Shares of Dollar Tree and Dollar General have plunged during the trading session on Thursday as discount retailers issued new warnings regarding the threat of ongoing supply chain disruptions.
Dollar Tree said in its second quarter earnings report that freight costs for fiscal year 2021 are now expected to be $1.50 to $1.60 per diluted share higher than fiscal year 2020. According to its revised first quarter outlook, the company expects an additional 60 to 65 cents per diluted share, or $185 million to $200 million, in freight costs after its revised full-year strategy in May.
Dollar Tree forecast its regular ocean carriers would fulfill approximately 85% of their contractual commitments in the first quarter. That estimate has now been lowered to between 60 to 65% of their commitments. In addition, Dollar Tree noted that the spot market rates for ocean freight from China have continued to increase from all-time highs, trending more than 20% since its last earnings report in May.
The Company expects continued volatility with respect to the ocean carriers ability to satisfy contractual commitments, the retailer said in its second quarter earnings release on Thursday. The Dollar Tree banner is highly sensitive to freight costs and while the Company does not expect these conditions to be permanent, it continues to undertake steps to mitigate the impact from freight and otherwise improve gross merchandise margin.
For full year fiscal 2021, Dollar Tree expects net sales in the range of $26.19 billion to $26.44 billion based on a single-digit increase in same-store sales and 3.4% square footage growth as well as diluted earnings per share in the range of $5.40 to $5.60.
For the third quarter, the company expects net sales in the range of $6.40 billion to $6.52 billion based on a single-digit low figure increase in same-store sales for the combined business unit. Diluted earnings per share are estimated to be in the range of 88 cents to 98 cents.
In addition to an expected increase in transportation and distribution costs, Dollar General warned factors such as further disruptions of the global supply chain and the ongoing impact of COVID - 19 Pandemic, including delta variant, are headwinds that could cause uncertainty for the company's outlook for fiscal 2021.
For the full year, Dollar General expects net sales growth between 0.5% to 1.5% compared with prior guidance of a 1% decline to an increase of 1%. Same-store sales are expected to decline 3.5% - 2.5%, compared to the previous estimated decline of 5% to 3%. Diluted earnings per share are now expected to be between $9.60 and $10.20, compared to the previous estimate of $9.50 to $10.20.
In addition the company reiterated plans to execute 2,900 real estate projects in fiscal year 2021, including 1,050 new store openings, 1,750 new store remodelling and 100 store relocations.
Dollar General's capital expenditures, including those related to investments in its strategic initiatives, are expected to be in the range of $1.1 billion to $1.2 billion compared to its previous guidance of $1.05 billion to $1.15 billion
Dollar Tree recorded net income of $282.4 million and diluted earnings per share of $1.23, up from $261.5 million and $1.10 diluted earnings per share a year ago. Revenue came in at $6.34 billion, compared to 6.27 billion revenue a year ago. Net sales increased 1% to $6.34 billion from $6.28 billion in the second quarter of the prior year.
As for Dollar General, the company's net income was decreased 19% to $637 million, compared to $787.6 million a year ago, and diluted earnings saw decrease 13.8% to $2.69, compared to diluted EPS of $3.12 a year ago. Net sales decreased 0.4% in the second quarter of 2021 to $8.7 billion compared to $8.7 billion in the second quarter of 2020.
Dollar General shares are down more than 9% at the time of publication, while Dollar Tree shares are down more than 6%.