A man enters a Dollar Tree discount store in Garden City, New York.
Shannon Stapleton | Reuters
When a chartered ship for Dollar Tree arrived in China to load goods, a single crew member’s positive Covid-19 test forced the ship to turn back. The trip was delayed by two months.
CEO Mike Witynski shared this story and other shipping problems during a phone call on Thursday. He spoke bluntly about supply chain confusion and labor shortages. And he said they made it harder for the retailer, who sells most of their items for a dollar. And they are expected to continue into next year.
“The Dollar Tree banner is more freight sensitive than others in the industry,” he said.
Dollar Tree said Thursday that rising freight costs will push its earnings $ 1.50 to $ 1.60 per share – more than double the 60 cents forecast in May to 65 cents. Estimated earnings per share for the fiscal year will be between $ 5.40 and $ 5.60, which was lower than analysts expected.
The company’s shares closed 12.08% to $ 93.48 on Thursday.
Deep discounters are feeling the pain as Covid outbreaks and congested ports drive up the cost of shipping goods around the world. Retailers like Dick’s Sporting Goods, Best Buy and Williams-Sonoma reported higher profits this week. These companies found that fewer promotions didn’t dampen their customers’ willingness to buy. Some said they pay more to move goods quickly – such as flying goods on airplanes – and buyers are still buying.
However, at low cost retailers, buyers cannot afford to pay more or will walk away if the item doesn’t look like a bargain. This puts retailers in a bind as they have to decide when to raise prices and when to absorb higher costs.
“I would tell you that we have been very careful with the price disclosure because we know our core customer cannot afford a lot of price increases,” said Todd Vasos, CEO of Dollar General, on a conference call on Thursday.
Shares in the rival dollar store chain closed 3.77% to $ 225.90 on Thursday.
The off-price retailers – who also appeal to price-conscious shoppers – all fell on Thursday. Ross Stores, TJ Maxx and Burlington Stores closed about 4%, 3% and 9%, respectively, early Thursday afternoon. Nordstrom, which also includes Nordstrom Rack, closed about 8%.
Some have detailed how to deal with the headwind.
Dollar General’s Vasos said the retailer is negotiating with vendors and has swapped some items for similar ones over the past few quarters to keep prices down.
Dollar Tree’s Witynski said the retailer had reserved its own spot on charter ships for the first time – including signing a three-year contract for a large ship. More U.S. goods were being purchased, so the Dollar Tree and Family Dollar stores were well stocked for the back-to-school season. And it prioritizes shipping containers depending on which goods are in season or in demand.
It will also continue to order seasonal purchases 30 days earlier than usual and monitor shipping availability in ports in China and the US
In the conference call, the company’s executives pointed to the predictions of industry experts that capacities for maritime shipping will normalize by 2023 at the latest, as more ships become available.
However, CFO Kevin Wampler admitted the rapidly changing environment during the pandemic – and said it made it difficult to estimate future freight costs.
“There could be another Covid outbreak,” he said. “There could be a lot of different things that could affect this. I think you have to keep in mind that it is probably the most dynamic thing we have ever seen in relation to this market. “
– CNBC’s Robert Hum contributed to this report.
