Dollar Tree Inc. may up its prices in some areas because of theft, according to the discount retailer’s CFO.
While speaking to analysts and investors on Thursday morning, CFO Jeff Davis said Dollar Tree expects to “improve our performance on shrink through defensive merchandising efforts, real estate optimization, and perhaps higher prices to compensate for areas of systematically higher shrink” over time.
“Shrink” typically means theft and other inventory losses in the retail industry.
He also said that the company, which put out its first-quarter earnings, anticipates that its “mix of discretionary will normalize” over time, too.
Dollar Tree said Thursday that it projects its diluted earnings per share for the fiscal year will end up in the $5.73 to $6.13 range, an adjustment the retailer attributed to its expectation for the elevated shrink and the mix shift toward consumables to continue through the rest of the year.
Those figures also accounted for an “expected benefit of $0.29 contribution from the 53rd week and the $0.12 charge for the legal reserve,” according to the earnings release.
Its fiscal 2023 outlook also included an expected range of $30 to 30.5 billion for consolidated net sales and a “low- to mid-single-digital comparable stores sales increase.”
“While we modestly raised the midpoint of our topline guidance, we are incrementally more cautious on our margin outlook given the growing industry-wide challenges of accelerating shrink, the unfavorable shift in sales mix, and their impact on our near-term profitability,” Davis said on the call. “Since the beginning of the fiscal year, the impact of these two factors on our financial results has intensified.”
Dollar Tree expected the “combined and continuing full-year earnings impact of unfavorable consumables mix and higher shrink is expected to be approximately $0.55 per share in 2023,” according to the CFO.
Davis noted later in the call that the increase in theft Dollar Tree was observing was taking place “across all shrink classes.”
He also said that other retailers have similarly been facing higher levels of theft. Dollar Tree, he added, was taking “all the appropriate steps” to mitigate it.
CEO Rick Dreiling told listeners that he believed the consumables shift and shrink impact would be temporary.
“I do think if we are being realistic here, this consumables shift and this shrink impact are transitory,” he said. “I do not believe we’re going to be living with them forever, and that is all accretive to what we’re doing.”
Dollar Tree’s approach to shrinking is “multi-faceted,” according to company executives on the call. Davis said that the company has “introduced some new technologies within the store of how we monitor and alert” and is working with local law enforcement, as well as other measures, to combat shrink.
The discount retailer’s revenue saw a 6% lift year-over-year in the first quarter, hitting $7.32 billion.
Meanwhile, net income for the three-month period went from $536.4 million to $299 million, a plunge of 44%.
The price of Dollar Tree shares has experienced a steep drop of over 10% from where it was at the beginning of the day.