Yahoo Finance Dollar Tree (DLTR) Posts Q1 Earnings, Starts Family Dollar Review
Dollar Tree, Inc. DLTR has reported mixed first-quarter fiscal 2024 results, with earnings in line with the Zacks Consensus Estimate and sales lagging the same marginally. The top line rose year over year, while the bottom line declined. 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.
Alongside the results, the company has noted that it has been focused on rapidly rolling out the next generation of multi-price stores at the Dollar Tree banner, while being on track to position the Family Dollar stores for long-term growth. In another release, the company has announced a strategic review of operations for its Family Dollar business.
Shares of Dollar Tree slumped 2.1% following the earnings release. The negative sentiment was mainly related to the company’s intention to sell its Family Dollar business. Shares of the Zacks Rank #3 (Hold) company have lost 19.3% in the past three months against the industry’s growth of 1.9%.
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Quarter in Detail
Dollar Tree’s earnings fell 2.7% year over year to $1.43 per share but were in line with the Zacks Consensus Estimate.
Consolidated net sales improved 4.2% year over year to $7.633 billion but marginally missed the Zacks Consensus Estimate of $7.634 billion. Enterprise same-store sales (comps) grew 1% year over year. The company’s comps benefited from a 2.1% rise in traffic, partly negated by a 1.1% decline in average ticket.
In the fiscal first quarter, comps improved 1.7% for the Dollar Tree banner and 0.1% for the Family Dollar banner. The Dollar Tree segment benefited from a 2.8% increase in traffic, offset by a 1.1% decline in average ticket. Comps at Family Dollar were aided by a 0.9% increase in traffic, offset by a 0.8% decline in average ticket.
Our model predicted year-over-year enterprise comps growth of 2.8% for the fiscal first quarter, with a 5.2% increase in comps for the Dollar Tree banner and a 0.1% rise in Family Dollar comps.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote
The gross profit rose 5.3% year over year to $2.35 billion, whereas the gross margin expanded 30 basis points (bps) to 30.8%. Lower freight costs mainly aided the gross margin. This was partly negated by a higher mix of lower-margin consumables sales and elevated shrink. The gross margin expanded 10 bps to 35.4% at the Dollar Tree banner and 40 bps to 25.2% at the Family Dollar segment.
We estimated a year-over-year rise of 4.3% in adjusted gross profit for the fiscal first quarter and a flat adjusted gross margin.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 70 bps to 25.1%. The rise was mainly driven by temporary labor in the Dollar Tree segment to support multi-price rollouts, higher depreciation expenses, and costs related to severance and retention of the store closures in the Family Dollar segment. This was partially offset by lower legal costs in the Family Dollar segment.
As a percentage of sales, we expected SG&A expenses to increase 40 basis points year over year to 24.8% in the fiscal first quarter. In dollar terms, SG&A expenses were anticipated to increase 6.1% year over year.
Adjusted operating income declined 3.1% year over year to $435.6 million. The operating margin contracted 40 bps to 5.7%. The Family Dollar segment reported an adjusted operating margin of 1.5%, up 30 bps from the year-ago quarter.
We estimated a 2.9% year-over-year decline in adjusted operating income for the fiscal first quarter and a 40-bps contraction in the adjusted operating margin.
Balance Sheet
Dollar Tree ended first-quarter fiscal 2024 with cash and cash equivalents of $618.5 million. As of May 4, 2024, net merchandise inventories decreased 2% year over year to $5 billion. It had a net long-term debt of $3.4 billion and shareholders’ equity of $7.3 billion as of May 4, 2024.
The company repurchased 2.5 million shares for $313 million in the fiscal first quarter. As of May 4, 2024, Dollar Tree had $1.04 billion remaining under its existing authorization.
Store Update
In first-quarter fiscal 2024, the company opened 157 stores, re-bannered five and closed 529. It opened 116 Dollar Tree stores and 41 Family Dollar outlets. In the quarter, DLTR closed 16 Dollar Tree and 513 Family Dollar stores. The store closings were mainly related to its earlier announced comprehensive store portfolio optimization review. As of May 4, 2024, DLTR operated 16,397 stores in 48 states and five Canada provinces.
In fourth-quarter fiscal 2023, 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.
At the end of first-quarter fiscal 2024, the company closed 550 stores as part of its portfolio optimization and expects to close more 150 stores by the end of fiscal 2024.
Strategic Review Plan
Concurrent with the earnings release, the company has started the review of strategic alternatives for its Family Dollar business. This review may include a sale, a spin-off or other disposition options for the business.
The company has been focused on achieving its full potential through transformation efforts at the Family Dollar banner and growth acceleration at Dollar Tree, both at the same time. The unique needs of these banners have led to the decision of conducting a thorough review of strategic alternatives for the Family Dollar business.
The company has not set any deadline for the completion of the strategic review. Also, it has indicated that the process does not commit any transaction or a certain outcome. The company has not provided further details on the decision.
Guidance
DLTR has updated its EPS view for fiscal 2024 in relation to the incremental transportation and other expenses incurred due to the recent destruction of its distribution center in Marietta, OK, by a tornado. The company incurred losses of $117 million as of May 4, 2024, related to the issue. This comprised $70 million for damaged inventory and $47 million for property and equipment.
However, the company has retained its expectations of favorable freight rates and moderating headwinds from reduced SNAP benefits. Moreover, it expects the current shrink and mix 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 low to mid-single-digit comps growth for the enterprise. Comps are likely to increase in the mid-single digits for the Dollar Tree banner and low-single digits for the Family Dollar segment.
Management expects an adjusted EPS of $6.50-$7 compared with $6.70-$7.30 mentioned earlier. The outlook includes an additional impact of 20-30 cents from transportation and other costs related to the loss of the Marietta distribution center.
For second-quarter fiscal 2024, DLTR expects consolidated net sales of $7.3-$7.6 billion, based on low to low-single-digit comps growth for the enterprise. Comps are expected to improve 2-4% for the Dollar Tree banner and remain nearly flat for the Family Dollar banner. Adjusted EPS is estimated to be $1-$1.10 for the fiscal second quarter, including about 10 cents of incremental transportation and other costs related to the loss of the Marietta distribution center.
Stocks to Consider
Some better-ranked companies in the Retail-Wholesale sector are Abercrombie & Fitch ANF, Canada Goose GOOS and Burlington Stores BURL.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women and kids, currently flaunts a Zacks Rank #1 (Strong Buy). ANF has a trailing four-quarter negative earnings surprise of 210.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings suggests growth of 10.5% and 47.5%, respectively, from the year-ago period’s actuals. The consensus mark for ANF’s EPS has moved up 18.7% in the past seven days.
Canada Goose, a global outerwear brand, currently sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 70.9%, on average.
The Zacks Consensus Estimate for Canada Goose’s current financial-year earnings suggests growth of 13.7% from the prior-year reported level. The consensus mark for GOOS’s EPS has moved up 6.4% in the past 30 days.
Burlington Stores, a retailer of branded apparel products, currently carries a Zacks Rank #2 (Buy). BURL has a trailing four-quarter earnings surprise of 21.7%, on average.
The Zacks Consensus Estimate for Burlington Stores’ current financial-year sales and earnings suggests growth of 10% and 23.8%, respectively, from the year-ago reported numbers. The consensus mark for BURL’s EPS has moved up 2.3% in the past seven days.
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Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
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