Shares of Dollar Tree fall after company cuts guidance, citing investments in competitive pricing

Shares of Dollar Tree fell Thursday after the company cut its financial outlook for the year, citing its push to offer more competitive prices at its Family Dollar stores.

The move came after the company reported second-quarter earnings that topped Wall Street estimates by a penny, while revenue was essentially in line with expectations. Its shares were down 10% in morning trading.

Shares of rival Dollar General, which reported better-than-expected results, also slid after initially rising.

Dollar Tree CEO Mike Witynski said in a release that the company's second-quarter results reinforce the company's relevance for households pressured by higher costs for food, fuel and rent. He said the company's Family Dollar chain has closed the pricing gap with key competitors, and that its "value proposition is the most competitive it has been in the past ten years."

The company said it made the pricing moves after seeing increased frugality from customers, with Dollar Tree's private brands outpacing national brands. Consumers are shifting from discretionary to necessary consumable products, the company said, and opting out of extra purchases of items like fabric softener.

Witynski said the company's investments in offering more competitive pricing is expected to pressure gross margins in the back half of the year, along with shoppers' growing focus on necessary products.

"We are confident these pricing and other investments will generate very attractive returns over the long term," he said.

For its fiscal 2022, Dollar Tree now expects earning to be in the range of $7.10 to $7.40 per share. It had previously forecast earnings of $7.80 to $8.20 per share. The company also tightened its net sales guidance for the year to a range of $27.85 billion and $28.10 billion. The previous range was $27.76 billion to $28.14 billion.

For the second quarter, Dollar Tree said it earned $1.60 per share, a penny more than Wall Street expected. Its revenue for the period was $6.77 billion, which was essentially in line with estimates for $6.79 billion. Same-store sales rose 7.5%.

Dollar Tree also named Jeffrey A. Davis as its new chief financial officer. Davis previously served as the treasurer of Walmart Stores, chief financial offer of Walmart's U.S. unit and chief financial officer of J. C. Penney.

Dollar General, meanwhile, reported earnings of $2.98 per share and revenue of $9.43 billion. That was better than the earnings of $2.93 per share and revenue of $9.4 billion analysts expected. Same-store sales for the period rose 4.6%.

Dollar General's CEO Todd Vasos was skeptical about Dollar Tree's push to compete on pricing.

"It's not only been a long journey for them, I would say its been even tougher than that," Vasos said in Thursday's earnings call. "We have left our chief competitor completely in the dust, it would take years, years, for them to catch up"

Shares of Dollar General were down less than 1% in morning trading.