Dollar Tree drops 14% after earnings release

Dollar Tree (DLTR.US) shares are losing 8.5% during the Wednesday's trading session following the release of its annual sales guidance, which was below analysts' average estimates, and the release of fourth quarter sales and profit results, which also missed expectations. The bearish momentum on the company's shares further stems from plans to close around 600 Family Dollar shops in the first half of the fiscal year as part of a portfolio optimisation review. These plans, in the eyes of investors, suggest that business momentum around the company may be waning. 

FIRST QUARTER FORECAST

• Sees EPS $1.33 to $1.48, estimate $1.71
• Sees net sales $7.6 billion to $7.9 billion, estimate $7.68 billion

YEAR FORECAST

• Sees EPS $6.70 to $7.30, estimate $7.03
• Sees net sales $31.0 billion to $32.0 billion, estimate $31.71 billion

FOURTH QUARTER RESULTS

• Adjusted EPS $2.55, estimate $2.66
• Loss per share $7.85 vs. EPS $2.04 y/y
• Net sales $8.63 billion, +12% y/y, estimate $8.67 billion
• Dollar Tree net sales $4.96 billion, +15% y/y, estimate $4.91 billion
• Family Dollar net sales $3.67 billion, +7.4% y/y, estimate $3.73 billion
• Enterprise same-store sales +3.0%, estimate +2.72%
• Dollar Tree same-store sales +6.3%, estimate +5.37%
• Family Dollar same-store sales -1.2%, estimate -0.72%
• Gross profit margin 32.1% vs. 30.9% y/y, estimate 32.1%
• Dollar Tree gross margin 39% vs. 36.7% y/y, estimate 37.7%
• Family Dollar gross margin 22.8% vs. 23.6% y/y, estimate 24.7%
• Total location count 16,774, +2.7% y/y, estimate 16,793
• Dollar Tree Locations 8,415, +3.5% y/y, estimate 8,391
• Family Dollar locations 8,359, +1.9% y/y, estimate 8,368

COMMENTARY AND CONTEXT

• Results Incl $594.4M Charge for Optimization Review
• Results Incl $1.07B Goodwill Impairment Charge
• $1.35B Remaining Under Share Buyback Authorization
• Plans on closing 600 Family Dollar stores in the first half of fiscal 2024
• Additionally, approximately 370 Family Dollar and 30 Dollar Tree stores will close over the next several years at the end of each store’s current lease term
• “While we expect current shrink and mix levels to be a headwind in the first half of the year, we are expecting to benefit from favorable freight rates and moderating headwinds from reduced SNAP benefits throughout the year”

Dollar Tree shares have stopped their decline in the 50% Fibo elimination zone of the upward wave initiated in October 2023 . Source: xStation