Dollar Tree Q2 Profit Down on Gas Prices

CHICAGO – Dollar Tree Stores Inc. (DLTR) on Wednesday said quarterly profit declined 8 percent as soaring gasoline price (search) forced customers to cut back on shopping trips, and trimmed its full-year forecast for the second time since February.

The discount retailer said profit fell to $27.3 million, or 25 cents per share, in its fiscal second quarter ended July 30, from $29.6 million, or 26 cents per share, a year earlier.

Its shares initially dipped to a 52-week low before turning positive, rising nearly 2 percent on Nasdaq. Analysts said the lowered forecast was still in line with their expectations, which had come down in recent months amid concerns about soaring energy prices.

On a conference call with analysts, Dollar Tree said it was well-stocked with back-to-school merchandise, adding that a new line of dollar items for teachers was selling particularly well. However, the number of shoppers declined.

"When we get them into the store, they are buying more," Bob Sasser, president and chief executive officer, said on a conference call with analysts.

The most recent earnings-per-share result matched the average analysts expectation. Earlier this month, the company said earnings would likely reach the low end of its forecast of 25 cents to 27 cents.

Quarterly sales rose 9.2 percent to $769.0 million, but sales at stores open more than a year -- a key retail measure known as same-store sales -- fell 1.5 percent.

"While we achieved sales within our most recent guidance, it is evident that our customers continue to feel the strain of rising fuel costs, and they are responding with fewer shopping trips," Sasser said in a statement.

For the full year, Dollar Tree now expects profit ranging from $1.57 to $1.66 per share, down from its May forecast of $1.61 to $1.72. In February, it predicted earnings of $1.77 to $1.87. Analysts, on average, expected full-year profit of $1.65 per share, according to Reuters Estimates.

Discount retailers have been particularly hard hit by soaring fuel prices because they cater to low-income shoppers who are sensitive to rising costs. With gasoline and energy bills gobbling up household budgets, less money was left for discretionary spending.

Wal-Mart Stores Inc. (WMT) warned earlier this month that rising oil prices would likely curb consumer spending.

Sasser said the company was increasing its assortment of items not traditionally found at dollar stores, including photo paper and ink for printing pictures from digital cameras. Those items were selling very well, he said.

The retailer said the recent revaluation of the Chinese yuan (search) was having very little effect on its business. The company estimated the higher currency would increase the cost of goods by about 1 cent per item, but that would be offset by suppliers' ability to buy raw materials with a stronger currency.

Shares of Dollar Tree were up 43 cents at $23.51.