Dollar Tree shares fell 7.2% to $88.10 in premarket trading. The company sells everything from kitchen goods to cosmetics for low prices.
The Chesapeake, Va.-based bargain shop operator reported second-quarter results Thursday. It lowered its sales outlook for the full fiscal year of 2016 due to a "low single-digit increase in same-store sales." The company now expects consolidated net sales of between $20.69 billion and $20.87 billion, compared with its previous guidance of $20.79 billion and $21.08 billion.
The lowered outlook comes even though Dollar Tree turned around to a profit in the second quarter, thanks to a sales surge following an acquisition and as more customers visited the store and spent more.
In the three months to July 30, Dollar Tree saw a bottom-line turnaround to a profit of $170.2 million from a loss of $98.0 million. This reflects a 65.9% surge in sales to $5.0 billion from $3.01 billion following the acquisition of Family Dollar and a same-store sales increase of 1.2%.
Higher customer traffic and average ticket price contributed to positive same-store sales growth, the company said. The company also cut its selling, general and administrative expenses ratio to sales to 23.1% from 24.3%.
"Through what continues to be a challenging retail sales environment, we delivered gross margin improvement and managed expenses effectively to deliver earnings at the top end of our guidance range," Chief Executive Officer Bob Sasser said. "In our Dollar Tree segment, we improved our operating margin and delivered our 34th consecutive quarter of positive same-store sales."
Diluted earnings per share came to 72 cents, slightly below the market consensus of 73 cents. For the full year, the company upped its diluted earnings per share outlook to between $3.67 and $3.82 from between $3.58 and $3.80.