Discount Stores Take A Tumble As Market Shrinks

On Thursday, Dollar Tree (NASDAQ: DLTR) shares fell nearly 8 percent in early morning trading after the company released its fiscal second quarter earnings report.

Dollar Tree (NASDAQ: DLTR) showed an increase in net sales by 66 percent to reach $5 billion in the second quarter. In fact, the company did so well it managed to acquire the much larger discount chain rival Family Dollar, last year.

Even though the discount chain reported an increase of 1.2 percent in same store sales—a key metric, of course, in evaluating retail success—the numbers were still lower than the 2.7 percent increase over the same period last year. Slow sales, of course, has resulted in the chain having to lower net sales expectations for the year from a range of $20.79 and $21.08 billion to $20.69 and $20.87 billion.

Dollar General (NYSE: DG) —another discount chain—also reported lower than expected quarterly results. Similarly, its net income rose to $306.52 million, or $1.08 per share, through the fiscal second quarter, which ended July 29. This is up from $282.35 million—or 95 cents per share—over a year earlier. By close of day, Wednesday, Dollar General (NYSE: DG) shares had risen 28 percent on the year, reaching $91.79 by the final bell.

Some experts speculate that SNAP criteria changing in a handful of states, since April, might be the culprit. “SNAP,” of course, is the Supplemental Nutrition Assistance Program (previously known as “food stamps”), now making several thousand households ineligible to receive benefits. Apparently, though, food costs are dropping too (which also cuts into sales).

“Retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger-than-expected headwinds to our business,” warrants Dollar General Chief Executive Todd Vasos. “The competitive environment also intensified in select regions of the country.”

As such, the company reports that higher customer traffic and average register ticket price has, overall, contributed to positive same-store sales growth. However, the company also cut its selling and general and administrative expenses ratio from 24.3 percent down to 23.1 percent.

“Through what continues to be a challenging retail sales environment, we delivered gross margin improvement and managed expenses effectively to deliver earnings at the top end of our guidance range,” Chief Executive Officer Bob Sasser said. “In our Dollar Tree segment, we improved our operating margin and delivered our 34th consecutive quarter of positive same-store sales.”

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