August 29, 2019 / 10:38 AM / 3 months ago

New products, remodeled stores push U.S. dollar chains to boost profit forecast

(Reuters) - The top two U.S. discount store chains raised their full-year profit forecast on Thursday as a push on adding a range of new products - from fresh food to self-owned brands - starts to pay off, cushioning a blow from increased tariffs on Chinese imports.

FILE PHOTO: A sign is seen outside a Dollar General store in Chicago, Illinois, U.S. May 23, 2016. REUTERS/Jim Young

U.S. President Donald Trump’s additional tariffs on about $550 billion of Chinese imports announced last week is expected to hurt companies that rely on China for sourcing their products.

The two dollar stores, which source a large chunk of their merchandise from China, are already looking at other sources as the trade war shows no sign of relenting.

Dollar General said on Thursday it would be able to mitigate the impact of these tariffs, while its rival said it was working with suppliers to offset increased costs.

Dollar Tree also said it was able to tide over the previous round of tariffs through price concessions, canceled orders and a better assortment of products.

Dollar General forecast annual earnings of $6.36 per share to $6.51 per share, including the anticipated impact of increased tariffs. It had previously forecast $6.30 to $6.50.

Family Dollar-owner Dollar Tree predicted full-year profit between $4.90 per share and $5.11 per share, but said the forecast excluded the recent tariff increases. Its previous range was $4.77 to $5.07.

The company also reported better-than-expected quarterly same-store sales as its struggling Family Dollar chain posted its best growth since being acquired in 2015.

“We’re getting our core customer back into the store in Family Dollar and they’re liking what they’re seeing,” Dollar Tree Chief Financial Officer Kevin Wampler told analysts.

Hit by competition from big-box retailers like Walmart (WMT.N) and increased online shopping, the companies have been adding new products on shelves, self-checkout options and frozen food sections to improve shopping experience for customers.

Graphic: here

Sales at Dollar General store open for more than an year rose 4% in the reported quarter, well above analysts’ average estimate of a 2.43% increase, according to IBES data from Refinitiv.

In the past few years, Dollar General has outperformed Dollar Tree as it has been able to stock shelves faster with fresh produce and frozen food at different price points, a key factor for low-income and budget shoppers.

“It’s hard to poke any holes in this report. It was very solid for Dollar General,” Edward Jones analyst Brian Yarbrough said.

Shares of Dollar General Corp (DG.N) surged 11% to hit a record of $155.98, while those of Dollar Tree Inc (DLTR.O) rose as much as 4.7%.

Reporting by Nivedita Balu in Bengaluru; Editing by Saumyadeb Chakrabarty and Anil D'Silva

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