Shoplifting, or “shrink,” as the industry refers to it, is a rising issue in the retail sector, and Dollar Tree (DLTR) announced Thursday that it is taking action to stop it.
The bargain retailer’s shares dropped more than 12% on Thursday as a result of weaker-than-anticipated financial results and declining gross margins as a result of a change in consumer spending towards consumables and “elevated shrink.”
The Gross Margins of the company are below expectations
Sadly, the shrink headwinds we’re experiencing are currently muddling our margins, Dollar Tree CFO Jeff Davis said on the earnings call on Thursday. The company’s gross margins for the most recent quarter were 29.2%, below the consensus estimate of 29.7% and down 220 basis points from the same quarter a year earlier.
The quarterly profit at Dollar Tree, which came to $0.91 per share, was higher than expected ($0.87 per share). However, the company’s third-quarter earnings prediction fell short of expectations, with $0.94 to $1.09 per share expected in the current quarter rather than the $1.29 Wall Street was anticipating. The second quarter’s revenue of $7.32 billion, which beat projections of $7.21 billion, increased by more than 8% over the same period a year earlier.
The bottom line of Dollar Tree is also being impacted by an unfavorable sales mix as consumers continue to spend more on lower-margin perishables. People are shifting more towards consumables, as you can see in the retail scene, and we’re not exempt from that, according to Davis. During the results call, Rick Dreiling, CEO of Dollar Tree, stated, “We are now taking a very defensive approach to shrink.” “I see no difficulty in achieving more realistic margin levels.”
Implement anti-theft measures
In response, the business plans to implement anti-theft measures, such as placing some items behind the checkout counter and getting rid of some SKUs entirely. We have a number of new shrink formats that we’ll roll out in the second half of the year, Dreiling added.
And it involves everything, including relocating certain SKUs to the check stand’s back. It is connected to some cases being sequestered. And even to the point where some retailers simply discontinue a given SKU because they are unable to keep it on the shelf. Therefore, a lot of things that are in the works will move forward.
This quarter, theft has been more prevalent throughout the retail sector, with well-known stores including Target (TGT), Home Depot (HD), and Walmart (WMT) all citing pressures from shrink. When CFO Navdeep Gupta stated earlier this week that “the number of instances and the impact of organized retail crime came in much higher than we anticipated.