 million, or 62 cents per share. However, after excluding certain items, earnings amounted to 67 cents per share, falling short of Wall Street's forecast of $1.03 per share.

The company attributed the lower-than-expected earnings in part to economic pressures affecting its middle- and higher-income customer segments. Dollar Tree's Chief Operating Officer noted that financial strains are extending to higher-earning customers due to factors such as inflation and interest rates.

Looking ahead, Dollar Tree anticipates adjusted earnings for the third quarter to range from $1.05 to $1.15 per share, with revenue projected between $7.4 billion and $7.6 billion. Analysts polled by FactSet, however, expect earnings of $1.31 per share on revenue of $7.58 billion.