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Dollar Tree DLTR+1.39% says it’s struggling to connect with “middle and upper-income” consumers; it’s one reason why the discount retailer anticipates sales will continue to decline.
The company slashed its full-year fiscal 2024 outlook, prompting shares to slip by over 10% during early trading. Dollar Tree is also grappling with a surge in general liability claims, which have become increasingly costly to reimburse, settle, and litigate.
“Sales came in towards the low end of our outlook range,” Mike Creedon, Dollar Tree’s chief operating officer, told investors during the company’s earnings call on Wednesday. “Dollar Tree has a broader customer base that includes more middle and upper-income households and beginning this quarter, we started to see inflation, interest rates and other macro pressures have a more pronounced impact on the buying behavior of these customers,” the executive added.
Those headwinds impacted the retailer’s second-quarter performance, Creedon said, adding that it was the “primary driver of our revised full-year outlook.”
Dollar Tree expects its full-year net sales outlook to fall between $30.6 billion and $30.9 billion. Its previous forecasts had projected net sales between $31 billion and $32 billion.
Jeff Davis, Dollar Tree’s chief financial officer, said the company’s lowered forecast is due to weaker sales and expenses related to converting 99 Cents Only stores. In May, the company said it had purchased 170 of the 99 Cents Only locations. Those expenses have been compounded by an additional $84 million charge for handling customer accidents and other claims, Davis said.
Family Dollar, Dollar Tree’s banner, has continued to face several challenges, including declining sales, increased costs from store conversions, and expenses related to claims. In March, Dollar General said it was closing 1,000 Family Dollar locations to focus on growth.
As inflation strains consumers, Dollar Tree, along with other discount retailers, is struggling to reach financially stressed consumers. Last week, rival Dollar General reported similar issues; the firm said it was dealing with consumers who were “financially strained,” leading it to report second-quarter earnings below Wall Street’s expectations.
Meanwhile, big box retailers such as Walmart and Target are highlighting that even if consumers are being cautious of where they choose to spend, they’re turning to the retailers for their everyday needs. Notably, Walmart said it was getting a big boost from wealthier shoppers.
Dollar Tree’s Creedon said that in today’s environment, retailers “need to be sensitive and responsive to the needs of customers and meet them where they are and how they are living.” He added that only retailers that can offer products that provide value and convenience to pressured consumers will be the ones who will “take market share and grow sales.”