Despite the retailer’s rising prevalence on social media, Dollar Tree is struggling to stay afloat amid inflation-related challenges and the recent seismic shift in consumer purchasing behavior. In a digital universe, Dollar Tree is the store on every TikToker’s lips. The discount chain, where products (including name-brand items from Olay, Covergirl, and more) cost only $1.25, has cultivated an impressive online following. But it appears that not even the best beauty dupes can pull this bargain chain from the financial trenches. More and more shoppers are starting to shop elsewhere, and based on a recent earnings report, Dollar Tree is feeling the heat.
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In a second-quarter earnings report published on Wednesday, Dollar Tree announced that their full-year forecast sales are projected to fall short. While the retailer increased consolidated net sales and gross profit by 0.7 percent and 3.7 percent, respectively, those numbers are expected to drop by the end of the fiscal year.
CNBC reports that Dollar Tree’s fiscal second quarter fell short in revenue compared with Wall Street expectations. Initial standings had Dollar Tree raking in $7.49 billion in revenue, but the retailer capped at $7.38 billion.
“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,” explained chief operating officer Mike Creden in an interview with AP News.
Looking ahead, Dollar Tree has adjusted its full-year outlook based on last quarter’s earnings and growing concerns about consumer buying trends. Net sales are now projected to range between $30.6 billion and $30.9 billion, compared to the previous $31 billion to $32 billion. As a result, shares have dropped by 22 percent, per CNBC.
So, why are shoppers abandoning Dollar Tree? According to LSEG director Jharonne Martis, big-box stores like Walmart and Target, which have also issued price cuts across all major categories, are to blame. Rather than making the trip to two or three separate retailers, customers are getting their needs met at stores where low-priced inventory now outstrips Dollar Tree’s.
“Dollar stores have lost market share to larger retailers that have broadened their offerings and gained customer loyalty through everyday low prices,” Martis told AP News.
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But it isn’t only the economy; Dollar Tree is suffering from within its own walls, too. In the report, the store said “the rising cost to reimburse, settle, or litigate claims” due to customer accidents and other incidents at stores “unfavorably” impacted second-quarter results.
There have also been rumblings that Dollar Tree may offload its sister store, Family Dollar. In 2015, Dollar Tree purchased Family Dollar for nearly $9 billion to compete with Dollar General, according to CNBC. While Dollar Tree sells some pantry staples, the Family Dollar acquisition was to fill their gap in the grocery space. However, behind-the-scenes challenges have put a stint in their success.
Dollar Tree is reviewing possible “strategic alternatives” for Family Dollar, which could result in “a potential sale, spin-off, or other disposition of the business.” However, no final decision has been made.
“There is not a set deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be no assurance that this process will result in any transaction or particular outcome,” reads the report.