(Reuters) - Discount store operator Dollar Tree Inc (DLTR.O) on Wednesday reported disappointing holiday-quarter sales and issued a full-year profit forecast that was below expectations, as it spends more, sending its shares down as much as 16 percent.
Driver shortages in the trucking industry coupled with rising wages for hourly retail workers in a tight labor market, have increased costs for brick-and-mortar retail chains, which are already pouring a lot of money into their online business.
Focusing on customer service as a tool to one-up Amazon.com Inc (AMZN.O) has also forced many retailers to pay hourly workers higher wages or dole out bonuses, denting profits further.
Dollar Tree said it would spend $100 million of the benefit from a new corporate tax law to raise wages of hourly workers, give them more work hours and offer paid maternity leave for some employees, joining similar moves made by Walmart Inc (WMT.N) and Target Corp (TGT.N).
But as a result, rising wage actions and freight costs would hurt full-year profits by $68 million, the company said on a call.
“We expect continued pressure on store payroll based on state’s increasing minimum wages and general average hourly rate increases. We have budgeted higher freight costs and diesel costs than a year ago,” Chief Financial Officer Kevin Wampler said on a post-earnings call.
For the full-year, Dollar Tree expects a profit of $5.25 to $5.60 per share, much lower than the average analysts’ estimate of $5.90 per share, according to Thomson Reuters I/B/E/S.
The Chesapeake, Virginia-based company also reported same-store sales for the key holiday season that missed estimates, as shoppers did not spend as much as expected at its stores.
Analysts had expected sales to get a boost from the pay rises and one-off bonus payments that many companies have given to blue collar workers — Dollar Tree’s core customers — as a result of windfalls from changes to U.S. corporate tax rates.
The company’s results come a week after biggest rival Walmart Inc (WMT.N) reported a sharp drop in profit and online sales growth during the holiday period.
Net income more than tripled to $1.04 billion, or $4.37 per share, in the fourth quarter ended Feb. 3, mainly due to a $583.7 million benefit from changes in the U.S. tax code.
Excluding items, Dollar Tree earned $1.89 per share, while net sales rose 13 percent to $6.36 billion, both missing estimates.
Reporting by Nivedita Balu in Bengaluru; Editing by Saumyadeb Chakrabarty and Shounak Dasgupta