US-based discount variety store Dollar Tree has reported a gross profit of $2.23bn in the first quarter (Q1) of fiscal year (FY) 2023, a 4.7% drop compared to the same period in FY22.

Driven by lower initial mark-on, an unfavourable sales mix and shrink, the company saw its gross margin drop by 340 basis points to 30.5% in Q1 FY23.

During the quarter ending 30 April 2023, Dollar Tree saw its consolidated net sales rise by 6.1% to $7.32bn while enterprise same-store sales and Dollar Tree same-store sales were up by 4.8% and 3.4%, respectively.

The retailer’s operating income reached $419.7m and its operating margin was 5.7% in Q1 FY23.

Its net income was $299.0m in Q1 FY23 against $536.4m in the same period a year ago.

The company reported diluted earnings per share (EPS) of $1.35 in Q1 FY23 compared to $2.37 in the same quarter of the previous year.

Dollar Tree chairman and chief executive officer Rick Dreiling said: “Our initiatives to drive customer traffic and increase store productivity are having the desired impact.

“While we are seeing early results from our initiatives, we are not immune to the external pressures affecting all of retail, notably, the margin impact of elevated shrink and the product mix shift to consumables.”

In the Q2 of FY23, the retailer anticipates consolidated net sales in the range of $7bn to $7.2bn.

It expects diluted EPS in the range of $0.79 to $0.89 for the quarter.

Dreiling added: “While we are maintaining our full-year 2023 sales outlook, we are adjusting our EPS outlook as we expect the elevated shrink and unfavourable sales mix to persist through the balance of the year.

“We still expect earnings to be more back-end loaded this year as the benefits of lower ocean freight rates flow through. We are eager to share more details on the current operating environment and our longer-term strategic growth plans at our upcoming investor conference on 21 June.”