May 25, 2023
Dollar Tree Sinks on Cut to Outlook as Profit Pressures Worsen
(Bloomberg) -- Dollar Tree Inc. tumbled the most in a year after slashing its profit outlook, citing a shift in demand to lower-margin food, legal costs from a rat infestation at a warehouse and an increase in “shrink” — a retail-industry term that includes losses from theft.
The headwinds will crimp results this year even as the dollar-store company pushes ahead with a long-term operational overhaul, Chief Executive Officer Rick Dreiling said in a statement Thursday as the retailer reported first-quarter earnings. Dreiling took the CEO job earlier this year after being brought in by activist investor Mantle Ridge.
Dollar Tree’s worsening outlook underscores the concerns around lower-income consumers as inflation forces US shoppers to spend more on food and less on discretionary goods, which are typically more lucrative for retailers. Larger companies such as Target Corp. and Walmart Inc. have sounded similar warnings about sales of nonessential goods.
“While we are seeing early results from our initiatives, we are not immune to the external pressures affecting all of retail, notably, the margin impact of elevated shrink and the product mix shift to consumables,” Dreiling said in the statement.
Dollar Tree, which also owns the Family Dollar chain, plunged as much as 17% in New York trading, the most intraday since May 2022. The shares had advanced 9.8% this year through Wednesday, exceeding the 7.2% gain in the S&P 500 Index.
Adjusted earnings this year will be no more than $6.13 a share, down from the company’s previous forecast of as much as $6.80. Analysts had been projecting $6.64. The annual outlook includes a legal reserve of 12 cents a share tied to a rat infestation at a warehouse in Arkansas, which the company has shut down.
(Updates with shares starting in first paragraph.)
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