November 29, 2018 / 12:52 PM / a year ago

Dollar Tree says tariff impact to be minimal this year, shares rise

(Reuters) - Discount store operator Dollar Tree Inc (DLTR.O) said tariffs will have minimal impact to its operations this year, while a possible new round of levies would also be largely mitigated, sending its shares up 4 percent.

An exterior view of a Dollar Tree store is seen in Pasadena, California August 31, 2015.REUTERS/Mario Anzuoni

Washington has threatened to raise tariffs to 25 percent from the current 10 percent on $200 billion of Chinese imports next year, raising fears for U.S retailers that this would add to costs of filling shelves and result in higher prices for customers.

Dollar Tree, which imports a portion of its goods from outside the U.S., said it was prepared for any potential tariff hikes and had mitigated any related impacts by 80 percent at Dollar Tree locations and 50 percent at Family Dollar stores.

The comments overshadowed the company’s surprise drop in Family Dollar same-store sales and a cut in its full-year sales forecast.

The company’s shares which were down about 5 percent before the bell, reversed course to trade up 4.4 percent at $87.

Dollar stores have taken a hit as shoppers spend more on premium products from retailers like Target Corp (TGT.N), as a strong job market and lower taxes put more money in their hands.

The company has also been struggling to turn around its Family Dollar business since its acquisition in 2015. Close proximity to certain Dollar General Corp (DG.N) and Walmart Inc (WMT.N) stores as well as a growing shift to online grocery shopping has contributed to sluggish same-store sales growth.

Comparable-store sales at Family Dollar registered a surprise fall of 0.4 percent. Analysts had expected a 0.07 percent rise, according to IBES data from Refinitiv.

At Dollar Tree, same-store sales rose 2.3 percent but were also below Wall Street expectations of 2.5 percent.

“Family dollar continues to disappoint,” Telsey Advisory Group analyst Joseph Feldman said.

The company also cut its sales outlook to range between $22.72 billion and $22.83 billion, compared with its previous forecast of $22.75 billion to $22.97 billion.

In a sign of urgency to revamp Family Dollar, the company said it would accelerate its store restructuring program, to renovate 1,000 Family Dollar stores in fiscal 2019 and open 350 Dollar Tree and 200 Family Dollar stores.

“There’s more to be done,” CEO Gary Philbin said about the Family Dollar stores.

On an adjusted basis, Dollar Tree earned $1.18 per share, beating Wall Street estimates of $1.14. Net sales rose to $5.54 billion, missing estimates of $5.55 billion.

Reporting by Ishita Chigilli Palli and Soundarya J in Bengaluru; Editing by Shounak Dasgupta

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