Dollar Tree shares tank 15% after discount retailer cuts forecast, blaming tariffs

Gary Philbin, CEO, Dollar Tree

Scott Mlyn | CNBC

Dollar Tree just signaled for a disappointing holiday earnings quarter thanks to U.S.-China trade war tariffs, sending its shares cratering on Tuesday.

The discount retailer said the tariffs slapped on Chinese imports will add $19 million, or 6 cents per share, to its costs of goods for the fourth quarter of 2019.

The company now sees fourth quarter earnings per share in a range between $1.70 and $1.80. This is well below analysts expectations of $2.02 per share, according to Refinitiv.

"The decrease from prior implied fourth quarter guidance represents the expected effects of...the continued uncertainty regarding trade and the related tariffs," the company said in a release.

As a part of a prolonged trade war, the U.S. and China have engaged in a tit-for-tat tariff conflct for over a year. These tariffs have pressured retailers with large amounts of imported goods from China. It is yet unclear if both sides will reach a compromise before Dec. 15, when new U.S. tariffs on Chinese goods are set to kick in.

"We are moving some product out of China, we're sourcing to elsewhere, we are redesigning product," Gary Philbin, Dollar Tree's CEO, told CNBC's "Squawk on the Street" on Tuesday.

Philbin said Dollar Tree's products focus on "value." The retailer doesn't always promise the same products, but it promises a good value. The company needs to meet face to face with vendors in order to negotiate lower costs, which Philbin says takes time.

The company forecasts fourth-quarter sales in the range of $6.33 billion to $6.44 billion. Analysts are expecting sales of $6.41 billion, according to Refinitiv.

Shares of Dollar Tree tanked more than 15% on Tuesday.

Dollar Tree said additional pressure is coming from "lower-margin consumables growing faster than originally forecasted, payroll cost pressure in distribution centers, and increased run rates for repairs and maintenance, utilities and depreciation."

For full-year 2019, Dollar Tree estimates earnings in a range between $4.66 and $4.76 per share, lower than its previous estimates of between $4.90 and $5.11 per share.

In addition to the disappointing guidance, Dollar Tree missed Wall Street's expectations for its fiscal third-quarter earnings. The discount retailer reported profit per share of $1.08, lower than the $1.13 per share forecast by analysts, according to Refinitiv. Revenue was $56.746 billion, slightly higher than the $5.742 billion estimated.

Same-store sales for the third quarter were in line with estimates with growth of 2.5%.

Shares of Dollar Tree were up about 25% year to date through Monday's close.

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