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According to the discount retailer’s CFO, Dollar Tree Inc. could increase its prices due to theft in some areas.
Speaking to analysts and investors Thursday morning, CFO Jeff Davis said Dollar Tree expects over time to “improve our shrinkage performance through defensive merchandising efforts, property optimization and potentially higher pricing to offset areas of systematically higher shrinkage.” . “Shrinkage” in retail is typically understood to mean theft and other inventory losses.
He also said the company, which released its first-quarter results, expects its “mix of discretionary businesses to normalize over time,” too.
A Dollar Tree store in Streator, Illinois, on October 15, 2022. ((Photo by Beata Zawrzel/NurPhoto via Getty Images) / Getty Images)
Dollar Tree announced Thursday that diluted earnings per share for the fiscal year are expected to be between $5.73 and $6.13. The retailer attributed this adjustment to its expectation that the sharper decline and mix shift towards consumer staples will continue through the remainder of the year. Those numbers also explained an “expected benefit of $0.29 contribution beginning at week 53 and the $0.12 statutory reserve fee,” according to the earnings release.
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Its outlook for fiscal 2023 also included an expected range of $30 billion to $30.5 billion for consolidated net sales and “low to mid sales growth at comparable retail locations.”
“While we have slightly raised the midpoint of our revenue guidance, we are becoming increasingly cautious about our margin outlook given the growing industry-wide challenges of accelerated shrinkage, the unfavorable shift in revenue mix and its impact on our near-term profitability,” Davis said on the call. “Since the beginning of the fiscal year, the impact of these two factors on our financial results has increased.”
Dollar Tree sign in Streator, Illinois, United States. ((Photo by Beata Zawrzel/NurPhoto via Getty Images) / Getty Images)
Dollar Tree estimated that “the combined and ongoing full-year impact of the unfavorable consumable mix and higher decline in 2023 will be approximately $0.55 per share,” according to the CFO.
Davis later pointed out in the call that the increase in thefts observed by Dollar Tree was “across all contraction classes.”
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He also said other retailers were similarly facing higher levels of theft. Dollar Tree, he added, is taking “all appropriate steps” to mitigate the problem.
CEO Rick Dreiling told the audience that he believed the shift and shrinkage in consumables would only be temporary.
“I think if we’re being realistic here, this shift in consumables and these shrinkage effects are temporary,” he said. “I don’t think we’re going to live with them forever and that’s all beneficial to what we do.”
A woman shops at the Dollar Tree store in Alhambra, California, on December 10, 2021, which now has $1.25 price tags on its shelves. (Photo by FREDERIC J. BROWN/AFP via Getty Images / Getty Images)
Dollar Tree’s downsizing approach is “multifaceted,” the company’s executives said on the conference call. Davis said the company has “rolled out some new in-store monitoring and alerting technology” and is working with local law enforcement and others to combat shrinkage.
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The discount retailer’s first-quarter sales rose 6% year over year to reach $7.32 billion. Meanwhile, net income for the three-month period rose to $299 million from $536.4 million, down 44%.
Dollar Tree shares are down over 10% from the start of the day.
|DLTR||DOLLAR TREE INC.||136.66||-18.69||-12.03%|