Dollar Tree Inc has trimmed its full-year profit forecast, blaming price cuts at its Family Dollar stores in an effort to spur demand among lower-income shoppers and compete with other retailers that have been ramping up discounts.
Shares of the discount store operator dropped more than 8% in premarket trading.
Elevated inventory levels at Walmart Inc and Target Corp due to inflation-hit consumers cutting back on discretionary purchases have forced the retail chains to clear excess stocks by offering deep discounts, a move analysts have said could limit the number of customers trading down from traditional retailers to off-price stores.
Outlook
Dollar Tree projected fiscal 2022 profit between $7.10 and $7.40 per share, compared with $7.80 to $8.20 per share estimated previously.
The downbeat forecast also pressured shares of Dollar General, which raised its annual sales forecast on Thursday.
Family Dollar is taking a bigger hit than rival Dollar General as it is typically more reliant on discretionary goods such as party supplies and holiday cards.
Family Dollar caters to an even lower-income consumer cohort than Dollar Tree and Dollar General, highlighting the pinch that relatively less well-off Americans are feeling in the face of high inflation.
New Chief Financial Officer
On Thursday, Dollar Tree also named former Walmart executive Jeffrey Davis as its new chief financial officer, replacing longtime executive Kevin Wampler.
Dollar Tree's same-store sales rose 7.5% in the second quarter, compared with analysts' estimates for an about 5% increase, according to Refinitiv IBES, while its profit of $1.60 per share edged past expectations for $1.59.
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