Dollar Tree, Inc. (DLTR) shares plummeted on Wednesday after the company announced disappointing second-quarter financial results and a revised outlook. The discount variety store chain reported adjusted earnings per share (EPS) of $0.67, falling short of the consensus estimate of $1.04 and marking a 26.4% year-over-year decline.
The company’s adjusted gross margin increased by 88 basis points, driven by lower freight costs, but this gain was partly offset by an unfavorable sales mix and higher occupancy costs. The adjusted EBIT margin of 3.0% also missed analyst expectations, with Goldman Sachs and consensus estimates at 4.5% and 4.4%, respectively.
Analysts remain cautious about the company’s future prospects. Goldman Sachs analyst Kate McShane reiterated a Buy rating on the stock with a price target of $145. However, she expressed concerns about the comparative performance of Family Dollar, the reasons behind the decline in average transaction size during the quarter, and current trends for the quarter-to-date. McShane also sought clarification on the company’s performance across various categories, market share details, inflation and pricing dynamics, and the impact of promotions and competitive pressures. She also highlighted uncertainty surrounding the effects of shrinkage, product mix, and future freight costs.
Meanwhile, Telsey Advisory Group analyst Joseph Feldman maintained an Outperform rating on Dollar Tree with a price target of $120. Feldman expressed disappointment with the weak second-quarter results and the significant reduction in guidance for 2024. He noted that Dollar Tree, like its competitor Dollar General Corporation (DG), has faced macroeconomic challenges, particularly affecting middle and upper-income consumers. These challenges, combined with ongoing transformation efforts, have put pressure on the company’s performance.
The stock closed down 24.5% at $61.64 on Wednesday. The decline reflects investor concerns about the company’s ability to navigate a challenging economic environment and successfully implement its transformation strategy.
