Dollar Tree Eyes Higher-Income Shoppers, Q2 Sales Rise

Exterior of a Dollar Tree store in Florida 2021

(Image credit: Getty Images)

Dollar Tree (DLTR) posted second-quarter results that beat estimates but expects a weak third quarter and narrowed its full-year earnings outlook.

The discount variety store operator, which includes Dollar Tree and Family Dollar stores, cited several issues weighing on margins, including “elevated shrink," the industry's term for retail theft.

Dollar Tree’s shares fell more than 10% at the open of today’s trading session.

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For the quarter ended July 29, Dollar Tree reported $7.32 billion in revenue, up 8.2%, on adjusted earnings per share (EPS) of $1.47, down 38% from the prior year.

Same-store sales increased 6.9% overall, including increases of 7.8% at Dollar Tree and 5.8% at Family Dollar.

Consumables segment grew

“For the past two quarters, both segments posted positive unit growth in consumables, while the market has been negative,” Chairman and CEO Rick Dreiling said in an Aug. 24 conference call on the results. “Second-quarter traffic was up over 3% at Family Dollar and nearly 10% at Dollar Tree; the fourth consecutive quarter of growth at Family Dollar and the second for Dollar Tree. “

For the consumables market, consumer purchasing behavior is moving toward a pre-pandemic balance after years of elevated spending across discretionary categories, Dreiling said.

“We believe we are winning in consumables as more customers come to see Dollar Tree and Family Dollar as the compelling destinations for value,” he said, adding that consumers at all income levels are increasingly seeking value.

“We are well-positioned to capture incremental share of wallet when higher-income consumers respond to our strong price-value proposition and when lower-income customers concentrate their spending on needs-based consumables,” he said.

CFO Jeff Davis said that the full-year outlook takes several factors into consideration including a shifting sales mix, unfavorable shrink trends, higher diesel fuel prices, incremental savings on ocean freight, as well as an improved sales performance.

The new guidance calls for diluted EPS of $5.78 to $6.08, compared with the company's previous estimate of $5.73 to $6.13. Dollar Tree increased its full-year sales outlook to a range of $30.6 billion to $30.9 billion, compared with its previous estimate of $30 billion to $30.5 billion.

Dollar Tree expects third-quarter sales will be in the range of $7.3 billion to $7.5 billion, and diluted EPS in the range of $0.94 to $1.04. Analysts’ estimate for EPS was $1.27, however.

Meanwhile, the company is part of a growing list of retailers – including including Dick’s Sporting Goods, Target, and Foot Locker – listing shrink as having an impact on results, as Kiplinger recently reported. The 2022 National Retail Security Survey revealed that retail theft in 2021 was a nearly $100 billion problem facing the industry.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.