China Tariffs to Eat Into Dollar Tree Q4 Profits

The discount retailer's shares fell more than 16% after it cut its outlook for the holiday season due in part to tariff costs.
Matthew HellerNovember 26, 2019
China Tariffs to Eat Into Dollar Tree Q4 Profits

Dollar Tree shares tumbled on Tuesday after the discount retailer cut its forecast for the holiday season, citing costs from tariffs on Chinese goods.

Dollar Tree has been trying to mitigate the tariff costs by negotiating price concessions with vendors and canceling orders. But in its third-quarter earnings release, it said the tariffs, if fully implemented, would increase its cost of goods sold by about $19 million, or six cents per share, in the fourth quarter.

The company expects fourth quarter-earnings of between $1.70 and $1.80 per share, well below analysts’ expectations of $2.02 per share.

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“The decrease from prior implied fourth quarter guidance represents the expected effects” of tariffs imposed on Sept. 1, Dollar Tree said in a news release.

In trading Tuesday, Dollar Tree shares fell 16.5% to $93.79 as the company also reported a third-quarter profit of $1.08 per share, missing analysts’ estimates of $1.13 per share. Revenue was $56.746 billion, slightly higher than the $5.742 billion estimated, and same-store sales were in line with estimates, growing 2.5%.

“The third quarter represented another period of solid sales performance for both brands, Dollar Tree and Family Dollar,” CEO Gary Philbin said. “Our store optimization efforts and sales-driving initiatives are working.”

Philbin told CNBC that in response to the tariffs, Dollar Tree was “moving some product out of China …,” sourcing to other other countries, and redesigning products. But he also said the company needs to meet face-to-face with vendors to negotiate lower costs, which takes time.

Additional pressure on profitability is coming from, among other things, lower-margin consumables growing faster than originally forecast, the company said.D

Dollar Tree “has been closing hundreds of Family Dollar stores this year” while pouring money into renovating thousands more with new decor and the addition of coolers and alcoholic beverages, Reuters reported.

For full-year 2019, management projects earnings of between $4.66 and $4.76 per share, lower than its previous estimates of between $4.90 and $5.11 per share.