Dollar Tree, Dollar General same-store sales disappoint, shares fall

(Reuters) - Two of America’s biggest dollar store chains missed Wall Street estimates for same-store sales as higher household income encouraged customers to shop more at big box retailers and an unusually cold spring weather crimped demand for seasonal products.

FILE PHOTO: A sign is seen outside a Dollar General store in Chicago, Illinois, U.S. May 23, 2016. REUTERS/Jim Young/File Photo

Dollar Tree's DLTR.O shares fell 11.5 percent to $85.29 on Thursday, also pressured by a surprise drop in comparable sales at its struggling Family Dollar unit. Dollar General DG.N fell 8 percent to $88.72.

Colder-than-usual weather in March and April in many parts of the country hit traffic at several U.S. retailers, leaving popular spring clothing items and garden equipment and supplies unsold.

Dollar Tree bought Family Dollar in 2015 to better compete against larger chains such as Walmart Inc WMT.N and Kroger Co KR.N and attract more lower-income customers.

While the deal made the company the top U.S. dollar store chain by stores, it has struggled to turn around Family Dollar amid intensifying competition in the grocery industry with the entry of German discounters Aldi and Lidl.

Adding to the company’s woes, tax refunds, a booming stock market and one-time bonuses have put more money into wallets this year, spurring customers to move to big box chains that offer more choices and have slashed prices, said Neil Saunders, managing director of consultancy GlobalData Retail.

This hit same-store sales at the 8,000 odd Family Dollar stores, which fell 1.1 percent, compared with analysts’ expectation of a 1.45 percent rise, according to Thomson Reuters I/B/E/S. Closer rival Dollar General also faced similar pressure, resulting in a lower-than-expected same-store sales growth of 2.1 percent in the first quarter.

“The canary in the coal mine out of the print is the negative comparable sales out of Family Dollar,” said Gordon Haskett analyst Chuck Grom. “While DG’s softer comparable sales help explain some of the softness ... but such results (from Family Dollar) are becoming more concerning to us.”

Dollar Tree and Dollar General also posted on Thursday earnings per share for the first quarter that missed estimates, hurt in part by higher freight costs.

Both retailers warned freight costs would continue to weigh on full-year profits, with Dollar Tree cutting its forecast. Dollar General, on the other hand, maintained its full-profit forecast.

“(Freight) costs are trending higher than our original guidance,” Dollar Tree Chief Financial Officer Kevin Wampler said.

Dollar Tree cut its annual profit forecast to between $4.80 and $5.10 per share, while Dollar General expects earnings of $5.95-$6.15 per share.

Analysts on average had expected full-year earnings of $5.66 and $6.08 for Dollar Tree and Dollar General, respectively.

Excluding items, Dollar General earned $1.36 per share, falling short of analysts’ expectation of $1.40. Dollar Tree earned $1.19 per share, missing the estimate of $1.23.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sai Sachin Ravikumar and Sriraj Kalluvila