US economic resilience recedes, retail stocks slump, "necessities within necessities" dollar stores hit hard, stock prices plummet | Earnings Report Insights

On Thursday, August 24th, before the US stock market opened, the American discount store chain Dollar Tree announced its second-quarter earnings for the period ending on July 29th.

In the second quarter, the company's revenue was $7.32 billion, surpassing market expectations of $7.18 billion and the $6.77 billion from the same period last year. Earnings per share were $0.91, higher than the market expectation of $0.87 but lower than the $1.61 from the same period last year. Net profit decreased from $359.9 million a year ago to $200.4 million.

Compared to the same period last year, its profit margin also declined. At that time, the company gradually raised the minimum selling price of its products from $1 to $1.25.

In the second quarter, the company's same-store sales increased by 6.9% overall. Among them, Dollar Tree's same-store sales grew by 7.8%, while Family Dollar, which focuses on food sales, saw a 5.8% increase in same-store sales.

The company raised its full-year sales forecast but lowered its profit forecast. Dollar Tree currently expects its comprehensive net sales for the entire fiscal year to be between $30.6 billion and $30.9 billion, with diluted earnings per share between $5.78 and $6.08. Previously, the company projected comprehensive net sales to be between $30 billion and $30.5 billion, with diluted earnings per share between $5.73 and $6.13. Dollar Tree's performance guidance disappointed Wall Street as the lower end of its profit forecast fell below general expectations.

Dollar Tree stated that this guidance reflects the improvement in sales, while narrowing its profit guidance due to consumers narrowing their shopping lists to low-profit products such as food and essential items, ongoing challenges in the shrinking market, increased costs for lost, damaged, or stolen goods, and rising energy costs.

Due to the company's underwhelming performance guidance and market concerns about changes in consumer behavior in the future that could further squeeze the company's profits, the company's stock price opened low and fell by over 12% on Thursday, reaching a 52-week low during trading.

Recently, US consumer stocks have generally performed poorly. Retailers like Macy's stated this week that more and more consumers are largely skipping non-essential purchases due to pressures such as rising interest rates, commuting and dining costs, which has impacted their performance. Walmart also hinted in its earnings report that an increasing number of high-income consumers prefer to choose low-priced supermarkets like Walmart.

Dollar Tree CEO Rick Dreiling stated during a conference call with investors that consumer shopping patterns reflect a more challenging economic backdrop and a return to pre-pandemic consumption habits.

Although the challenging macro environment continues to put pressure on our sales portfolio, I am satisfied with the growth in foot traffic, new customers, and market share.

Dollar Tree is making broader efforts to achieve better returns. The company has expanded its range of products to include higher-priced items, such as frozen and refrigerated foods priced at $3, $4, and $5. Dreiling stated during the conference call that the retailer is introducing new methods to further prevent theft.

In the second quarter, Dollar Tree saw a nearly 10% increase in foot traffic, but the average spending per customer in-store decreased by 1.6%. Family Dollar, its subsidiary, experienced a roughly 3% increase in foot traffic, with an approximately 2% increase in average spending per customer.

In addition, US regulatory agencies announced settlements with both Dollar Tree and its competitor, Dollar General, this week. Both companies were penalized for violating workplace safety regulations. As part of the settlement agreement, the retailers must address the hazards faced by their employees, such as congested exits and safety risks associated with material storage.