Dollar Tree ($DLTR) Faces Headwinds Despite Revenue Growth

13 mar

Dollar Tree (DLTR) encountered a tumultuous start to the year as it grappled with missed earnings estimates and recorded significant charges, signaling challenges in its store closure plan. While the discount retail giant reported revenue growth, uncertainties loom amidst liabilities and a cautious outlook. Let's delve deeper into the implications of Dollar Tree's recent performance and what lies ahead.

Earnings Performance:
Despite a 25% increase in earnings to $2.55 per share and an 11.9% surge in revenue to $8.63 billion, Dollar Tree (DLTR) fell short of analysts' expectations. Market projections anticipated earnings to reach $2.66 per share and revenue to hit $8.67 billion. Same-store sales across the business rose by 3%, primarily fueled by a robust 6.3% increase in comparable sales at Dollar Tree (DLTR) outlets. However, this growth was tempered by a 1.2% decline in same-store sales at Family Dollar stores.

Store Closure Plan and Charges:
Dollar Tree (DLTR) unveiled plans to close approximately 600 Family Dollar stores in the first half of 2024 as part of its portfolio optimization strategy. Additionally, it aims to shutter 370 Family Dollar locations and 30 Dollar Tree stores over the coming years. However, this restructuring incurred hefty charges, including a $594.4 million impairment charge linked to the store review, alongside significant goodwill and intangible asset impairment charges. These charges resulted in a substantial loss of $7.85 per share for the quarter, a stark contrast to the previous year's earnings of $2.04 per share.

Guidance and Outlook:
Looking ahead, Dollar Tree (DLTR) provided guidance for fiscal 2024, projecting earnings between $6.70 to $7.30 per share, compared to the adjusted earnings of $5.89 per share in 2023. The retailer anticipates consolidated revenues to marginally increase to a range of $31 billion to $32 billion. Despite challenges in the first half of the year attributed to shrink and mix levels, Dollar Tree (DLTR) remains optimistic about favorable freight rates and reduced SNAP benefits providing a boost throughout the year.

Technical Analysis
With a Relative Strength Index (RSI) of 63, (DLTR) is poised to maintain its bullish momentum trading above the 200-day Moving Average indicates (DLTR) is in a continual trend.

Market Response and Conclusion:
DLTR stock witnessed a sharp decline of 7.8% following the earnings report, reflecting investor concerns over the company's performance and outlook. Despite this setback, Dollar Tree (DLTR) had shown resilience earlier in the year, with a 5.4% gain through Tuesday's close, and a 0.46% gain in Wednesday's premarket trading.