Low cost can be economical, but cheap prices can be an absolute steal.
While lowering prices may be working for some retail companies during the current economic climate in the US, others seem to be suffering the consequences of extreme discounts.
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Dollar Tree, Inc., the parent company of Dollar Tree and Family Dollar stores, is known for its wide array of category offerings at incredibly pocket-friendly costs.
Although prices may no longer be $1, the discount store chain has been the go-to bargain spot for families for over seven decades, positioning itself as a place where lower-income customers can purchase their daily necessities.
However, all good things come to an end, and Dollar Tree may be taking a slightly different approach to its prices.
Dollar Tree deals with a different crowd
The company seems to be putting all its bets on its multi-priced store branch and higher-income clientele to return to delivering positive numbers.
During Dollar Tree's Q2 earnings call on Wednesday, the company revealed that it will reopen approximately 85 former 99 Cents Only store locations as Dollar Tree stores by the end of the year to increase traffic.
In May of this year, Dollar Tree acquired 170 leases of 99 Cents Only stores after the original owner filed for bankruptcy in April of the same year.
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Dollar Tree's incorporation of slightly higher-priced items attracted higher-income clients, resulting in 2.8 million new shoppers over the past 12 months.
The company's total revenue increased by 0.7% to around $7.4 billion, and enterprise comp grew by 0.7%, according to Dollar Tree's earnings report for Q2 2024. Dollar Tree's net sales increased to $4 billion, up 4.7% compared to last year's $3.8 billion in Q2.
"Family Dollar's comp was in line, but Dollar Tree's comp, while positive, was lower than we expected. As we have seen for several quarters now, demand from Family Dollar's core lower-income customer remains weak. Dollar Tree has a broader customer base that includes more middle and upper-income households," said Chief Operating Officer Mike Credo during the earnings call.
Diluted EPS decreased by 31.9% to $0.62 compared to the previous fiscal year's Q2.
The bad news continued to pile up for Dollar Tree.
On Wednesday's market close, Dollar Tree's (DLTR) stock dropped approximately 22%. Shares rebounded more than 2% in morning trading Thursday.
Yet Dollar Tree isn't the only discount store chain struggling; its rival Dollar General's DG stock decreased by around 3.2% on Wednesday before falling another 1.5% Thursday.
Dollar Tree chops guidance
Dollar Tree did not seem to have much faith in its lower-income shoppers after revealing the company's new outlook for fiscal year 2024.
According to Dollar Tree, negative economic realities, like inflation and high interest rates, contributed to customers' more conscious spending behavior and ultimately forced the company to readjust its outlook to better match the current environment.
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The company now expects an average net sales growth of approximately $30.75 billion with comparable net sales growth in the low single digits, compared to its previous guidance of around $31.5 billion.
Dollar Tree also cut its previous EPS average of $6.75 down to an average of $5.40, according to Yahoo Finance.
"Clearly, we are not pleased with our second-quarter results or having to revise our full-year outlook. But this updated outlook reflects how the challenging macro environment continues to pressure our customers," said Credo during the earnings call.
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