Dollar General, Dollar Tree shares tank after supply chain warnings
As of the time of publication, Dollar Tree shares were down more than 9% and Dollar General shares were down more than 6%
Supply shortages hurting back-to-school, holiday retail: Expert
Strategic Resource Group managing director Burt Flickinger provides insight into the state of the American consumer and retail earnings.
Shares of Dollar Tree and Dollar General have plunged during Thursday's trading session as the discount retailers issued new warnings regarding the threat of ongoing supply chain disruptions.
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Dollar Tree said in its second quarter earnings report that freight costs for fiscal year 2021 are now expected to be $1.50 to $1.60 per diluted share higher than fiscal year 2020. According to its revised full-year outlook, the company expects an additional 60 to 65 cents per diluted share, or $185 million to $200 million, in freight costs since its first quarter guidance in May.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| DLTR | DOLLAR TREE INC. | 65.76 | +2.58 | +4.08% |
| DG | DOLLAR GENERAL CORP. | 73.89 | +0.64 | +0.87% |
In the first quarter, Dollar Tree forecast its regular ocean carriers would fulfill about 85% of their contractual commitments. That estimate has now been lowered to between 60% to 65% of their commitments. In addition, Dollar Tree noted that the spot market rates for ocean freight from China have continued to trend upward from all-time highs, increasing more than 20% since its last earnings report in May.
"The Company expects continued volatility with respect to the ocean carriers ability to fulfill contractual commitments," the retailer said in its second quarter earnings release Thursday. "The Dollar Tree banner is highly sensitive to freight costs, and while the Company does not expect these conditions to be permanent, the Company continues to undertake steps to mitigate the impact from freight and otherwise improve gross merchandise margin."
For full-year fiscal 2021, Dollar Tree now expects net sales in the range of $26.19 billion to $26.44 billion, based on a low single-digit increase in same-store sales and 3.4% square footage growth, and diluted earnings per share in the range of $5.40 to $5.60.
For the third quarter, the company expects net sales in the range of $6.40 billion to $6.52 billion, based on a low single-digit increase in same-store sales for the combined enterprise. Diluted earnings per share are estimated to be in the range of 88 cents to 98 cents.
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In addition to an expected increase in transportation and distribution costs, Dollar General warned factors such as "further disruptions to the global supply chain" and "the ongoing impact of the COVID-19 pandemic," including the delta variant, are headwinds that could cause uncertainty for the company's outlook for fiscal 2021.
For the full year, Dollar General expects net sales growth between 0.5% to 1.5% compared to previous guidance of a 1% decline to an increase of 1%. Same-store sales are expected to decline 3.5% to 2.5%, compared to the previous estimated decline of 5% to 3%. Diluted earnings per share are now expected to be between $9.60 and $10.20, compared to the previous estimate of $9.50 to $10.20.
In addition, the company reiterated plans to execute 2,900 real estate projects in fiscal year 2021, including 1,050 new store openings, 1,750 store remodels, and 100 store relocations.
Dollar General's capital expenditures, including those related to investments in its strategic initiatives, are expected to be in the range of $1.1 billion to $1.2 billion, compared to its previous guidance of $1.05 billion to $1.15 billion.
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In the second quarter, Dollar Tree reported net income of $282.4 million and diluted earnings per share of $1.23, up from $261.5 million and $1.10 diluted earnings per share a year ago. Revenue came in at $6.34 billion, compared to 6.27 billion a year ago. Net sales increased 1% to $6.34 billion from $6.28 billion in the prior year’s second quarter.
As for Dollar General, the company's net income decreased 19% to $637 million, compared to $787.6 million a year ago, and diluted earnings pare share decreased 13.8% to $2.69, compared to diluted EPS of $3.12 a year ago. Net sales decreased 0.4% to $8.7 billion in the second quarter of 2021 compared to $8.7 billion in the second quarter of 2020.
As of the time of publication, Dollar Tree shares are down more than 9% while Dollar General shares are down more than 6%.