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Dollar Tree adding locked cases, removing items from stores amid rising theft costs

Dollar Tree (DLTR) said Thursday it is taking steps to combat a growing problem across the retail space: shoplifting, or "shrink" as the industry calls it.

The value retailer's stock sank more than 12% on Thursday after posting a weaker-than-expected forecast and a decline in gross margins due a customer shift towards consumables and "elevated shrink."

"Unfortunately, the headwinds we're having in shrink are muting our margins right now," Dollar Tree CFO Jeff Davis told analysts during the earnings call on Thursday.

The company's gross margins of 29.2% in its latest quarter declined 220 basis points from the same period last year and were shy of consensus expectations for 29.7%.

Dollar Tree's quarterly profit of $0.91 per share beat estimates for earnings per share of $0.87. However, its third quarter earnings forecast fell shy of expectations, with the company expecting to earn $0.94-$1.09 per share in the current quarter, below the $1.29 Wall Street was expecting.

Revenue for the second quarter of $7.32 billion grew more than 8% compared to a year ago and came in above estimates of $7.21 billion.

An unfavorable sales mix as customers continue to spend more on lower-margin perishables is also impacting Dollar Tree's bottom line. "You see across the retail landscape, people are moving more into consumables and we're not immune to that," said Davis.

"We are now taking a very defensive approach to shrink," Rick Dreiling, CEO of Dollar Tree, said during the earnings call. "I do not see any trouble to getting to more realistic margin levels."

In response, the company plans to introduce anti-theft initiatives including moving certain items behind the checkout stand and removing some SKUs altogether.

Household products made by Procter & Gamble Co are seen on shelves at a Dollar Tree in Newburgh, New York, U.S., May 14, 2023. REUTERS/Jessica DiNapoli
Household products made by Procter & Gamble Co. are seen on shelves at a Dollar Tree in Newburgh, New York, May 14, 2023. (Jessica DiNapoli/REUTERS) (Jessica DiNapoli / reuters)

"It's taken us a quarter, but we have several new shrink formats that we'll introduce in the back half of the year," Dreiling said.

"And it goes everything from moving certain SKUs to behind the check stand. It has to do with some cases being locked up. And even to the point where we have some stores that can't keep a certain SKU on the shelf just discontinuing the item. So we have a lot of things in the works that [are] going to roll forward."

Theft has been a growing problem across the retail industry this quarter, with big name retailers like Target (TGT), Home Depot (HD), and Walmart (WMT) all calling out pressures from shrink.

Earlier this week, Dick's Sporting Goods stock tanked 20% after CFO Navdeep Gupta said "the number of incidents and the organized retail crime impact came in significantly higher than we anticipated, and that impacted our Q2 results."

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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