Dollar Tree expects weak annual profit as inflation-hit consumers curb spending

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Shares of the discount store operator were down about 4% in premarket trading after it also forecast first-quarter profit below expectations.

With the U.S. on the verge of recession, rising rental and consumer prices have forced shoppers to rethink their purchases and rein in spending on non-essential items ranging from homeware to toys.

This slowing demand for higher-margin goods, typically more profitable than consumables like snacks and cookies, is expected to further dent margins while the company also battles higher labor and commodity costs.

Last week, Walmart (NYSE:WMT) Inc also forecast full-year earnings below estimates and said people were increasingly shifting toward buying more food and consumables from general merchandise.

Dollar Tree (NASDAQ:DLTR) said it expected gross and operating margins to decline in the first half of fiscal 2023, followed by expansion in the second half.

Dollar General Corp (NYSE:DG), the other top discount store in the U.S., last week forecast 2023 profit well below expectations after cutting its earnings estimate for the all-important holiday quarter on heavy discounts, higher costs and inventory damage due to winter storm Elliott.

Dollar Tree saw gross margin improve 70 basis points to 30.9% in the fourth quarter, helped by higher initial mark-on and lower freight costs.

The company expects 2023 profit between $6.30 and $6.80 per share, well below analysts’ estimate of $7.78 in Refinitiv IBES data.

However, it forecast 2023 sales between $29.9 billion and $30.5 billion, above estimates of $29.86 billion.