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Dollar Tree (DLTR) Q2 Earnings and Sales Beat Estimates
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Dollar Tree, Inc. (DLTR - Free Report) reported second-quarter fiscal 2023 results, wherein earnings and sales surpassed the Zacks Consensus Estimate. The top line improved year over year, while earnings declined. Results gained from growth across both the segments, higher traffic and robust market share gains. Consequently, management raised its fiscal 2023 top-line view.
Shares of DLTR declined more than 6% in the pre-market trading session on Aug 24, which is likely due to muted consumer spending. This Zacks Rank #2 (Buy) stock has rallied 4.1% in the past three months compared with the industry’s growth of 6.5%.
Quarter in Detail
Dollar Tree’s earnings declined 43% year over year to 91 cents per share. However, the figure beat the Zacks Consensus Estimate of 88 cents.
Image Source: Zacks Investment Research
Consolidated net sales advanced 8.2% year over year to $7,325 million and surpassed the Zacks Consensus Estimate of $7,222 million. Enterprise same-store sales (comps) improved 6.9% year over year. For the Dollar Tree banner, comps were up 7.8%, while the same for the Family Dollar banner improved 5.8%.
Enterprise comps came ahead of our estimate of 4.8% growth. Our model predicted comps growth of 4.9% for the Dollar Tree banner and 4.8% for Family Dollar.
The Dollar Tree segment benefited from a 9.6% increase in traffic, which was somewhat offset by a 1.6% decline in average ticket. Comps at Family Dollar were aided by a 3.4% increase in traffic and a 2.3% rise in average ticket.
The gross profit rose 0.5% year over year to $2,134.7 million, while the gross margin contracted 220 basis points (bps) to 29.2%. We had estimated a rise of 1% in gross profit and 140 bps contraction in gross margin. Lower initial mark-on, an unfavorable sales mix and shrink as well as wage investments in distribution center payroll affected gross margin. This was partly negated by lower freight costs. The decline in margin also resulted from outsized margin gain in the prior quarter from the initial transition to the $1.25 price point at Dollar Tree. Gross margin contracted 400 bps to 33.4% at the Dollar Tree banner and 30 bps to 24.4% at the Family Dollar segment.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 130 bps to 25.3% compared with our estimate of 200 bps expansion. The increase was mainly driven by wage investments in store and field payroll, higher incentive compensation, investments in repairs and maintenance, higher professional fees, elevated general liability insurance claims, and higher utilities expenses. This was partially offset by comparable store net sales leverage.
Operating income declined 43.1% to $287.8 million. Operating margin declined 360 bps to 3.9%. We had estimated a rise of 43% in operating income and 350 bps contraction in operating margin. Segment-wise, the operating margin declined 510 bps to 10.3% for Dollar Tree. The Family Dollar segment reported an adjusted operating income of $11.8 million, reflecting a decline of 78.5% year over year.
Balance Sheet
Dollar Tree ended the fiscal second quarter with cash and cash equivalents of $512.7 million. As of Jul 29, 2023, net merchandise inventories decreased to $5,329.4 million from $5,422.2 million in the year-ago period. It had net long-term debt of $3,423.9 million and shareholders’ equity of $9,031 million as of Jul 29, 2023.
The company bought back 703,713 shares for $99.9 million in second-quarter fiscal 2023. As of Jul 29, 2023, Dollar Tree had $1.6 billion remaining under its existing authorization.
Store Update
In second-quarter fiscal 2023, Dollar Tree opened 48 stores and re-bannered two stores. It opened 70 Family Dollar stores. In the quarter. DLTR closed 26 Dollar Tree stores and 37 Family Dollar stores. It also completed 276 Family Dollar store renovation projects. As of Jul 29, 2023, the company operated 16,476 stores in 48 states and five Canada provinces.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
For fiscal 2023, Dollar Tree expects consolidated net sales of $30.6-$30.9 billion, up from the prior view of $30-$30.5 billion. We estimate sales to be $30.1 billion. The company anticipates mid-single-digit comps growth compared with the earlier guided view of low to mid-single-digit growth and our estimate of 4.4% growth. Comps are likely to grow in mid-single digits in Dollar Tree and Family Dollar segments. Previously, it expected low to mid-single-digit growth at Dollar Tree and a mid-single-digit increase in the Family Dollar segment.
Selling square footage is still expected to rise 3-3.5% for fiscal 2023, with new store growth expected to be weighted toward the latter part of the year.
Management expects earnings per share (EPS) of $5.78-$6.08 (including a 12-cent contribution from the 53rd week and a 12-cent charge for the legal reserve), compared with the prior view of $5.73-$6.13 for fiscal 2023. The view is in sync with our estimate of $5.92.
For third-quarter fiscal 2023, the company expects consolidated net sales of $7.3-$7.5 billion based on mid-single-digit comps growth for the enterprise. We estimate net sales to be $7.3 million and comps growth of 3.7%. Comp sales are also expected to improve in mid-single digits at Dollar Tree and Family Dollar. EPS is estimated to be 94 cents to $1.04 for the fiscal third quarter compared with our estimate of $1.18.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 405.9% growth, respectively, from the year-ago period’s reported levels. The company has a trailing four-quarter earnings surprise of 121.2%, on average.
Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Dollar Tree (DLTR) Q2 Earnings and Sales Beat Estimates
Dollar Tree, Inc. (DLTR - Free Report) reported second-quarter fiscal 2023 results, wherein earnings and sales surpassed the Zacks Consensus Estimate. The top line improved year over year, while earnings declined. Results gained from growth across both the segments, higher traffic and robust market share gains. Consequently, management raised its fiscal 2023 top-line view.
Shares of DLTR declined more than 6% in the pre-market trading session on Aug 24, which is likely due to muted consumer spending. This Zacks Rank #2 (Buy) stock has rallied 4.1% in the past three months compared with the industry’s growth of 6.5%.
Quarter in Detail
Dollar Tree’s earnings declined 43% year over year to 91 cents per share. However, the figure beat the Zacks Consensus Estimate of 88 cents.
Image Source: Zacks Investment Research
Consolidated net sales advanced 8.2% year over year to $7,325 million and surpassed the Zacks Consensus Estimate of $7,222 million. Enterprise same-store sales (comps) improved 6.9% year over year. For the Dollar Tree banner, comps were up 7.8%, while the same for the Family Dollar banner improved 5.8%.
Enterprise comps came ahead of our estimate of 4.8% growth. Our model predicted comps growth of 4.9% for the Dollar Tree banner and 4.8% for Family Dollar.
The Dollar Tree segment benefited from a 9.6% increase in traffic, which was somewhat offset by a 1.6% decline in average ticket. Comps at Family Dollar were aided by a 3.4% increase in traffic and a 2.3% rise in average ticket.
The gross profit rose 0.5% year over year to $2,134.7 million, while the gross margin contracted 220 basis points (bps) to 29.2%. We had estimated a rise of 1% in gross profit and 140 bps contraction in gross margin. Lower initial mark-on, an unfavorable sales mix and shrink as well as wage investments in distribution center payroll affected gross margin. This was partly negated by lower freight costs. The decline in margin also resulted from outsized margin gain in the prior quarter from the initial transition to the $1.25 price point at Dollar Tree. Gross margin contracted 400 bps to 33.4% at the Dollar Tree banner and 30 bps to 24.4% at the Family Dollar segment.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 130 bps to 25.3% compared with our estimate of 200 bps expansion. The increase was mainly driven by wage investments in store and field payroll, higher incentive compensation, investments in repairs and maintenance, higher professional fees, elevated general liability insurance claims, and higher utilities expenses. This was partially offset by comparable store net sales leverage.
Operating income declined 43.1% to $287.8 million. Operating margin declined 360 bps to 3.9%. We had estimated a rise of 43% in operating income and 350 bps contraction in operating margin. Segment-wise, the operating margin declined 510 bps to 10.3% for Dollar Tree. The Family Dollar segment reported an adjusted operating income of $11.8 million, reflecting a decline of 78.5% year over year.
Balance Sheet
Dollar Tree ended the fiscal second quarter with cash and cash equivalents of $512.7 million. As of Jul 29, 2023, net merchandise inventories decreased to $5,329.4 million from $5,422.2 million in the year-ago period. It had net long-term debt of $3,423.9 million and shareholders’ equity of $9,031 million as of Jul 29, 2023.
The company bought back 703,713 shares for $99.9 million in second-quarter fiscal 2023. As of Jul 29, 2023, Dollar Tree had $1.6 billion remaining under its existing authorization.
Store Update
In second-quarter fiscal 2023, Dollar Tree opened 48 stores and re-bannered two stores. It opened 70 Family Dollar stores. In the quarter. DLTR closed 26 Dollar Tree stores and 37 Family Dollar stores. It also completed 276 Family Dollar store renovation projects. As of Jul 29, 2023, the company operated 16,476 stores in 48 states and five Canada provinces.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote
Guidance
For fiscal 2023, Dollar Tree expects consolidated net sales of $30.6-$30.9 billion, up from the prior view of $30-$30.5 billion. We estimate sales to be $30.1 billion. The company anticipates mid-single-digit comps growth compared with the earlier guided view of low to mid-single-digit growth and our estimate of 4.4% growth. Comps are likely to grow in mid-single digits in Dollar Tree and Family Dollar segments. Previously, it expected low to mid-single-digit growth at Dollar Tree and a mid-single-digit increase in the Family Dollar segment.
Selling square footage is still expected to rise 3-3.5% for fiscal 2023, with new store growth expected to be weighted toward the latter part of the year.
Management expects earnings per share (EPS) of $5.78-$6.08 (including a 12-cent contribution from the 53rd week and a 12-cent charge for the legal reserve), compared with the prior view of $5.73-$6.13 for fiscal 2023. The view is in sync with our estimate of $5.92.
For third-quarter fiscal 2023, the company expects consolidated net sales of $7.3-$7.5 billion based on mid-single-digit comps growth for the enterprise. We estimate net sales to be $7.3 million and comps growth of 3.7%. Comp sales are also expected to improve in mid-single digits at Dollar Tree and Family Dollar. EPS is estimated to be 94 cents to $1.04 for the fiscal third quarter compared with our estimate of $1.18.
Other Stocks to Consider
Some other top-ranked companies are BJ's Restaurants (BJRI - Free Report) , Urban Outfitters (URBN - Free Report) and Walmart (WMT - Free Report) .
BJ's Restaurants, which operates a chain of high-end casual dining restaurants in the United States, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 405.9% growth, respectively, from the year-ago period’s reported levels. The company has a trailing four-quarter earnings surprise of 121.2%, on average.
Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.