Just over a year after buying Family Dollar, Dollar Tree said sales are up, but the retailer is feeling the pinch from lower customer traffic in its established stores.
The company reported second-quarter profit and revenue that missed Wall Street expectations, sending its shares plunging nearly 7.6 percent in pre-market trading Thursday.
It’s a shift from earlier this year, when discount chains showed their strength against other retailers like department stores, which have been beset by competition from e-commerce and changing customer habits.
Still, Dollar Tree, based in Virginia, voiced optimism about its integration of Family Dollar. As part of that merging, the company recently announced it is cutting 370 jobs at Family Dollar’s headquarters in suburban Charlotte.
“[Family Dollar] stores are cleaner, the values are greater and our merchandise assortments are improving. Additionally, we are taking the necessary steps to develop our shared services support model, and are continuing our focus on cost-related synergy capture,” CEO Bob Sasser said in a statement.
Also part of the integration, the company said it opened 47 former Family Dollar store locations as new Dollar Tree stores.
Dollar Tree said that sales at stores open at least a year — a key metric to gauge the health of a retailer — rose 1.2 percent, compared with 2.7 percent in the same quarter last year. Analysts had expected a rise of 2.6 percent, according to a consensus estimate from Consensus Metrix.
“Despite what has proven to be an increasingly difficult retail environment across many retail sectors, we remain aggressive buyers of DLTR given our expectation for further Family Dollar margin improvements and cost synergies which should start to build in,” RBC Capital Markets analyst Scot Ciccarelli said in a research note.