Shares of dollar tree Amazon shares fell more than 22% on Wednesday after the company cut its full-year outlook, citing growing pressure on middle- and high-income customers.
The company said it now expects its full-year consolidated net sales to be between $30.6 billion and $30.9 billion. It expects adjusted earnings per share to be between $5.20 and $5.60. That compares with its previous guidance of $31 billion to $32 billion in net sales and $6.50 to $7 for adjusted earnings per share.
In a press release, Chief Financial Officer Jeff Davis said the company lowered its outlook to reflect lower sales and costs associated with converting 99-cent-only stores. The company also said it incurred higher expenses to pay and settle claims related to customer accidents and other incidents in stores.
Here's how Dollar Tree performed in the fiscal second quarter ended Aug. 3 compared to Wall Street expectations, according to analysts surveyed by LSEG:
Earnings per share: 97 cents adjusted vs. $1.04 expectedRevenue: $7.38 billion vs. $7.49 billion expected
The 97 cents per share earnings figure excludes a 30 cent per share charge for general liability claims.
Dollar Tree's report comes about a week after its main competitor Dollar General Dollar General Inc. cut its full-year sales and profit forecasts, sending its shares tumbling. CEO Todd Vasos attributed the weak sales to a “core customer feeling financially constrained.”
Dollar stores, in particular, have been upset that their core customers — low-income shoppers with little money left to spend on discretionary goods — are being forced to forgo after a long period of rising food prices and the costs of everyday living. Walmart E-commerce has gained more business from value-conscious shoppers across income levels, and new online businesses, like Timo, have also attracted customers with cheap goods.
Dollar Tree includes two chains of stores, the first of the same name, which sells a wide variety of low-priced items such as party supplies, and the second is Family Dollar, which carries more food.
The company’s comparable-store sales rose 0.7% in the quarter. At Dollar Tree, comparable-store sales rose 1.3% and at Family Dollar, comparable-store sales fell 0.1%. The industry measure strips out the impact of store openings and closings.
On an earnings call, Davis said the company saw weaker sales, particularly on the discretionary side of the business. He said that “reflects the increasing impact of macro pressures on the purchasing behavior of Dollar Tree’s middle- and upper-income customers.”
“Our original second-quarter forecast did not anticipate that these pressures would be transmitted to Dollar Tree’s customer base to the extent that they have,” he said.
In addition to dealing with shoppers struggling with inflation, Dollar Tree has faced its own challenges. The company announced in March that it would close about 1,000 Family Dollar stores, citing market conditions and store performance. Then in June, the company said it was considering selling the Family Dollar brand.
Dollar Tree bought Family Dollar for nearly $9 billion in 2015 and has since struggled to consolidate the grocery chain and better compete with Dollar General.
Liability claims have also added to the company’s challenges. On the company’s earnings call, Davis said that the outcome of claims, especially older ones, “has become more difficult to predict as settlement and litigation costs rise as a result of a more volatile insurance environment.”
“Claims have continued to develop unfavorably due to the high cost of paying, settling and litigating these claims, which has impacted our actuarially determined liabilities,” he said.
By Tuesday’s close, Dollar Tree shares were down about 43% so far this year. The company’s shares hit a 52-week low on Tuesday and closed today at $81.65.
— CNBC's Robert Home contributed to this report.
