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Can Dollar Tree (DLTR) Beat on Q3 Earnings Amid Inflation?
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Dollar Tree, Inc. (DLTR - Free Report) is likely to register top-line growth when it reports third-quarter fiscal 2023 results on Nov 29, before market open. The Zacks Consensus Estimate for revenues is pegged at $7.4 billion, indicating an improvement of 6.6% from the prior-year quarter’s reported figure.
The bottom line of the operator of discount variety retail stores is expected to have declined year over year. The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at $1.01 per share, suggesting a decline of 15.8% from the year-ago period’s reported figure. The consensus mark has been unchanged in the past 30 days.
The company has a trailing four-quarter earnings surprise of 0.95%, on average. In the last reported quarter, the Chesapeake, VA-based company underperformed the Zacks Consensus Estimate by 3.4%.
Dollar Tree’s third-quarter fiscal 2023 performance is likely to have gained from growth across both segments, higher traffic and robust market share gains. The company had been witnessing solid product demand, which is expected to have bolstered its top-line performance in the to-be-reported quarter.
Additionally, DLTR’s progress on optimizing its store portfolio through store openings, renovations, re-banners and closings bodes well. Dollar Tree’s Key Real Estate Initiatives, including expansions of H2, Dollar Tree Plus! and Combo Stores, have been on track. Efforts to evolve assortments to drive the consumables category at Dollar Tree and initiatives to improve the value proposition at Family Dollar are expected to have led to top-line gains in the fiscal third quarter.
DLTR’s digital and omni-channel capabilities, and same-day delivery service with Instacart are also expected to have driven traffic trends in the fiscal third quarter. The aforementioned factors instill optimism regarding the upcoming results.
The company has been reporting robust comparable store sales (comps), driven by improved customer traffic and a rise in average ticket.
On the last reported quarter’s earnings call, the company expected consolidated net sales of $7.3-$7.5 billion for third-quarter fiscal 2023, based on mid-single-digit comps growth for the enterprise. Comps sales are also expected to improve in the mid-single digits at Dollar Tree and Family Dollar. EPS is estimated between 94 cents and $1.04 for the fiscal third quarter.
We expect consolidated comps growth of 4.7% for the fiscal third quarter. Our model predicts comps growth of 5.2% for the Dollar Tree segment and 4.3% for the Family Dollar segment in the fiscal third quarter.
However, the company’s bottom line is expected to have witnessed pressures from the ongoing external factors affecting the retail industry, mainly including the impacts of elevated shrink and the product mix shift to consumables on margins. Lower initial mark-on, an unfavorable sales mix and shrink, and wage investments in distribution center payroll are likely to have affected the gross margin in the to-be-reported quarter.
On the last reported quarter’s earnings call, the company expected the challenging macro environment, including inflation, to continue hurting its sales mix in both segments. Also, management anticipated the margin pressures to persist through the back half of the year.
We expect the gross margin to contract 140 basis points (bps) year over year to 31.3% in the fiscal third quarter, reflecting an increase in the cost of sales due to an unfavorable product mix, driven by the demand shift toward low-margin consumable goods.
Additionally, Dollar Tree is expected to have witnessed elevated SG&A expenses, owing to elevated payroll, increased repair and maintenance expenses, and store facility costs. This, along with a soft gross margin, is expected to have led to a decline in the operating margin in the to-be-reported quarter.
As a percentage of sales, we expect SG&A expenses to increase 270 basis points to 27.1% in the fiscal third quarter. In dollar terms, SG&A expenses are expected to increase 18.2% year over year to $1859.5 million. Driven by the soft gross margin and higher SG&A rate, our model predicts an adjusted operating margin of 4.3%, suggesting a 120-bps contraction from the year-ago quarter.
What the Zacks Model Unveils
Our proven does not conclusively predict an earnings beat for Dollar Tree this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Dollar Tree has a Zacks Rank #3 and an Earnings ESP of -0.91%.
Stocks With Favorable Combination
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:
Five Below (FIVE - Free Report) currently has an Earnings ESP of +3.68% and a Zacks Rank of 3. The company is likely to register top-line growth when it reports third-quarter fiscal 2023 results. The consensus mark for FIVE’s quarterly revenues is pegged at $726 million, which suggests growth of 12.6% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for FIVE’s earnings has moved up by a penny to 23 cents per share in the past 30 days. However, the consensus estimate indicates a 20.7% decline from the year-ago quarter’s reported figure.
Costco Wholesale (COST - Free Report) currently has an Earnings ESP of +3.49% and a Zacks Rank #3. The company is likely to register growth in the top and bottom lines when it reports first-quarter fiscal 2024 numbers. The consensus mark for COST’s quarterly earnings has moved up by a penny to $3.44 per share in the past seven days. The consensus estimate suggests growth of 11% from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for Costco’s quarterly revenues is pegged at $57.7 billion, which suggests growth of 5.9% from the figure reported in the prior-year quarter.
Ulta Beauty (ULTA - Free Report) currently has an Earnings ESP of +0.06% and a Zacks Rank #3. The company is likely to register growth in the top line when it reports third-quarter fiscal 2023 results. The consensus mark for ULTA’s quarterly revenues is pegged at $2.5 billion, which suggests 5.6% growth from the figure reported in the prior-year quarter.
The consensus mark for ULTA’s quarterly earnings has moved down 0.4% in the past seven days to $4.96 per share. The consensus estimate suggests a decline of 7.1% from the year-ago quarter’s actual.
Image: Bigstock
Can Dollar Tree (DLTR) Beat on Q3 Earnings Amid Inflation?
Dollar Tree, Inc. (DLTR - Free Report) is likely to register top-line growth when it reports third-quarter fiscal 2023 results on Nov 29, before market open. The Zacks Consensus Estimate for revenues is pegged at $7.4 billion, indicating an improvement of 6.6% from the prior-year quarter’s reported figure.
The bottom line of the operator of discount variety retail stores is expected to have declined year over year. The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at $1.01 per share, suggesting a decline of 15.8% from the year-ago period’s reported figure. The consensus mark has been unchanged in the past 30 days.
The company has a trailing four-quarter earnings surprise of 0.95%, on average. In the last reported quarter, the Chesapeake, VA-based company underperformed the Zacks Consensus Estimate by 3.4%.
Dollar Tree, Inc. Price and EPS Surprise
Dollar Tree, Inc. price-eps-surprise | Dollar Tree, Inc. Quote
Factors to Consider
Dollar Tree’s third-quarter fiscal 2023 performance is likely to have gained from growth across both segments, higher traffic and robust market share gains. The company had been witnessing solid product demand, which is expected to have bolstered its top-line performance in the to-be-reported quarter.
Additionally, DLTR’s progress on optimizing its store portfolio through store openings, renovations, re-banners and closings bodes well. Dollar Tree’s Key Real Estate Initiatives, including expansions of H2, Dollar Tree Plus! and Combo Stores, have been on track. Efforts to evolve assortments to drive the consumables category at Dollar Tree and initiatives to improve the value proposition at Family Dollar are expected to have led to top-line gains in the fiscal third quarter.
DLTR’s digital and omni-channel capabilities, and same-day delivery service with Instacart are also expected to have driven traffic trends in the fiscal third quarter. The aforementioned factors instill optimism regarding the upcoming results.
The company has been reporting robust comparable store sales (comps), driven by improved customer traffic and a rise in average ticket.
On the last reported quarter’s earnings call, the company expected consolidated net sales of $7.3-$7.5 billion for third-quarter fiscal 2023, based on mid-single-digit comps growth for the enterprise. Comps sales are also expected to improve in the mid-single digits at Dollar Tree and Family Dollar. EPS is estimated between 94 cents and $1.04 for the fiscal third quarter.
We expect consolidated comps growth of 4.7% for the fiscal third quarter. Our model predicts comps growth of 5.2% for the Dollar Tree segment and 4.3% for the Family Dollar segment in the fiscal third quarter.
However, the company’s bottom line is expected to have witnessed pressures from the ongoing external factors affecting the retail industry, mainly including the impacts of elevated shrink and the product mix shift to consumables on margins. Lower initial mark-on, an unfavorable sales mix and shrink, and wage investments in distribution center payroll are likely to have affected the gross margin in the to-be-reported quarter.
On the last reported quarter’s earnings call, the company expected the challenging macro environment, including inflation, to continue hurting its sales mix in both segments. Also, management anticipated the margin pressures to persist through the back half of the year.
We expect the gross margin to contract 140 basis points (bps) year over year to 31.3% in the fiscal third quarter, reflecting an increase in the cost of sales due to an unfavorable product mix, driven by the demand shift toward low-margin consumable goods.
Additionally, Dollar Tree is expected to have witnessed elevated SG&A expenses, owing to elevated payroll, increased repair and maintenance expenses, and store facility costs. This, along with a soft gross margin, is expected to have led to a decline in the operating margin in the to-be-reported quarter.
As a percentage of sales, we expect SG&A expenses to increase 270 basis points to 27.1% in the fiscal third quarter. In dollar terms, SG&A expenses are expected to increase 18.2% year over year to $1859.5 million. Driven by the soft gross margin and higher SG&A rate, our model predicts an adjusted operating margin of 4.3%, suggesting a 120-bps contraction from the year-ago quarter.
What the Zacks Model Unveils
Our proven does not conclusively predict an earnings beat for Dollar Tree this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Dollar Tree has a Zacks Rank #3 and an Earnings ESP of -0.91%.
Stocks With Favorable Combination
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:
Five Below (FIVE - Free Report) currently has an Earnings ESP of +3.68% and a Zacks Rank of 3. The company is likely to register top-line growth when it reports third-quarter fiscal 2023 results. The consensus mark for FIVE’s quarterly revenues is pegged at $726 million, which suggests growth of 12.6% from the figure reported in the prior-year quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FIVE’s earnings has moved up by a penny to 23 cents per share in the past 30 days. However, the consensus estimate indicates a 20.7% decline from the year-ago quarter’s reported figure.
Costco Wholesale (COST - Free Report) currently has an Earnings ESP of +3.49% and a Zacks Rank #3. The company is likely to register growth in the top and bottom lines when it reports first-quarter fiscal 2024 numbers. The consensus mark for COST’s quarterly earnings has moved up by a penny to $3.44 per share in the past seven days. The consensus estimate suggests growth of 11% from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for Costco’s quarterly revenues is pegged at $57.7 billion, which suggests growth of 5.9% from the figure reported in the prior-year quarter.
Ulta Beauty (ULTA - Free Report) currently has an Earnings ESP of +0.06% and a Zacks Rank #3. The company is likely to register growth in the top line when it reports third-quarter fiscal 2023 results. The consensus mark for ULTA’s quarterly revenues is pegged at $2.5 billion, which suggests 5.6% growth from the figure reported in the prior-year quarter.
The consensus mark for ULTA’s quarterly earnings has moved down 0.4% in the past seven days to $4.96 per share. The consensus estimate suggests a decline of 7.1% from the year-ago quarter’s actual.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.