UPDATE 3-Dollar stores hit by freight costs as labor squeeze looms

(Adds details from Dollar Tree conference call, updates share movement)

May 27 (Reuters) - Top U.S. dollar stores on Thursday gave tepid full-year profit forecasts, weighed down by higher transportation costs, even as a stimulus check-driven boost in spending helped them post better-than-expected quarterly sales.

Dollar Tree Inc’s shares dropped nearly 8%, as it forecast freight costs to be up as much as 80 cents per share for the rest of the year, compared to last year.

Increasing freight costs have dented profit outlooks across industries, including that of apparel sellers Abercrombie & Fitch Co and Kohl’s Corp as well as many packaged foods makers, at a time when retailers’ sales are rebounding after a pandemic-led slump.

“With regards to freight, the market conditions have continued to deteriorate since our update in March,” Dollar Tree Chief Financial Officer Kevin Wampler told analysts on a post-earnings call.

The company is also facing wages-related pressure from labor shortages at its stores and distribution centers, Wampler added.

The operator of Family Dollar stores forecast its fiscal 2021 earnings to range between $5.80 per share and $6.05 per share, below Refinitiv IBES estimates of $6.24.

Meanwhile, Dollar General raised its forecast for fiscal 2021 profit to be between $9.50 and $10.20 per share. But analysts’ estimate of $9.58 were closer to the low end of the forecast.

Dollar General finance chief John Garratt also warned of a hit to its profit margins from higher discounting as well as increased freight and transportation costs.

Still both dollar stores’ first-quarter results soared past market expectations on increased spending by consumers, armed with stimulus checks, on everything from apparel to home goods.

Dollar General also raised its forecast for full-year sales as the company’s efforts in sharpening its focus on the higher-margin non-consumables category paid off. The retailer’s shares rose nearly 3%. (Reporting by Praveen Paramasivam in Bengaluru; Editing by Anil D’Silva and Maju Samuel)