Dollar Tree, the discount retailer (ticker: DLTR), has reported its second-quarter earnings, revealing the challenges it faced with inventory loss and a shift in consumer preferences towards lower-priced products.
Strong Second-Quarter Results
For the second quarter, ending on July 29, Dollar Tree posted earnings of 91 cents per share on revenue of $7.32 billion. This exceeded expectations from analysts tracked by FactSet, who had anticipated earnings of 87 cents per share on $7.2 billion in revenue.
Despite beating estimates, Dollar Tree’s stock experienced a downward trend in premarket trading on Thursday, dropping nearly 5% to $135.33.
Factors Impacting Profit Margins
Dollar Tree reported a gross margin of 29.2% for the latest quarter—a decline of 220 basis points from the same period last year. This decline can be attributed to two primary factors:
- Consumer Shift: The company witnessed an increase in the sale of its lower-priced products as inflation slowed down consumer spending.
- Inventory Loss: Dollar Tree also faced elevated levels of inventory loss due to employee theft, shoplifting, and other reasons.
Dick’s Sporting Goods (DKS) highlighted a similar issue in their recent earnings report, stating that one-third of their merchandise margin decline in the second quarter was due to inventory loss.
Adjusted Outlook for Profits
In light of these challenges, Dollar Tree has adjusted its outlook for fiscal 2023 profits. The company now expects earnings per share in the range of $5.78 to $6.08, compared to the previous range of $5.73 to $6.13.