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Why Is Dollar Tree (DLTR) Down 6.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Dollar Tree (DLTR - Free Report) . Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dollar Tree due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Dollar Tree Q3 Earnings & Sales Beat, High Costs Hurt
Dollar Tree has reported third-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus Estimate and our estimate. The top and bottom lines also improved year over year. The results have benefited from the continued demand for the company’s products, offset by inflationary pressures and an unfavorable product mix due to the demand shift toward low-margin consumable goods.
The company remains optimistic about its fiscal 2022 top-line performance. Hence, it has raised the fiscal 2022 sales view. Despite the strong sales trends across both banners, the company expects the increased demand for consumables and inflationary costs to affect margins and the bottom line in the near term. Consequently, it has provided a bleak earnings view for fiscal 2022.
Quarter in Detail
Dollar Tree’s earnings improved 25% year over year to $1.20 per share and beat the Zacks Consensus Estimate of $1.17 and our estimate of $1.14. Bottom-line growth can be attributed to robust top-line growth, as well as improved margins.
Consolidated net sales advanced 8.1% year over year to $6,939.9 million and surpassed the Zacks Consensus Estimate of $6,839 million ad our estimate of $6,833.7 million. Enterprise same-store sales (comps) improved 6.5% year over year. For the Dollar Tree banner, comps were up 8.6%, while the same for the Family Dollar banner improved 4.1%. After adjusting for the impacts of currency fluctuations, comps for the Dollar Tree banner rose 8.5%.
Comps at Dollar Tree benefited from a double-digit increase in average ticket, partly negated by a decline in traffic. Comps at Family Dollar were aided by increases in both ticket and traffic.
The gross profit increased 17.5% year over year to $2,071.5 million, while the gross margin expanded 240 bps to 29.9%. Gains from improved initial mark-on, and leverage on distribution and occupancy costs aided the gross margin. This was partly negated by higher markdowns and shrink, inflationary cost pressures, and unfavorable product mix related to a shift toward lower-margin consumable products. The gross margin expanded 520 bps to 35.4% at the Dollar Tree banner and contracted 100 bps to 23.4% at the Family Dollar segment.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 170 bps to 24.4%. The increase resulted from elevated professional fees, increased store payroll and stock compensation expenses, and inflationary pressures across many expense categories like utilities and higher repairs and maintenance costs.
While the operating income rose 22.8% to $381.3 million, the operating margin expanded 70 bps to 5.5%, driven by robust gross margin expansion and sales growth. Segment-wise, the operating margin expanded 480 bps to 13.3% for Dollar Tree. Meanwhile, the Family Dollar segment reported an operating loss of $18.4 million compared with an operating income of $88.6 million in the year-ago quarter.
Balance Sheet
Dollar Tree ended the fiscal third quarter with cash and cash equivalents of $439 million. Net merchandise inventories increased 31.1% year over year to $5,657.7 million. It had net long-term debt (excluding current maturities) of $3,420.4 million and shareholders’ equity of $8,275.3 million as of Oct 29, 2022.
The company bought back 2,859,200 shares for $397.5 million in third-quarter fiscal 2022, reflecting an average price of $139.04 per share. As of Oct 29, 2022, Dollar Tree had $1.85 billion remaining under its existing authorization. The company anticipates spending $1.2 billion toward capital expenditure in fiscal 2022.
Store Update
In third-quarter fiscal 2022, Dollar Tree opened 102 stores, expanded or relocated 20 outlets, and shuttered 41 stores. The company completed the renovation of 309 Family Dollar stores to the H2 or Combo Store formats. Additionally, it expanded the multi-price plus offerings to another 199 Dollar Tree stores in the quarter. As of Oct 29, 2022, the company operated 16,293 stores in 48 states and five Canada provinces.
Guidance
Dollar Tree has raised its sales view for fiscal 2022 as its efforts to evolve the assortment to drive consumables’ performance at Dollar Tree and the initiatives to improve the value proposition at Family Dollar remain on track.
The company expects consolidated net sales of $28.14-$28.28 billion compared with the $27.85-$28.10 billion mentioned earlier. It anticipates enterprise comps growth in the mid-single digits for fiscal 2022, including a high-single-digit increase in the Dollar Tree segment and low-single-digit growth in the Family Dollar segment. It expects selling square footage to increase 2.8% compared with 3.5% growth mentioned earlier.
The company expects depreciation to be $770 million for fiscal 2022. Interest expenses are anticipated to be $127 million, while the effective tax rate is likely to be 23.7%.
Management envisions earnings in the lower half of the previously mentioned $7.10-$7.40 per share. The company has noted that sales trends are strong across both banners. However, the increased demand for consumables is likely to affect margins in the near term. This, along with the ongoing inflationary cost pressures, has resulted in a soft earnings view for fiscal 2022.
For fourth-quarter fiscal 2022, Dollar Tree expects consolidated net sales of $7.54-$7.68 billion, with enterprise same-store sales growth of mid to the high-single digits. This will comprise a mid-to-high single-digit increase in the Dollar Tree segment and low-to-mid single-digit growth in the Family Dollar segment.
The company expects net interest expenses of $30 million for the fiscal fourth quarter, with an effective tax rate of 24.3%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -5.32% due to these changes.
VGM Scores
At this time, Dollar Tree has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. Notably, Dollar Tree has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Dollar Tree (DLTR) Down 6.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Dollar Tree (DLTR - Free Report) . Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dollar Tree due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Dollar Tree Q3 Earnings & Sales Beat, High Costs Hurt
Dollar Tree has reported third-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus Estimate and our estimate. The top and bottom lines also improved year over year. The results have benefited from the continued demand for the company’s products, offset by inflationary pressures and an unfavorable product mix due to the demand shift toward low-margin consumable goods.
The company remains optimistic about its fiscal 2022 top-line performance. Hence, it has raised the fiscal 2022 sales view. Despite the strong sales trends across both banners, the company expects the increased demand for consumables and inflationary costs to affect margins and the bottom line in the near term. Consequently, it has provided a bleak earnings view for fiscal 2022.
Quarter in Detail
Dollar Tree’s earnings improved 25% year over year to $1.20 per share and beat the Zacks Consensus Estimate of $1.17 and our estimate of $1.14. Bottom-line growth can be attributed to robust top-line growth, as well as improved margins.
Consolidated net sales advanced 8.1% year over year to $6,939.9 million and surpassed the Zacks Consensus Estimate of $6,839 million ad our estimate of $6,833.7 million. Enterprise same-store sales (comps) improved 6.5% year over year. For the Dollar Tree banner, comps were up 8.6%, while the same for the Family Dollar banner improved 4.1%. After adjusting for the impacts of currency fluctuations, comps for the Dollar Tree banner rose 8.5%.
Comps at Dollar Tree benefited from a double-digit increase in average ticket, partly negated by a decline in traffic. Comps at Family Dollar were aided by increases in both ticket and traffic.
The gross profit increased 17.5% year over year to $2,071.5 million, while the gross margin expanded 240 bps to 29.9%. Gains from improved initial mark-on, and leverage on distribution and occupancy costs aided the gross margin. This was partly negated by higher markdowns and shrink, inflationary cost pressures, and unfavorable product mix related to a shift toward lower-margin consumable products. The gross margin expanded 520 bps to 35.4% at the Dollar Tree banner and contracted 100 bps to 23.4% at the Family Dollar segment.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 170 bps to 24.4%. The increase resulted from elevated professional fees, increased store payroll and stock compensation expenses, and inflationary pressures across many expense categories like utilities and higher repairs and maintenance costs.
While the operating income rose 22.8% to $381.3 million, the operating margin expanded 70 bps to 5.5%, driven by robust gross margin expansion and sales growth. Segment-wise, the operating margin expanded 480 bps to 13.3% for Dollar Tree. Meanwhile, the Family Dollar segment reported an operating loss of $18.4 million compared with an operating income of $88.6 million in the year-ago quarter.
Balance Sheet
Dollar Tree ended the fiscal third quarter with cash and cash equivalents of $439 million. Net merchandise inventories increased 31.1% year over year to $5,657.7 million. It had net long-term debt (excluding current maturities) of $3,420.4 million and shareholders’ equity of $8,275.3 million as of Oct 29, 2022.
The company bought back 2,859,200 shares for $397.5 million in third-quarter fiscal 2022, reflecting an average price of $139.04 per share. As of Oct 29, 2022, Dollar Tree had $1.85 billion remaining under its existing authorization. The company anticipates spending $1.2 billion toward capital expenditure in fiscal 2022.
Store Update
In third-quarter fiscal 2022, Dollar Tree opened 102 stores, expanded or relocated 20 outlets, and shuttered 41 stores. The company completed the renovation of 309 Family Dollar stores to the H2 or Combo Store formats. Additionally, it expanded the multi-price plus offerings to another 199 Dollar Tree stores in the quarter. As of Oct 29, 2022, the company operated 16,293 stores in 48 states and five Canada provinces.
Guidance
Dollar Tree has raised its sales view for fiscal 2022 as its efforts to evolve the assortment to drive consumables’ performance at Dollar Tree and the initiatives to improve the value proposition at Family Dollar remain on track.
The company expects consolidated net sales of $28.14-$28.28 billion compared with the $27.85-$28.10 billion mentioned earlier. It anticipates enterprise comps growth in the mid-single digits for fiscal 2022, including a high-single-digit increase in the Dollar Tree segment and low-single-digit growth in the Family Dollar segment. It expects selling square footage to increase 2.8% compared with 3.5% growth mentioned earlier.
The company expects depreciation to be $770 million for fiscal 2022. Interest expenses are anticipated to be $127 million, while the effective tax rate is likely to be 23.7%.
Management envisions earnings in the lower half of the previously mentioned $7.10-$7.40 per share. The company has noted that sales trends are strong across both banners. However, the increased demand for consumables is likely to affect margins in the near term. This, along with the ongoing inflationary cost pressures, has resulted in a soft earnings view for fiscal 2022.
For fourth-quarter fiscal 2022, Dollar Tree expects consolidated net sales of $7.54-$7.68 billion, with enterprise same-store sales growth of mid to the high-single digits. This will comprise a mid-to-high single-digit increase in the Dollar Tree segment and low-to-mid single-digit growth in the Family Dollar segment.
The company expects net interest expenses of $30 million for the fiscal fourth quarter, with an effective tax rate of 24.3%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -5.32% due to these changes.
VGM Scores
At this time, Dollar Tree has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. Notably, Dollar Tree has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.