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Dollar Tree (DLTR) Up 0.9% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Dollar Tree (DLTR - Free Report) . Shares have added about 0.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Dollar Tree due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Dollar Tree Misses Q2 Earnings & Sales Estimates
Dollar Tree 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.
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.
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.
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 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -17.23% due to these changes.
VGM Scores
At this time, Dollar Tree has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Dollar Tree has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Dollar Tree belongs to the Zacks Retail - Discount Stores industry. Another stock from the same industry, Dollar General (DG - Free Report) , has gained 1.9% over the past month. More than a month has passed since the company reported results for the quarter ended July 2024.
Dollar General reported revenues of $10.21 billion in the last reported quarter, representing a year-over-year change of +4.2%. EPS of $1.70 for the same period compares with $2.13 a year ago.
Dollar General is expected to post earnings of $0.97 per share for the current quarter, representing a year-over-year change of -23%. Over the last 30 days, the Zacks Consensus Estimate has changed -8.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Dollar General. Also, the stock has a VGM Score of A.
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Dollar Tree (DLTR) Up 0.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Dollar Tree (DLTR - Free Report) . Shares have added about 0.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Dollar Tree due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Dollar Tree Misses Q2 Earnings & Sales Estimates
Dollar Tree 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.
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.
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.
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 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -17.23% due to these changes.
VGM Scores
At this time, Dollar Tree has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Dollar Tree has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Dollar Tree belongs to the Zacks Retail - Discount Stores industry. Another stock from the same industry, Dollar General (DG - Free Report) , has gained 1.9% over the past month. More than a month has passed since the company reported results for the quarter ended July 2024.
Dollar General reported revenues of $10.21 billion in the last reported quarter, representing a year-over-year change of +4.2%. EPS of $1.70 for the same period compares with $2.13 a year ago.
Dollar General is expected to post earnings of $0.97 per share for the current quarter, representing a year-over-year change of -23%. Over the last 30 days, the Zacks Consensus Estimate has changed -8.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Dollar General. Also, the stock has a VGM Score of A.