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Dollar Tree (DLTR) Q4 Earnings Miss, Family Dollar Comps Soft
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Dollar Tree, Inc. (DLTR - Free Report) has reported fourth-quarter fiscal 2023 results, wherein earnings and sales missed the Zacks Consensus Estimate. The top line declined year over year, while earnings improved. The company’s results have benefited from gains across both segments, higher traffic and robust market share growth. However, product cost inflation, an unfavorable sales mix and elevated shrink continued to hurt.
Dollar Tree’s earnings increased 25% year over year to $2.55 per share. However, earnings missed the Zacks Consensus Estimate of $2.67. Earnings included costs primarily related to general liability claims of 17 cents per share.
Consolidated net sales declined 11.9% year over year to $8,639.9 million and missed the Zacks Consensus Estimate of $8,673 million. Enterprise same-store sales (comps) improved 3% year over year. The company’s comps benefited from a 4.6% rise in traffic, partly negated by a 1.5% decline in average ticket.
The Zacks Rank #3 (Hold) stock has risen 15.3% in the past three months compared with the industry’s growth of 15%.
Image Source: Zacks Investment Research
Quarter in Detail
For the Dollar Tree banner, comps improved 6.3%, while the same for the Family Dollar banner declined 1.2%. The Dollar Tree segment benefited from a 7.1% increase in traffic, which was somewhat offset by a 0.7% decline in average ticket. Comps at Family Dollar were aided by a 0.7% increase in traffic, offset by a 2% decline in average ticket.
We anticipated enterprise comps to increase 2.7% in the fiscal fourth quarter. Our model predicted comps growth of 5.7% for the Dollar Tree banner and a 1% comps decline for Family Dollar.
The adjusted gross profit rose 19.8% year over year to $2.86 billion, whereas the gross margin expanded 220 basis points (bps) to 33.1%. We estimated a rise of 32.7% in adjusted gross profit for the fiscal fourth quarter and a 170-bps expansion in the adjusted gross margin. Lower freight costs, sales leverage, gains from the 53rd week in fiscal 2023, and higher allowances aided the gross margin. This was partly negated by product cost inflation, an unfavorable sales mix and elevated shrink. The gross margin expanded 230 bps to 39% at the Dollar Tree banner and 160 bps to 25.2% at the Family Dollar segment.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 150 bps to 24.4%. The increase was mainly driven by labor investments in stores and field payroll, investments in repairs and maintenance, and higher depreciation and amortization. This was partially offset by sales leverage, the impacts of the 53rd week and lower utility expenses.
As a percentage of sales, we expected SG&A expenses to increase 70 basis points year over year to 23.6% in the fiscal fourth quarter. In dollar terms, SG&A expenses were anticipated to increase 15.2% year over year.
Adjusted operating income rose 21.2% year over year to $749.1 million. The operating margin expanded 70 bps to 8.7%. We estimated 26.5% growth in adjusted operating income and a 100-bps expansion in the adjusted operating margin. Segment-wise, the adjusted operating margin expanded 80 bps to 17.6% for Dollar Tree. The Family Dollar segment reported an adjusted operating margin of 0.2%, up 20 bps from the year-ago quarter.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree ended fiscal 2023 with cash and cash equivalents of $684.9 million. As of Feb 3, 2024, net merchandise inventories decreased 6.2% year over year to $5.1 billion. It had a net long-term debt of $3.4 billion and shareholders’ equity of $7.3 billion as of Feb 3, 2024.
The company did not repurchase any shares in the fiscal fourth quarter due to its portfolio review process. In fiscal 2023, it bought back 3.9 million shares for $504.3 million. As of Feb 3, 2024, Dollar Tree had $1.35 billion remaining under its existing authorization.
Store Update
In fourth-quarter fiscal 2023, the company opened 219 stores, re-bannered five and closed 72. It opened 146 Dollar Tree stores and 73 Family Dollar outlets. In the quarter, DLTR closed 13 Dollar Tree and 59 Family Dollar stores. As of Feb 3, 2024, DLTR operated 16,774 stores in 48 states and five Canada provinces.
In the fiscal fourth quarter, the company announced a comprehensive review of its Family Dollar portfolio to identify stores that are not aligned with its transformative vision for closure, relocation or re-bannering.
As part of the review, the company expects to close 600 Family Dollar stores in the first half of fiscal 2024. Additionally, it has identified provisions to close 370 Family Dollar and 30 Dollar Tree stores over the next several years, subject to the end of each store’s current lease term.
In fourth-quarter fiscal 2023, the company incurred $594.4 million of charges in connection with the store portfolio review. It also incurred a goodwill impairment charge of $1.07 billion and a trade name intangible asset impairment charge of $950 million.
Guidance
DLTR has provided its initial view for fiscal 2024. The company’s guidance incorporates the benefits of favorable freight rates and moderating headwinds from reduced SNAP benefits throughout fiscal 2024. However, it expects current shrink and mic levels to remain headwinds in the first half of fiscal 2024. The company also remains confident of its progress on the key growth initiatives and its business transformation plan.
For fiscal 2024, Dollar Tree expects consolidated net sales of $31-$32 billion. The company anticipates mid-single-digit comps growth. Comps are likely to increase in the low to mid-single digits for the enterprise, comprised of mid-single-digit growth in the Dollar Tree banner and low-single-digit growth in the Family Dollar segment.
Management expects earnings per share (EPS) of $6.70-$7.30. The outlook includes a 15-cent benefit from the anticipated store closures in the Family Dollar segment, which is mainly expected to occur in the second half of fiscal 2024. The company expects to continue closing underperforming stores in the first half of fiscal 2024.
For first-quarter fiscal 2024, DLTR expects consolidated net sales of $7.6-$7.9 billion, based on low to mid-single-digit comps growth for the enterprise. Comps are also expected to improve in the low to mid-single digits at the Dollar Tree banner. Meanwhile, comps for the Family Dollar banner are likely to be flat year over year. EPS is estimated to be $1.33-$1.48 for the fiscal first quarter.
Stocks to Consider
Some better-ranked companies in the Retail-Wholesale sector are American Eagle Outfitters (AEO - Free Report) , Deckers Outdoor (DECK - Free Report) and Abercrombie & Fitch (ANF - Free Report) .
American Eagle, a specialty retailer of casual apparel, accessories, and footwear for men and women, currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 22.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings suggests growth of 3.3% and 7.9%, respectively, from the prior-year reported levels. The consensus mark for AEO’s EPS has moved up 5.8% in the past seven days.
Deckers Outdoor, a leading designer, producer and brand manager of innovative, niche footwear and accessories, currently flaunts a Zacks Rank #1. DECK has a trailing four-quarter earnings surprise of 32.1%, on average.
The Zacks Consensus Estimate for Deckers Outdoor’s current financial-year sales and earnings suggests growth of 15.7% and 38.7%, respectively, from the year-ago reported numbers. The consensus mark for DECK’s EPS has moved up by a penny in the past seven days.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently carries a Zacks Rank #2 (Buy). ANF has a trailing four-quarter negative earnings surprise of 715.6%, on average.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings suggests growth of 5.7% and 12.4%, respectively, from the year-ago period’s actuals. The consensus mark for ANF’s EPS has moved up 9% in the past seven days.
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Dollar Tree (DLTR) Q4 Earnings Miss, Family Dollar Comps Soft
Dollar Tree, Inc. (DLTR - Free Report) has reported fourth-quarter fiscal 2023 results, wherein earnings and sales missed the Zacks Consensus Estimate. The top line declined year over year, while earnings improved. The company’s results have benefited from gains across both segments, higher traffic and robust market share growth. However, product cost inflation, an unfavorable sales mix and elevated shrink continued to hurt.
Dollar Tree’s earnings increased 25% year over year to $2.55 per share. However, earnings missed the Zacks Consensus Estimate of $2.67. Earnings included costs primarily related to general liability claims of 17 cents per share.
Consolidated net sales declined 11.9% year over year to $8,639.9 million and missed the Zacks Consensus Estimate of $8,673 million. Enterprise same-store sales (comps) improved 3% year over year. The company’s comps benefited from a 4.6% rise in traffic, partly negated by a 1.5% decline in average ticket.
The Zacks Rank #3 (Hold) stock has risen 15.3% in the past three months compared with the industry’s growth of 15%.
Image Source: Zacks Investment Research
Quarter in Detail
For the Dollar Tree banner, comps improved 6.3%, while the same for the Family Dollar banner declined 1.2%. The Dollar Tree segment benefited from a 7.1% increase in traffic, which was somewhat offset by a 0.7% decline in average ticket. Comps at Family Dollar were aided by a 0.7% increase in traffic, offset by a 2% decline in average ticket.
We anticipated enterprise comps to increase 2.7% in the fiscal fourth quarter. Our model predicted comps growth of 5.7% for the Dollar Tree banner and a 1% comps decline for Family Dollar.
The adjusted gross profit rose 19.8% year over year to $2.86 billion, whereas the gross margin expanded 220 basis points (bps) to 33.1%. We estimated a rise of 32.7% in adjusted gross profit for the fiscal fourth quarter and a 170-bps expansion in the adjusted gross margin. Lower freight costs, sales leverage, gains from the 53rd week in fiscal 2023, and higher allowances aided the gross margin. This was partly negated by product cost inflation, an unfavorable sales mix and elevated shrink. The gross margin expanded 230 bps to 39% at the Dollar Tree banner and 160 bps to 25.2% at the Family Dollar segment.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 150 bps to 24.4%. The increase was mainly driven by labor investments in stores and field payroll, investments in repairs and maintenance, and higher depreciation and amortization. This was partially offset by sales leverage, the impacts of the 53rd week and lower utility expenses.
As a percentage of sales, we expected SG&A expenses to increase 70 basis points year over year to 23.6% in the fiscal fourth quarter. In dollar terms, SG&A expenses were anticipated to increase 15.2% year over year.
Adjusted operating income rose 21.2% year over year to $749.1 million. The operating margin expanded 70 bps to 8.7%. We estimated 26.5% growth in adjusted operating income and a 100-bps expansion in the adjusted operating margin. Segment-wise, the adjusted operating margin expanded 80 bps to 17.6% for Dollar Tree. The Family Dollar segment reported an adjusted operating margin of 0.2%, up 20 bps from the year-ago quarter.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote
Balance Sheet
Dollar Tree ended fiscal 2023 with cash and cash equivalents of $684.9 million. As of Feb 3, 2024, net merchandise inventories decreased 6.2% year over year to $5.1 billion. It had a net long-term debt of $3.4 billion and shareholders’ equity of $7.3 billion as of Feb 3, 2024.
The company did not repurchase any shares in the fiscal fourth quarter due to its portfolio review process. In fiscal 2023, it bought back 3.9 million shares for $504.3 million. As of Feb 3, 2024, Dollar Tree had $1.35 billion remaining under its existing authorization.
Store Update
In fourth-quarter fiscal 2023, the company opened 219 stores, re-bannered five and closed 72. It opened 146 Dollar Tree stores and 73 Family Dollar outlets. In the quarter, DLTR closed 13 Dollar Tree and 59 Family Dollar stores. As of Feb 3, 2024, DLTR operated 16,774 stores in 48 states and five Canada provinces.
In the fiscal fourth quarter, the company announced a comprehensive review of its Family Dollar portfolio to identify stores that are not aligned with its transformative vision for closure, relocation or re-bannering.
As part of the review, the company expects to close 600 Family Dollar stores in the first half of fiscal 2024. Additionally, it has identified provisions to close 370 Family Dollar and 30 Dollar Tree stores over the next several years, subject to the end of each store’s current lease term.
In fourth-quarter fiscal 2023, the company incurred $594.4 million of charges in connection with the store portfolio review. It also incurred a goodwill impairment charge of $1.07 billion and a trade name intangible asset impairment charge of $950 million.
Guidance
DLTR has provided its initial view for fiscal 2024. The company’s guidance incorporates the benefits of favorable freight rates and moderating headwinds from reduced SNAP benefits throughout fiscal 2024. However, it expects current shrink and mic levels to remain headwinds in the first half of fiscal 2024. The company also remains confident of its progress on the key growth initiatives and its business transformation plan.
For fiscal 2024, Dollar Tree expects consolidated net sales of $31-$32 billion. The company anticipates mid-single-digit comps growth. Comps are likely to increase in the low to mid-single digits for the enterprise, comprised of mid-single-digit growth in the Dollar Tree banner and low-single-digit growth in the Family Dollar segment.
Management expects earnings per share (EPS) of $6.70-$7.30. The outlook includes a 15-cent benefit from the anticipated store closures in the Family Dollar segment, which is mainly expected to occur in the second half of fiscal 2024. The company expects to continue closing underperforming stores in the first half of fiscal 2024.
For first-quarter fiscal 2024, DLTR expects consolidated net sales of $7.6-$7.9 billion, based on low to mid-single-digit comps growth for the enterprise. Comps are also expected to improve in the low to mid-single digits at the Dollar Tree banner. Meanwhile, comps for the Family Dollar banner are likely to be flat year over year. EPS is estimated to be $1.33-$1.48 for the fiscal first quarter.
Stocks to Consider
Some better-ranked companies in the Retail-Wholesale sector are American Eagle Outfitters (AEO - Free Report) , Deckers Outdoor (DECK - Free Report) and Abercrombie & Fitch (ANF - Free Report) .
American Eagle, a specialty retailer of casual apparel, accessories, and footwear for men and women, currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 22.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings suggests growth of 3.3% and 7.9%, respectively, from the prior-year reported levels. The consensus mark for AEO’s EPS has moved up 5.8% in the past seven days.
Deckers Outdoor, a leading designer, producer and brand manager of innovative, niche footwear and accessories, currently flaunts a Zacks Rank #1. DECK has a trailing four-quarter earnings surprise of 32.1%, on average.
The Zacks Consensus Estimate for Deckers Outdoor’s current financial-year sales and earnings suggests growth of 15.7% and 38.7%, respectively, from the year-ago reported numbers. The consensus mark for DECK’s EPS has moved up by a penny in the past seven days.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently carries a Zacks Rank #2 (Buy). ANF has a trailing four-quarter negative earnings surprise of 715.6%, on average.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings suggests growth of 5.7% and 12.4%, respectively, from the year-ago period’s actuals. The consensus mark for ANF’s EPS has moved up 9% in the past seven days.