By Granth Vanaik
(Reuters) -Dollar Tree trimmed its annual sales forecast on Wednesday after missing third-quarter estimates and said it was reviewing its Family Dollar business, as the retailer grapples with customers paring back on discretionary spending.
The company said it was identifying potential stores for closures as part of its review process, which would take several months.
CEO Richard Dreiling said customers at its Family Dollar stores have been especially pressured given higher food prices and borrowing costs. Lower-income customers notably pulled back spending on higher-margin discretionary categories, he added.
Several U.S. retailers including Walmart (NYSE:WMT), Best Buy (NYSE:BBY) and Lowe's (NYSE:LOW) have also sounded caution in recent weeks about spending during the crucial holiday season.
"There's probably some more incremental pressure with the Family Dollar business," said Telsey Advisory Group's Joseph Feldman, adding there is more work to do at that banner given it has multiple price points in comparison to the core Dollar Tree (NASDAQ:DLTR) business.
For the quarter, Family Dollar posted same-store sales of 2%, compared with expectations of 4.07%. In contrast, the Dollar Tree banner posted a 5.4% growth.
Dollar Tree's gross margins were down 20 basis points at 29.7% as it saw higher wages and raw material expenses. It has also been struggling with elevated retail shrink, where inventory is either lost, damaged or stolen.
The discount-store chain also said it expected shrink trends to remain unfavorable in the fourth quarter.
The company now expects fiscal 2023 consolidated net sales to be between $30.5 billion and $30.7 billion, compared with a prior estimate of $30.6 billion to $30.9 billion.
It also expects annual profit to be between $5.81 and $6.01 per share, compared with its prior outlook of between $5.78 and $6.08. Analysts expect a profit of $5.97 per share.
Shares of the company, which have fallen about 18% this year, were up 4% in early trading.