Dollar Tree Lowers Profit Outlook Due to ‘Elevated Shrink’

Dollar Tree

Dollar Tree is apparently not immune to the shrinkage issue plaguing other retailers.

The discount store chain released earnings results Thursday (May 25) showing an increase in sales, although the company also lowered its profit outlook due to shrink — theft, damage and other loss — and reduced spending.

“While we are seeing early results from our initiatives, we are not immune to the external pressures affecting all of retail, notably, the margin impact of elevated shrink and the product mix shift to consumables,” CEO Rick Dreiling said in a news release. “While we are maintaining our full-year 2023 sales outlook, we are adjusting our EPS outlook as we expect the elevated shrink and unfavorable sales mix to persist through the balance of the year. We still expect earnings to be more back-end loaded this year as the benefits of lower ocean freight rates flow through.”

Retail shrinkage — typically in the form of retail theft — has been a problem for several retailers. Among them is Target, which has reported a surge in retail crime, which is projected to cause an estimated $500 million more in losses and stolen merchandise this year over last.

“The unfortunate fact is violent incidents are increasing at our stores and across the entire retail industry,” Target Chairman and CEO Brian Cornell said last week. “And when products are stolen, simply put they are no longer available for guests who depend on them. Left unchecked, organized retail crime degrades the communities we call home. As we work to address this problem, the safety of our guests and our team members will always be our primary concern. Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results.”

Meanwhile, Dollar Tree reported sales of $7.32 billion for the quarter, a 6.1% increase. The company also opened 107 stores and completed 252 renovations at its Family Dollar stores.

Both Dollar Tree and rival Dollar General are in the midst of a major renovation project. The retailers are investing in these overhauls, which include increased refrigerator and freezer capacity, to accommodate demand from consumers across all income brackets for less costly groceries than those found at traditional supermarkets.

PYMNTS studied this trend in the January “Consumer Inflation Sentiment” report, which found that nearly seven out of 10 consumers contended with rising food costs over the prior year by cutting down on the quality or quantity — or some combination — of grocery purchases.

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