U.S. dollar stores warn of tariff hit after reporting upbeat sales

(Reuters) - Two of America’s largest dollar store chains warned on Thursday that rising tariffs due to escalating trade tensions between Washington and Beijing would hit U.S. shoppers, after reporting strong quarterly sales that sent their shares up about 6%.

FILE PHOTO: A customer walks out of a Dollar Tree discount store in Austin, Texas, U.S., February 27, 2017. REUTERS/Mohammad Khursheed/File Photo

Executives from both Dollar Tree and Dollar General fielded questions related to tariffs from analysts on their post-earnings call and said increasing the levies would impact their businesses and consumers.

Several retailers including Walmart Inc, Best Buy, Macy’s and Ralph Lauren have also said that rising tariffs could impact their results this year.

While Dollar General said it expects increased tariffs to lead to higher prices even though it was working with vendors to mitigate the impact, Dollar Tree did not elaborate on the impact of additional levies on its consumers and business.

“Even with these efforts, we believe our shoppers will be facing higher prices as 2019 progress,” Dollar General Chief Financial Officer John Garratt said on the call.

Washington dramatically escalated its trade war with Beijing this month by hiking levies on $200 billion of Chinese goods from 10% to 25% and U.S. President Donald Trump also threatened new tariffs on remaining $300 billion worth U.S. imports from China.

Both companies included the impact of the current tariffs in their full-year forecast.

Dollar General reported better-than-expected results and stuck to its full-year forecast to account for already announced tariffs.

Dollar Tree on the other hand cut its full-year earnings forecast to between $4.77 and $5.07 per share to include a 10- cent hit from store closures and a 5-cent impact from import freight costs.

It had earlier forecast full-year earnings in the range of $4.85 to $5.25 per share.

The companies, however, reported better-than-expected quarterly same-store sales growth as they drew in more customers, benefiting from remodeling stores and stocking more private label products.

Dollar General said it would open 975 stores in 2019 and remodel 1,000 outlets with upgrades, including self-checkout lanes for shoppers who can just scan products and pay through the store app on their phones.

Dollar Tree results also got a boost from a turnaround at its struggling Family Dollar brand. Same-store sales for the brand rose 1.9% in the first quarter, the best growth in two years, beating analysts estimates of a 1.1% rise, according to IBES data from Refinitiv.

The company is in the process of revamping 1,000 Family Dollar stores with improved merchandise, including $1 items and adding coolers and alcohol to some of its stores.

“The steps being taken to improve performance at Family Dollar appear to be working,” managing director of GlobalData Retail Neil Saunders said.

Reporting by Soundarya J in Bengaluru; Editing by Anil D’Silva and Sweta Singh