Dollar Tree trims profit forecast on price cuts at Family Dollar

© Reuters. FILE PHOTO: A view of a Dollar Tree store in Washington, U.S., June 1, 2021. REUTERS/Erin Scott/File Photo GLOBAL BUSINESS WEEK AHEAD

By Deborah Mary Sophia

(Reuters) -Dollar Tree Inc trimmed its full-year profit forecast on Thursday, blaming price cuts at its Family Dollar stores in an effort to spur demand among lower-income shoppers and compete with other retailers that have been ramping up discounts.

Chesapeake, Virginia-based Dollar Tree (NASDAQ:DLTR)'s shares, which have gained about 18% this year, fell more than 11% in early trading.

Elevated inventory levels at Walmart (NYSE:WMT) Inc and Target Corp (NYSE:TGT) due to inflation-hit consumers cutting back on discretionary purchases have forced the retail chains to clear excess stocks by offering deep discounts.

That has limited the number of customers trading down from traditional retailers to off-price stores, analysts said.

Dollar Tree cut its fiscal 2022 profit forecast to between $7.10 and $7.40 per share, from $7.80 to $8.20.

The downbeat forecast also pressured shares of rival Dollar General Corp (NYSE:DG), which on Thursday raised its annual sales forecast as it benefits from a greater assortment of groceries and other essential products.

While Dollar General saw more consumers shop at its stores, analysts pointed out that the inflation pinch felt by Family Dollar's slightly lower-income cohort of consumers is now underscoring its own shortcomings over the years.

"(Family Dollar) stores didn't look as good, their assortment wasn't as strong as Dollar General and their prices were higher ... Family Dollar has been playing catch-up with Dollar General for many, many years," Telsey Advisory Group analyst Joe Feldman said.

On Thursday, Dollar Tree also named former Walmart executive Jeffrey Davis as its chief financial officer, replacing longtime executive Kevin Wampler.

Dollar Tree's total same-store sales rose 4.9% in the second quarter, compared with analysts' estimates for an about 5% increase, according to Refinitiv IBES, while its profit of $1.60 per share edged past expectations for $1.59.