Shares of Dollar General and Dollar Tree are falling as investors respond to the dollar-store firms' July quarter results. Higher freight costs continued to weigh on their margins.
Dollar General (ticker: DG) reported fiscal second-quarter net income of $637 million, or $2.69 a share. That edged out Wall Street's consensus estimate of $2.62, according to FactSet. Net sales of $8.65 billion were down 0.4% year over-year but in line with Wall Street's consensus estimate at $8.61 billion. Same-store sales declined 4.7%, but were up 14.1% compared with 2019.
Dollar Tree (DLTR) reported net income of $282.4 million, or $1.23 a share. That was ahead of consensus estimates at $1.01 a share. Sales of $6.34 billion were up 1% year-over-year but below Wall Street's consensus estimate of $6.44 billion. Same-store sales declined 1.2% on a constant currency basis, but were up 6% relative to 2019.
Dollar General stock was down 5.4% to $234.74 in early trading Thursday while Dollar Tree stock was down 8.8% to $97. Through Wednesday's close, Dollar General shares were up 12% year to date while Dollar Tree stock had fallen 1.6%.
Unlike department stores , which recently reported far better results than expected amid a recovery in apparel shopping , dollar stores faced tough comparisons with last year, when they saw an uptick in sales amid the pandemic.
Dollar General said its gross margin rate of 31.6% was down 0.8 percentage point from 2020. Increased transportation costs, a greater proportion of sales coming from lower-margin consumable goods, and an increase in inventory damages weighed on the figure. Raymond James analyst Bobby Griffin, who has a Strong Buy rating on Dollar General stock with a $210 target, said the figure beat his expectations despite a challenging supply-chain environment.
For the rest of the year, Dollar General raised the lower end of its range of forecasts for earnings per share to $9.60 from $9.50. It also expects a comparable- sales decline of between 3.5% and 2.5%, an improvement from a prior range between 5% and 3%.
Dollar Tree's gross margin rate of 29.4% was down 1.1 percentage points from 2020, primarily due to higher freight costs. For the full year, the company now expects $185 million to $200 million more in additional freight costs than it anticipated in May. Dollar Tree lowered its full-year earnings-per-share outlook to between $5.40 and $5.60 from a prior range between $5.80 and $6.05.
"Regarding the continuing and well-publicized challenges in the global supply chain, as well as higher freight costs and other inflationary pressures, our teams are working hard to navigate these issues while staying focused, as always, on delivering the value and convenience our shoppers expect," CEO Michael Witynski said in the earnings release.