Dollar Tree Stock Falls on Soft Earnings. Low Income Consumers Are Hurting.

In the same period last year, Dollar Tree reported profit of $1.20 a share on revenue of $6.94 billion.

Slowing demand in Family Dollar weighed on the company in the third quarter. Same-store sales at Family Dollar grew by 2% this quarter. At the company’s banner Dollar Tree stores, they were up 5.4%. Dollar Tree is attracting a higher-income demographic looking to stretch their budgets, management said. Meanwhile, Family Dollar caters to lower-income households, many of which are hurting under the current macroeconomic condition.

“We experienced softening trends throughout the quarter, particularly in October as lower-income consumers responded to the accumulated impact of inflation and reduced government benefits,” said CEO Rick Dreiling in a call with analysts. “We saw a notable pullback and spending particularly in higher margin discretionary categories.”

Discretionary purchases in the company’s Family Dollar segment fell 12.5% in the third quarter, the company added, especially in categories like home decor, electronics, and toys. This underscores how lower-income households are under “increasing financial stress,” Dreiling added.

The retailer updated its fiscal 2023 financial guidance to reflect these challenges.

“Our current outlook takes into consideration several factors including continuing strength at the Dollar Tree banner, incremental freight savings, softer demand from low-income households, and a continuation of the shrink and sales mix headwinds we have seen throughout the year,” Chief Financial Officer Jeff Davis said in a press release.

Dollar Tree now expects fiscal 2023 earnings of between $5.81 a share to $6.01 a share, compared to previous guidance of $5.78 to $6.08. Revenue for the fiscal year was estimated at between $30.5 billion and $30.7 billion, compared to the prior outlook of $30.6 billion to $30.9 billion.

Shrink, an industry term that refers to inventory loss through theft or damage, will remain high throughout the fourth quarter, the company said. In the third quarter, gross margin fell by 0.2 percentage points to 29.7%, partly due to elevated shrink, as well as a product recall and the fact that people have been buying fewer discretionary items, which tend to carry higher margins.

Shares of Dollar Tree were down 1.1% in premarket trading Wednesday to $114.82. Coming into the session, the stock has declined 18% this year.

Write to Angela Palumbo at [email protected]