Dollar Tree shares fall as US-China trade war dents profit forecasts

Shares in Dollar Tree tumbled on Tuesday after the discount retailer cut its forecasts for the crucial holiday season.

Updating on the third quarter, the US retailer said both its brands – Dollar Tree and Family Dollar – had seen “solid sales” in the 13 weeks to 2 November, with consolidated net sales ahead 3.7% at $5.75bn.

However, operating income fell to $358.4m from $387.8m, while earnings per share excluding one-off items came in below analysts' estimates at $1.08, compared to $1.18 in the second quarter.

The retailer also scaled back expectations for the fourth quarter, which includes the key holiday shopping season, primarily because of the latest hike on tariffs on Chinese imports. Dollar Tree said the higher tariffs would increase its cost of goods by $19m or $0.06 per diluted share in the fourth quarter if they were fully implemented. The increasingly bitter trade war between Washington and Beijing has hit retailers particularly hard, as they source so much product from China.

It continued: “The company now estimates consolidated net sales for the fourth quarter will range from $6.33bn to $6.44bn, based on a low single-digit increase in same store sales for the enterprise. Diluted EPS for the quarter, including tariff costs, are estimated to be in the range of $1.70 to $1.80.”

Analysts had been hoping for fourth-quarter EPS of around $2.00. By 1400 GMT shares in Dollar Tree had lost 13% before the bell.

Chief executive and president Gary Philbin said: “Fiscal 2019 has been a unique year as the result of several factors: the material acceleration in our Family Dollar store optimisation initiatives, the consolidation of our two store support centres into southeast Virginia, the global helium shortage and the continued uncertainty regarding trade and related tariffs.

“Our teams are well prepared for the holiday season and closing out an important year. We believe we have built a strong foundation to enhance our ability to grow and improve our business to deliver long-term value to our shareholders.”