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Shipping woes squeeze profits at U.S. dollar stores, shares slip

Stock MarketsAug 26, 2021 12:25PM ET
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© Reuters. Dollar General shopping carts are seen outside a store in Mount Rainier, Maryland, U.S., June 1, 2021. REUTERS/Erin Scott

By Uday Sampath Kumar

(Reuters) -Top U.S. dollar companies said their full-year profits will take a bigger hit than feared due to surging transportation costs, with Dollar Tree Inc (NASDAQ:DLTR) warning that an acute shortage of shipping capacity could hurt store inventories.

Dollar Tree shares fell 9% on Thursday after the company cut its full-year profit forecast and rival Dollar General Corp (NYSE:DG) dropped 6%.

Increasing freight costs caused by bottlenecks at ports as economies reopen and other pandemic-caused global supply-chain disruptions have hit companies across industries, and are likely to especially torment dollar stores that sell products at lowest possible prices.

Dollar Tree, one of the top U.S. retail importers, said it expects its ocean carriers to fulfill only 60%-65% of their contractual commitments this year, blaming container ship shortages, delays in U.S. and Chinese ports and the lingering effects of the Suez Canal blockage for the shortfall.

Leading international shipping groups have warned clients of delays after a container port in China's eastern marine hub at Ningbo slowed processing partly due to stricter disinfection measures under the country's "zero-tolerance" coronavirus policy.

"The Dollar Tree banner imports more containers per $100 million in sales than other large retailers, and combined with our low $1 price point, we have an outsized impact from freight costs," Chief Executive Officer Michael Witynski said on a call.

Meanwhile, Dollar General said higher transportation costs significantly contributed to an 80 basis point decline in its second-quarter gross profit margin and it fears a bigger jump in supply chain costs in the second half of the year than expected.

It now expects fiscal 2021 earnings per share (EPS) of $9.60 to $10.20, below analysts' average estimate of $10.24, according to IBES data from Refinitiv.

Dollar Tree expects 2021 EPS of $5.40 to $5.60, compared with its prior forecast of $5.80 to $6.05.

Shipping woes squeeze profits at U.S. dollar stores, shares slip
 

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