Dollar-Store Chains Post Stronger Sales, But Tariffs Cloud Outlook -- Update

By Aisha Al-Muslim and Sarah Nassauer 

Sales at Dollar General Corp. and Dollar Tree Inc. rose in the latest quarter, but both discount retailers said the prospect of tariffs being imposed on more products imported from China cast uncertainty on their businesses.

Dollar Tree on Thursday cut its profit forecast for the year as it works to trim its store count and deals with higher-than-expected import-freight costs. Dollar General maintained its financial guidance and store-growth outlook.

Both companies said their outlooks include current tariffs on certain Chinese imports, which the chains have been trying to mitigate. However, neither company adjusted its forecasts for a potential next round of tariffs on nearly all remaining goods from China, which could include many consumer goods such as additional apparel categories and toys.

If a further tariffs are implemented, "we expect that it will be impactful to both our business, and especially to consumers in general," said Gary Philbin, chief executive of Dollar Tree, which also owns the Family Dollar chain. Company merchants have mitigated the cost of most tariffs so far, he said on a call with analysts. In January the company moved about $100 million of seasonal purchases out of China, he said.

Dollar Tree, based in Chesapeake, Va., now expects earnings per share for the fiscal year to be $4.77 to $5.07, off from its previously forecast range of $4.85 to $5.25.

Shares in Dollar General rose 7.2% to $127 on Thursday, while Dollar Tree's stock rose 3.1% to $98.31.

Many other retailers are formulating plans to manage the impact of higher tariffs on merchandise imported from China because of the continuing U.S.-China trade dispute.

The Trump administration this month imposed a 25% tariff on $200 billion in Chinese goods, up from a 10% duty put in place in October.

For the first quarter ended May 3, Dollar General said new stores and sales gains at existing locations helped sales growth. Net sales rose 8.3% to $6.62 billion and same-store sales increased 3.8%, both above analysts' expectations. Profit at the company, based in Goodlettsville, Tenn., rose 5.5% to $385 million, from $364.9 million a year earlier.

Dollar General has been expanding its store footprint and working to become a bigger seller of food and home goods to grab more shoppers. During the quarter, it opened 240 new stores, remodeled 330 stores and relocated 27 stores.

Dollar Tree said its sales increased in the first quarter ended May 4 as the performance at its Family Dollar stores began to turn around.

Net sales rose 4.6% to $5.81 billion and overall same-store sales increased 2.2%, both above analysts' expectations. Same-store sales rose 2.5% at Dollar Tree, while sales at stores open at least a year under the Family Dollar banner rose 1.9%. Although the average amount spent rose at Family Dollar, boosting sales, the number of shoppers fell in the quarter.Dollar Tree's profit rose 67% to $267.9 million from $160.5 million a year earlier.

Dollar Tree has worked to turn around Family Dollar after purchasing the struggling budget retailer in 2015. However, the Family Dollar chain has lagged behind competitors, which led activist investor Starboard Value LP to take a stake in the parent company, advocate for a sale of Family Dollar, and nominate a slate of new board directors.

Dollar Tree said earlier this year that it would close hundreds of Family Dollar stores and marked down the value of the chain while testing higher price points at Dollar Tree. Starboard withdrew its director nominations in April, saying the company showed improvement.

In the quarter, the company closed 16 Family Dollar stores and opened 45 Dollar Tree stores that had previously been Family Dollar locations.

"Our Family Dollar turnaround is gaining traction," Mr. Philbin said. Dollar Tree started testing a new line of products that cost more than $1 earlier this month, he said, and would add the test to 100 stores initially.

Write to Aisha Al-Muslim at [e-mail] and Sarah Nassauer at [e-mail]

(END) Dow Jones Newswires

May 30, 2019 19:01 ET (23:01 GMT)

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