Financial Performance

Dollar Tree Shares Drop 16% on Earnings Miss

The rough holiday quarter for discount chains continues as Dollar Tree's margins were pressured by rising labor and freight costs.
Matthew HellerMarch 7, 2018

Dollar Tree shares plunged on Wednesday after the discount retailer reported lower-than-expected quarterly results and gave a downbeat full-year profit forecast amid rising labor and freight costs.

The latest earnings season has been a rough one for discounters, who had been a relative bright spot for a retail industry challenged by the rise of online shopping. Even Walmart reported a sharp drop in profit and online sales growth during the holiday period.

For the fourth quarter, Dollar Tree’s same-store sales rose 2.4%, including a 3.8% gain from the flagship Dollar Tree stores and only 1% from Family Dollar locations. Analysts had predicted overall growth of 2.8%, with Dollar Tree contributing 4% and Family Dollar 1.5%.

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The company earned $1.89 per share on revenue of $6.36 billion, compared to estimates of $1.90 per share on revenue of $6.4 billion. Revenue was up 12.9% on the year-ago period.

“For the quarter, we posted positive same-store sales in our Dollar Tree and Family Dollar banners, while improving gross margin and leveraging costs,” CEO Gary Philbin said in a news release.

But in trading Wednesday, Dollar Tree shares fell 16.4% to $87.26 as the company also forecast that rising wages and freight costs would hurt fiscal 2018 profits by $68 million. It now expects a profit of $5.25 to $5.60 per share, much lower than the average analysts’ estimate of $5.90 per share.

“We expect continued pressure on store payroll based on states’ increasing minimum wages and general average hourly rate increases. We have budgeted higher freight costs and diesel costs than a year ago,” CFO Kevin Wampler said on an earnings call.

As Reuters reports, “Driver shortages in the trucking industry, coupled with rising wages for hourly retail workers in a tight labor market, have increased costs for brick-and-mortar retail chains, which are already pouring a lot of money into their online business.”

“Focusing on customer service as a tool to one-up Inc. has also forced many retailers to pay hourly workers higher wages or dole out bonuses, denting profits further,” it added.