Dollar Tree shares fall after company cut guidance and invested in competitive pricing

Dollar General and Dollar Tree stores

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Shares of dollar tree fell on Thursday after the company cut its financial outlook for the year, citing its efforts to offer more competitive pricing at its Family Dollar stores.

The move came after the company reported second-quarter earnings that beat Wall Street estimates by a penny, while revenue was mostly in line with expectations. Its shares were down 10% in morning trading.

Rival Actions General dollarwhich reported better than expected results, also slipped after initially rising.

Dollar Tree CEO Mike Witynski said in a statement that the company’s second quarter results strengthen the company’s relevance to households under pressure from rising food, fuel and rent costs. He said the company’s Family Dollar chain had closed the price gap with its main competitors and that “its value proposition was the most competitive it had been in the last ten years”.

The company said it changed pricing after seeing increased frugality from customers, with Dollar Tree’s private brands overtaking national brands. Consumers are switching from consumer discretionary to necessary consumer products, the company said, and foregoing additional purchases of items like fabric softener.

Witynski said the company’s investments in offering more competitive pricing is expected to put pressure on gross margins in the second half of the year, along with buyers’ increasing focus on needed products.

“We are confident that these awards and other investments will generate very attractive long-term returns,” he said.

For its 2022 fiscal year, Dollar Tree now expects earnings to be between $7.10 and $7.40 per share. He had previously forecast earnings of $7.80 to $8.20 per share. The company also tightened its net sales guidance for the year to a range of $27.85 billion and $28.10 billion. The previous range was $27.76 billion to $28.14 billion.

For the second quarter, Dollar Tree said it earned $1.60 a share, a penny more than Wall Street expected. Its revenue for the period was $6.77 billion, which was essentially in line with estimates of $6.79 billion. Same store sales increased 7.5%.

Dollar Tree has also named Jeffrey A. Davis as Chief Financial Officer. Davis previously served as treasurer of Walmart Stores, head of financial offerings for Walmart’s U.S. unit, and chief financial officer of JC Penney.

Dollar General, meanwhile, reported earnings of $2.98 per share and revenue of $9.43 billion. That was better than earnings of $2.93 per share and revenue of $9.4 billion expected by analysts. Comparable store sales for the period increased 4.6%.

Dollar General CEO Todd Vasos was skeptical of Dollar Tree’s willingness to compete on price.

“It’s not just a long journey for them, I would say it’s been even more difficult than that,” Vasos said in Thursday’s earnings call. “We completely left our main competitor in the dust, it would take years, years, for it to catch up with us”

Dollar General shares were down less than 1% in morning trading.

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