Pennies matter to dollar stores

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A person exits a Dollar Tree store in Washington, U.S., June 1, 2021. REUTERS/Erin Scott

NEW YORK, Aug 26 (Reuters Breakingviews) – Dollar stores can only be so thrifty. On Thursday two U.S. discount retailers, Dollar Tree(DLTR.O) and Dollar General(DG.N), warned that surging costs in supply chains could cut into profit. The $25 billion Dollar Tree said its regular carriers would only be able to fulfill up to 65% of their commitments. Spot prices for ocean freight from China have increased 20% since May, the company said. Its shares fell some 10%.

Ultra-discount retailers do well when the economy and shoppers are struggling, thanks to their low prices, as advertised by their names. But that business model leaves them little room to pass on rising costs even if consumers can afford them at the time.

Analysts are expecting American retail giant Walmart’s (WMT.N) revenue to grow just 1% this fiscal year. But its EBITDA margin should clock in at 8%, according to data from Refinitiv. At Dollar Tree, top-line growth is forecast at 3%, but the margin at just 3%. For these retailers, pressure on supply costs makes every dollar store worth less. (By Lauren Silva Laughlin)

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Editing by Richard Beales and Marjorie Backman

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