By Ananya Mariam Rajesh
(Reuters) -Dollar Tree Inc forecast annual profit well below estimates on Wednesday, as the discount store operator battles higher wages and freight costs while consumers cut back on discretionary items.
With the U.S. on the verge of recession, rising rental and consumer prices have forced shoppers to rethink their purchases and curb spending on non-essential items ranging from homeware to toys.
Walmart (NYSE:WMT) Inc last week forecast full-year earnings below estimates and said people were increasingly shifting towards buying more food and consumables from general merchandise that is typically more profitable than essentials.
Rival Dollar General Corp (NYSE:DG) also forecast 2023 profit well below expectations after cutting its earnings estimate for the all-important holiday quarter.
Dollar Tree (NASDAQ:DLTR)'s outlook for the year includes about $430 million in operating expenses across labor and other investments, with the company increasing average hourly wages by around $2.
CFRA Research analyst Arun Sundaram said the benefit from lower freight expenses would be seen in the second half of 2023, but it would be largely reinvested into higher wages and store investments.
The company expects 2023 profit between $6.30 and $6.80 per share, below analysts' estimate of $7.78 per share in Refinitiv IBES data.
"The new management team is trying to reset the bar and tell the investment community they need to invest in the business to enhance infrastructure and make it a better, more profitable business over time," Telsey Advisory Group analyst Joseph Feldman said.
Dollar Tree's executive chairman Richard Dreiling took on the chief executive role on Jan. 29, nearly a year after the group agreed to revamp its board in a settlement with activist investor Mantle Ridge.
The company's shares were up about 3% after better-than-expected fourth-quarter results.