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Dollar Tree Stock Down on Q2 Earnings Miss & Slashed FY24 View
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Dollar Tree, Inc. (DLTR - Free Report) has reported bleak second-quarter fiscal 2024 results, with both earnings and sales lagging the Zacks Consensus Estimate. The top line rose year over year while the bottom line declined. Results were hurt by a tough macro landscape. Also, product cost inflation and elevated occupancy costs acted as deterrents.
Shares of Dollar Tree have lost more than 15% following the earnings release. The negative sentiment was due to the dismal results. Shares of this Zacks Rank #4 (Sell) company have lost 32.1% in the past three months against the industry’s 3.7% growth.
DLTR’s Quarterly Performance: Key Metrics and Insights
Dollar Tree’s adjusted earnings per share (EPS) fell 26.4% year over year to 67 cents and lagged the Zacks Consensus Estimate of $1.03.
Consolidated net sales improved 0.7% year over year to $7.373 billion but missed the Zacks Consensus Estimate of $7.503 billion. Enterprise same-store sales (comps) grew 0.7% year over year. The company’s comps benefited from a 1.1% rise in traffic, partly negated by a 0.5% dip in average ticket.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Comps improved 1.3% for the Dollar Tree banner while dropping 0.1% for the Family Dollar banner. The Dollar Tree segment benefited from a 1.4% rise in traffic, offset by a 0.1% dip in average ticket. Comps at Family Dollar were aided by a 0.7% increase in traffic, offset by a 0.8% decline in average ticket.
Our model predicted year-over-year enterprise comps growth of 1.9% for the fiscal second quarter, with a 3.6% increase in the Dollar Tree banner and flat comps at Family Dollar.
The gross profit rose 3.7% year over year to $2.21 billion, whereas the gross margin expanded 80 basis points (bps) to 30%. Lower freight costs mainly aided the gross margin. This was partly negated by a rise in sales of higher-cost consumable merchandise and elevated occupancy costs in the Dollar Tree segment stemming from the loss of leverage from low single-digit comps increase, coupled with higher distribution costs in the Family Dollar unit. The gross margin expanded 80 bps to 34.2% at the Dollar Tree banner and 50 bps to 24.9% at the Family Dollar segment.
We estimated a year-over-year rise of 5.5% in adjusted gross profit and 80-bps expansion in gross margin.
Selling, general and administrative expenses were 27.3% of total revenues, up 200 bps from 25.3% seen in the year-earlier quarter. The increase was driven primarily by unfavorable development of general liability claims, increased depreciation expenses from store investments, temporary labor in the Dollar Tree unit to aid multi-price rollout, elevated utility costs and loss of leverage from comps increase. This was partly offset by reduced incentive compensation costs.
Adjusted operating income declined 24.2% year over year to $218.1 million. The operating margin contracted 90 bps to 3%.
DLTR’s Financial Health
Dollar Tree ended the fiscal second quarter with cash and cash equivalents of $570.3 million. As of Aug. 3, 2024, net merchandise inventories were $5.1 billion, down 3.8% year over year. It had a net long-term debt, excluding current portion, of $2.4 billion and shareholders’ equity of $7.4 billion as of the same date.
The company repurchased 0.75 million shares for $90.8 million in the fiscal second quarter. As of Aug. 3, 2024, Dollar Tree had $952 million remaining under its existing authorization.
Dollar Tree’s Store Update
In the fiscal second quarter, the company opened 155, re-bannered three and closed 167 stores. It opened 127 Dollar Tree stores and 28 Family Dollar outlets. DLTR also closed 23 Dollar Tree and 144 Family Dollar stores while re-bannering three Dollar Tree outlets. The store closings were mainly related to its earlier announced comprehensive store portfolio optimization review. As of Aug. 3, 2024, DLTR operated 16,388 stores in 48 states and five Canadian provinces.
In fourth-quarter fiscal 2023, the company announced a comprehensive review of its Family Dollar portfolio to identify stores that are not aligned with its transformative vision for closure, relocation or re-bannering. As part of the review, it identified nearly 970 underperforming Family Dollar stores, including 600 stores were to be closed in the first half of fiscal 2024. Approximately 370 would be shut down at the end of each store's current lease term. It also identified provisions to close 370 Family Dollar and 30 Dollar Tree outlets in the coming years, subject to the end of each store’s current lease term.
At the end of the fiscal second quarter, the company closed roughly 655 stores as part of its portfolio optimization and anticipates closing more than 45 stores in the rest of fiscal 2024.
DLTR’s Strategic Review & Tornado Damage Updates
Management unveiled that it had initiated a formal review of strategic alternatives for the Family Dollar business unit, which can include among others, a potential sale, spin-off or other disposition of the business. It has not yet set a deadline or definitive timetable for the completion of the strategic alternatives review process. Also, there is no assurance that this will lead to any particular transaction or outcome.
On April 28, 2024, a tornado destroyed the company’s Dollar Tree distribution center in Marietta, OK. It witnessed losses of $117 million in the prior quarter, including $70 million associated with the damaged inventory and $47 million with respect to the property and equipment. As of Aug. 3, 2024, Dollar Tree’s insurance proceeds were $70 million. It anticipates the balance inventory losses and property and equipment losses to be wholly offset by insurance recoveries under its distribution center insurance policies.
What to Expect From DLTR in Q3 & Fiscal 2024?
DLTR revised its fiscal 2024 view to reflect second-quarter results, including the general liability charge and a conservative sales guidance for Dollar Tree for the rest of the fiscal year. This also includes incremental start-up expenses related to the conversion of its acquired portfolio of 99 Cents Only Stores leases.
For the fiscal third quarter, management projects consolidated net sales to be in the range of $7.4-$7.6 billion and comps growth in the low-single-digits for the enterprise and both the Dollar Tree and Family Dollar segments. Adjusted EPS is likely to be in the band of $1.05-$1.15. The EPS guidance includes 7 cents of incremental upfront costs, with respect to the acquisition and re-opening of the acquired 99 Cents Only Stores leases, and 6 cents of incremental depreciation and amortization expense stemming from increased project costs.
For fiscal 2024, consolidated net sales are projected to be in the range of $30.6-$30.9 billion while comps growth is estimated to be in the low-single-digits for the enterprise and both the Dollar Tree and Family Dollar segments. Management had earlier predicted net sales to be in the range of $31-$32 billion. It had previously anticipated low to mid-single-digit comps growth for the enterprise, with an increase in the mid-single digits for the Dollar Tree banner and low-single digits for the Family Dollar segment.
It envisions adjusted EPS to be in the bracket of $5.20-$5.60, down from the earlier estimated range of $6.50-$7. This view reflects about 12 cents of incremental upfront costs related to the acquisition and re-opening of the 99 Cents Only Stores leases and 12 cents associated with the incremental depreciation and amortization expenses.
GPS delivered an average earnings surprise of 142.8% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s financial-year sales indicates growth of 0.3% from the year-ago figure.
American Eagle, a casual apparel retailer, currently carries a Zacks Rank #2 (Buy). AEO delivered an earnings surprise of 2.6% in the last reported quarter.
The consensus estimate for American Eagle’s current financial-year sales indicates growth of 2.8% from the year-ago figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank of 2. DECK delivered an earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.
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Dollar Tree Stock Down on Q2 Earnings Miss & Slashed FY24 View
Dollar Tree, Inc. (DLTR - Free Report) has reported bleak second-quarter fiscal 2024 results, with both earnings and sales lagging the Zacks Consensus Estimate. The top line rose year over year while the bottom line declined. Results were hurt by a tough macro landscape. Also, product cost inflation and elevated occupancy costs acted as deterrents.
Shares of Dollar Tree have lost more than 15% following the earnings release. The negative sentiment was due to the dismal results. Shares of this Zacks Rank #4 (Sell) company have lost 32.1% in the past three months against the industry’s 3.7% growth.
DLTR’s Quarterly Performance: Key Metrics and Insights
Dollar Tree’s adjusted earnings per share (EPS) fell 26.4% year over year to 67 cents and lagged the Zacks Consensus Estimate of $1.03.
Consolidated net sales improved 0.7% year over year to $7.373 billion but missed the Zacks Consensus Estimate of $7.503 billion. Enterprise same-store sales (comps) grew 0.7% year over year. The company’s comps benefited from a 1.1% rise in traffic, partly negated by a 0.5% dip in average ticket.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote
Comps improved 1.3% for the Dollar Tree banner while dropping 0.1% for the Family Dollar banner. The Dollar Tree segment benefited from a 1.4% rise in traffic, offset by a 0.1% dip in average ticket. Comps at Family Dollar were aided by a 0.7% increase in traffic, offset by a 0.8% decline in average ticket.
Our model predicted year-over-year enterprise comps growth of 1.9% for the fiscal second quarter, with a 3.6% increase in the Dollar Tree banner and flat comps at Family Dollar.
The gross profit rose 3.7% year over year to $2.21 billion, whereas the gross margin expanded 80 basis points (bps) to 30%. Lower freight costs mainly aided the gross margin. This was partly negated by a rise in sales of higher-cost consumable merchandise and elevated occupancy costs in the Dollar Tree segment stemming from the loss of leverage from low single-digit comps increase, coupled with higher distribution costs in the Family Dollar unit. The gross margin expanded 80 bps to 34.2% at the Dollar Tree banner and 50 bps to 24.9% at the Family Dollar segment.
We estimated a year-over-year rise of 5.5% in adjusted gross profit and 80-bps expansion in gross margin.
Selling, general and administrative expenses were 27.3% of total revenues, up 200 bps from 25.3% seen in the year-earlier quarter. The increase was driven primarily by unfavorable development of general liability claims, increased depreciation expenses from store investments, temporary labor in the Dollar Tree unit to aid multi-price rollout, elevated utility costs and loss of leverage from comps increase. This was partly offset by reduced incentive compensation costs.
Adjusted operating income declined 24.2% year over year to $218.1 million. The operating margin contracted 90 bps to 3%.
DLTR’s Financial Health
Dollar Tree ended the fiscal second quarter with cash and cash equivalents of $570.3 million. As of Aug. 3, 2024, net merchandise inventories were $5.1 billion, down 3.8% year over year. It had a net long-term debt, excluding current portion, of $2.4 billion and shareholders’ equity of $7.4 billion as of the same date.
The company repurchased 0.75 million shares for $90.8 million in the fiscal second quarter. As of Aug. 3, 2024, Dollar Tree had $952 million remaining under its existing authorization.
Dollar Tree’s Store Update
In the fiscal second quarter, the company opened 155, re-bannered three and closed 167 stores. It opened 127 Dollar Tree stores and 28 Family Dollar outlets. DLTR also closed 23 Dollar Tree and 144 Family Dollar stores while re-bannering three Dollar Tree outlets. The store closings were mainly related to its earlier announced comprehensive store portfolio optimization review. As of Aug. 3, 2024, DLTR operated 16,388 stores in 48 states and five Canadian provinces.
In fourth-quarter fiscal 2023, the company announced a comprehensive review of its Family Dollar portfolio to identify stores that are not aligned with its transformative vision for closure, relocation or re-bannering. As part of the review, it identified nearly 970 underperforming Family Dollar stores, including 600 stores were to be closed in the first half of fiscal 2024. Approximately 370 would be shut down at the end of each store's current lease term. It also identified provisions to close 370 Family Dollar and 30 Dollar Tree outlets in the coming years, subject to the end of each store’s current lease term.
At the end of the fiscal second quarter, the company closed roughly 655 stores as part of its portfolio optimization and anticipates closing more than 45 stores in the rest of fiscal 2024.
DLTR’s Strategic Review & Tornado Damage Updates
Management unveiled that it had initiated a formal review of strategic alternatives for the Family Dollar business unit, which can include among others, a potential sale, spin-off or other disposition of the business. It has not yet set a deadline or definitive timetable for the completion of the strategic alternatives review process. Also, there is no assurance that this will lead to any particular transaction or outcome.
On April 28, 2024, a tornado destroyed the company’s Dollar Tree distribution center in Marietta, OK. It witnessed losses of $117 million in the prior quarter, including $70 million associated with the damaged inventory and $47 million with respect to the property and equipment. As of Aug. 3, 2024, Dollar Tree’s insurance proceeds were $70 million. It anticipates the balance inventory losses and property and equipment losses to be wholly offset by insurance recoveries under its distribution center insurance policies.
What to Expect From DLTR in Q3 & Fiscal 2024?
DLTR revised its fiscal 2024 view to reflect second-quarter results, including the general liability charge and a conservative sales guidance for Dollar Tree for the rest of the fiscal year. This also includes incremental start-up expenses related to the conversion of its acquired portfolio of 99 Cents Only Stores leases.
For the fiscal third quarter, management projects consolidated net sales to be in the range of $7.4-$7.6 billion and comps growth in the low-single-digits for the enterprise and both the Dollar Tree and Family Dollar segments. Adjusted EPS is likely to be in the band of $1.05-$1.15. The EPS guidance includes 7 cents of incremental upfront costs, with respect to the acquisition and re-opening of the acquired 99 Cents Only Stores leases, and 6 cents of incremental depreciation and amortization expense stemming from increased project costs.
For fiscal 2024, consolidated net sales are projected to be in the range of $30.6-$30.9 billion while comps growth is estimated to be in the low-single-digits for the enterprise and both the Dollar Tree and Family Dollar segments. Management had earlier predicted net sales to be in the range of $31-$32 billion. It had previously anticipated low to mid-single-digit comps growth for the enterprise, with an increase in the mid-single digits for the Dollar Tree banner and low-single digits for the Family Dollar segment.
It envisions adjusted EPS to be in the bracket of $5.20-$5.60, down from the earlier estimated range of $6.50-$7. This view reflects about 12 cents of incremental upfront costs related to the acquisition and re-opening of the 99 Cents Only Stores leases and 12 cents associated with the incremental depreciation and amortization expenses.
Key Picks
We have highlighted three better-ranked stocks, namely Gap (GAP - Free Report) , American Eagle (AEO - Free Report) and Deckers (DECK - Free Report) .
Gap, a leading apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GPS delivered an average earnings surprise of 142.8% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s financial-year sales indicates growth of 0.3% from the year-ago figure.
American Eagle, a casual apparel retailer, currently carries a Zacks Rank #2 (Buy). AEO delivered an earnings surprise of 2.6% in the last reported quarter.
The consensus estimate for American Eagle’s current financial-year sales indicates growth of 2.8% from the year-ago figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank of 2. DECK delivered an earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.