Dollar Tree cuts annual profit forecast on slowing discretionary demand

(Reuters) -Dollar Tree Inc on Thursday cut its annual profit forecast after missing quarterly profit estimates, hurt by slowing demand for discretionary items, sending shares of the company down more than 11% premarket.

With the United States on the edge of a recession, and higher rentals and surging prices hammering spending power, cash-strapped consumers have been pulling back on higher-margin discretionary and unimportant purchases ranging from homeware to toys.

“We expect the elevated shrink and unfavorable sales mix to persist through the balance of the year,” CEO Rick Dreiling said in a statement.

Chesapeake, Virginia-based Dollar Tree said it now expects fiscal 2023 earnings of $5.73 to $6.13 per share, compared with its prior outlook of between $6.30 and $6.80 per share.

Last week, big-box retailer Target Corp forecast second-quarter profit below Wall Street expectations, while Home Depot Inc projected a greater earnings fall than had been anticipated owing to escalating cost pressures.

Aditionally, even as some retailers have been optimistic towards their gross margin recovery – a metric closely watched by investors – Dollar Tree is experiencing elevated raw materials, freight and labor expenses despite them easing from their highs.

The company’s gross margins declined 340 basis points to 30.5% in the quarter ended April 29, compared to a year ago.

The company tightened its 2023 sales forecast to $30.0 billion to $30.5 billion, compared to a $29.9 billion to $30.5 billion range estimated previously.

Excluding items, Dollar Tree earned $1.47 per share, below estimate of $1.52.

(Reporting by Aatrayee Chatterjee and Granth Vanaik in Bengaluru; Editing by Maju Samuel)