Dollar Tree bosses have boasted to the company’s investors that raising the price cap from $1.50 to $7 will boost profits.
Customers reacted angrily to news of the price hikes, with one saying: “It’s Seven Dollar Tree now and they can raise their prices.”
But Chief Executive Rick Dreiling said: “We are already seeing significant sales growth at the 1,600 Dollar Tree stores that have converted to our new multi-price format.”
And Chief Financial Officer Jeff Davis said that rolling out the $7 limit to the low-cost chain’s 16,000-plus stores “will result in higher gross profit per transaction.”
The company says the higher price cap allows it to sell a much wider range of items, including food, snacks, drinks, pet care and personal care products, which appeal to more affluent customers.
Dollar Tree said in March that it would raise the price limit on items it sells to $7, and that new “multiple-price format” is in place at 1,600 of its 16,000 stores.
Dollar Tree CEO Rick Dreiling (pictured) said the higher prices were a hit with shoppers
Dreiling’s comments came as the low-cost retailer reported disappointing earnings to Wall Street on Wednesday.
The increase in sales at stores selling more expensive items is not enough to offset the general decline in sales.
Dollar Tree cut its full-year profit and sales forecasts as customers continue to struggle to cope with higher prices and spend less.
Shares fell more than 20 percent on Wednesday after hitting a 52-week low the day before.
Dollar Tree’s biggest one-day sell-off in more than 20 years came less than a week after rival grocery chain Dollar General also reported a dismal quarter and suffered its biggest single-day drop in history.
Dollar Tree has been in the process of restructuring its business and said in June it was exploring options, including a possible sale or spin-off of its Family Dollar brand.
Earlier this year, the company had outlined plans to close 970 Family Dollar stores. As of Aug. 3, Dollar Tree had closed about 655 stores and would close 45 stores over the rest of the year, the company said Wednesday.
The Chesapeake, Virginia-based company also projected annual sales in a range of $30.6 billion to $30.9 billion, down from $31 billion to $32 billion in the prior period.
Both figures are below Wall Street projections, and that was reflected in the retailer’s shares falling on Wednesday.
Most items at Dollar Tree stores cost $1.25, but last year they raised the limit to $5.
In March, Dollar Tree said it would raise the maximum price it charges for items to $7 due to an increase in the number of wealthy shoppers visiting its stores.
Most items sold by the discount retailer still cost $1.25 after a price increase in 2021 from the previous $1 limit from which it takes its name.
The company says it expects to have 2,800 stores with a higher price limit of $7 by the end of the year, up from 1,600 currently.
Given that the chain has around 16,000 outlets, this means that the implementation of a higher price cap (covering around 300 items) across all stores will not be completed until next year.
