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Inflation is driving Americans to bargain stores

NEW YORK (AP) – Dollar Tree and Dollar General reported higher second-quarter sales on Thursday resulting from four-decade high inflation driving more customers to bargain chain stores for everything from lightbulbs to groceries.

Dollar stores tend to sell items in small quantities, allowing low-income customers to buy a little at a time. As with previous recessions, higher-income shoppers are returning to bargain chains to cut spending where they can.

Meanwhile, clothing chain Gap Inc, which operates its namesake chain, Banana Republic, Old Navy and Athleta stores, withdrew its financial forecast for its current fiscal year, citing economic uncertainty and its continued search for a CEO.

Dollar Tree and Dollar General are also grappling with rising costs that are rippling through their supply chains. Profits are being squeezed as shoppers narrow their focus on necessities like groceries, which have more slim profit margins.

Dollar Tree, based in Chesapeake, Virginia, reported second-quarter profits that exceeded expectations though sales were a bit shy of projections. It cut its profit expectations for the year and narrowed its sales projections.

Dollar Tree is still trying to incorporate the Family Dollar business that it acquired in 2015.

A clerk brings in a shopping basket at a Dollar Tree store in Richland, Mississippi. PHOTO: AP

“Inflation is at its highest in decades as shoppers are experiencing higher costs related to food, fuel, rent and more,” the company’s executive chairman Richard Dreiling said on a conference call on Thursday. “Supply chains have been strained and inconsistent. Inventory levels are higher across retail, and consumer shopping patterns continue to zig and zag.”

Dollar Tree Inc reported a second-quarter profit of USD359.9 million or USD1.60 per share for the three-month period ended on July 30. That compares with USD282.4 million, or USD1.23 per share in the year ago period.

Wall Street had projected earnings of USD1.58 per share, according to Zacks Investment Research.

Revenue was USD6.77 billion, which was better than last year, but a sliver short of Wall Street projections.

For the current quarter ending in November, Dollar Tree said it expects revenue in the range of USD6.75 billion to USD6.87 billion. Analysts surveyed by Zacks had expected revenue of USD6.77 billion.

Comparable store net sales for Dollar Tree increased 7.5 per cent. Family Dollar same-store sales increased just two per cent.

The company now expects full-year earnings to be USD7.10 to USD7.40 per share, with revenue ranging from USD27.85 billion to USD28.1 billion. Previously, earnings per share for full-year were expected to be from USD7.80 to USD8.20. Consolidated net sales for the year were projected to range from USD27.76 billion to USD28.14 billion.

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