Same-store sales were a bit lower than expected at the Dollar Tree chain.

Daniel Acker/Bloomberg

Dollar Tree stock is on the ropes after issuing disappointing financial forecasts—and a warning about freight costs—that overshadowed strong results for the fiscal first quarter.

Dollar Tree (DLTR) said it earned $374.5 million, or $1.60 a share, up from $1.04 a share in the year-earlier period. Revenue rose 3% to $6.48 billion. Analysts were looking for EPS of $1.42 from revenue of $6.42 billion.

Company-wide same-store sales were up 0.8%, led by a 4.7% rise at the flagship Dollar Tree chain, while Family Dollar had a 2.8% decline.

Looking ahead, Dollar Tree said it expects to earn between $5.80 and $6.05 a share for the full year, with an increase in same-store sales in the low single digits. The consensus call on Wall Street is for EPS of $6.23 and a 1.1% increase in same-store sales. The company warned that freight costs are likely to be higher in the remaining three quarters of its fiscal year than in 2020.

Dollar Tree was down 6% to $102 in early trading. The shares have edged up 0.4% year to date, and are 11.1% higher in the past 12 months.

The impact of higher transportation prices shouldn’t surprise investors—many retailers and consumer companies have noted this trend in recent months—yet Dollar Tree roughly doubled the per-share impact it expects this headwind to make on profits through the rest of the year. The company’s lower-than-expected EPS forecast may be conservative, but at the moment, it may leave investors wondering if the company will struggle to offset these costs with sales, especially as the effects of government stimulus wane.

Same-store sales were also a bit lower than expected at its Dollar Tree brand, although Family Dollar, while in negative territory, reported a narrower decline than many analysts anticipated. That said, a return to a more normalized environment, with more people vaccinated and consumers eager to buy discretionary goods could help Dollar Tree given that it carries more seasonal and party supplies.

Write to Teresa Rivas at teresa.rivas@barrons.com

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