A man walks into a Dollar Tree discount store in Garden City, New York.
Shannon Stapleton | Reuters
When a ship chartered by Dollar Tree arrived in China to load goods, the positive test of a single member of the Covid-19 crew forced the ship to turn around. The trip was delayed two months.
CEO Mike Witynski shared this story and other shipping issues in a earnings call Thursday. He spoke bluntly about supply chain savings and labor shortages. And he said they have made it harder for the retailer, which sells most of its items for a dollar. And they are expected to continue next year.
“The Dollar Tree banner is more sensitive to transportation costs than others in the industry,” he said.
Dollar Tree said Thursday that rising transportation costs would reduce its profits by $ 1.50 to $ 1.60 per share, more than double the 60 cents to 65 cents it had projected in May. Earnings per share are estimated to range from $ 5.40 to $ 5.60 for the fiscal year, which was lower than analysts expected.
Shares of the company fell 12% on Thursday.
Deep discounts feel the pain as Covid outbreaks and congested ports increase the cost of moving goods around the world. Distributors such as Dick’s Sporting Articles, Best Buy and Williams-Sonoma reported higher profits this week. These companies found that fewer promotions did not diminish their customers ’willingness to spend. Some said they paid more to move the merchandise quickly, such as flying in merchandise on airplanes, and buyers still buy.
However, at low cost retailers, buyers cannot afford to pay more or they will leave if the item does not look like a bargain. This jeopardizes retailers as they have to choose when to raise prices and when to absorb the higher costs.
“I would tell you that we’ve been very thoughtful when it comes to passing prices because we know our main customer can take on a lot of price increases badly,” Dollar General Manager Todd Vasos said in a earnings call from Thursday.
Shares of the chain store in rival dollars fell 4% on Thursday afternoon.
Out-of-price retailers, who also cater to price-sensitive buyers, also traded lower on Thursday. Ross Stores, TJ Maxx and Burlington Stores fell about 4%, 2% and 9%, respectively, on Thursday afternoon. Nordstrom, which includes Nordstrom Rack, fell nearly 7%.
Gap, which considers Old Navy low-priced retailer as its largest division, fell about 5%.
Some have detailed how they are managed through headwinds.
Vasos, of Dollar General, said the retailer is negotiating with sellers and has exchanged some items for similar items in recent quarters to keep prices low.
Witynski of Dollar Tree said the retailer has reserved space dedicated to charter vessels for the first time, including signing a three-year contract for a large vessel. He bought more products from the United States, so the Dollar Tree and Family Dollar stores were well stocked for the back-to-school season. And prioritize shipping containers, depending on the merchandise that is in season or in demand.
In addition, he said, he will continue to order seasonal purchases 30 days earlier than usual and monitor the availability of shipments to ports in China and the United States.
During the call, company executives noted industry experts ’predictions that shipping capacity would normalize by 2023 at the latest, as more ships become available.
Still, CFO Kevin Wampler acknowledged the rapidly changing environment during the pandemic and said it makes it difficult to estimate future transportation costs.
“There could be another outbreak of Covid,” he said. “There could be a lot of different things that could affect it. I think we need to think about the fact that it’s probably the most dynamic we’ve ever seen in relation to this market.”
—CNBC Robert Hum has contributed to this report.