By Ananya Mariam Rajesh
(Reuters) – Dollar Tree Inc forecast annual profit well below estimates on Wednesday, hurt by elevated freight and investment costs and as consumers rein back spending on discretionary items.
With the U.S. on the verge of recession, rising rental and consumer prices have forced shoppers to rethink their purchases and cut spending on non-essential items ranging from homeware to toys.
Walmart Inc last week forecast full-year earnings below estimates and said people were increasingly shifting towards buying more food and consumables from general merchandise that is typically more profitable than essentials.
Rival Dollar General Corp also forecast 2023 profit well below expectations after cutting its earnings estimate for the all-important holiday quarter.
Dollar Tree is battling elevated shipping charges and labor costs, which is expected to result in a margin decline in the first half of the year.
Fiscal 2023 will be a heavy investment year for the company in terms of labor and stores, said CFRA Research analyst Arun Sundaram, adding the benefit from lower freight expenses would be seen in the second half.
The company expects 2023 profit between $6.30 and $6.80 per share, below analysts’ estimate of $7.78 per share in Refinitiv IBES data.
“The new management team is trying to reset the bar and tell the investment community they need to invest in the business to enhance infrastructure and make it a better, more profitable business over time,” Telsey Advisory Group analyst Joseph Feldman said.
Dollar Tree’s executive chairman Richard Dreiling took on the chief executive role on Jan. 29, nearly a year after the group agreed to revamp its board in a settlement with activist investor Mantle Ridge.
Shares of the discount store operator were up about 1% in early trading after better-than-expected fourth-quarter results.
(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Milla Nissi)
