Dollar Tree Sees Q3 Below Market, Cuts FY24 View After Weak Q2 Earnings; Stock Down

(RTTNews) - Shares of Dollar Tree, Inc. were losing nearly 13 percent in the pre-market activity on the Nasdaq after the discount retail chain on Wednesday issued third-quarter outlook and trimmed fiscal 2024 forecast, both below market estimates. The outlook reflects its second-quarter results with weak earnings, also below the Street view, despite slight growth in net sales.

Chief Financial Officer Jeff Davis said, "We are updating our full-year outlook to reflect second quarter results, including the general liability charge, a more conservative sales outlook at Dollar Tree for the balance of the year, and incremental start-up costs associated with the conversion of our recently acquired portfolio of 99 Cents Only Stores leases."

The company noted that it has initiated a formal review of strategic alternatives for the Family Dollar business segment, which could include among others, a potential sale, spin-off, or other disposition of the business. A set deadline or definitive timetable is not given for the completion of the review process. The company also said there could be no assurance that the process will result in any deal or particular outcome.

Looking ahead for the third quarter, Dollar Tree projects adjusted earnings per share to be in the range of $1.05 to $1.15.

The company expects consolidated net sales for the third quarter will range from $7.4 billion to $7.6 billion, based on comparable store net sales growth in the low-single-digits for the enterprise and both the Dollar Tree and Family Dollar segments.

Analysts on average expect the company to report earnings of $1.32 per share on sales of $7.59 billion for the quarter, according to figures compiled by Thomson Reuters. Analysts' estimates typically exclude special items.

Further, for fiscal 2024, Dollar Tree now expects adjusted earnings per share in the range of $5.20 to $5.60, lower than previously expected $6.50 to $7.00.

Consolidated net sales are now expected in the range of $30.6 billion to $30.9 billion, compared to $31.0 billion to $32.0 billion expected earlier.

The Street is looking for earnings of $6.55 per share on sales of $31.19 billion for the year.

Further, Dollar Tree now expects to deliver comparable store net sales growth in the low-single-digits for the enterprise and both the Dollar Tree and Family Dollar segments.

Earlier, the company projected comparable net sales growth in the low-to-mid-single digits for the enterprise, mid-single-digits in the Dollar Tree segment, and low-single-digits in the Family Dollar segment.

For the second quarter, the company's net income declined to $132.4 million from last year's $200.4 million. Earnings per share were $0.62, down 32 percent from $0.91 a year ago.

Adjusted net income was $143.4 million or $0.67 per share. Analysts expected the company to report earnings of $1.04 per share.

According to the company, adjusted earnings per share were $0.38 below the midpoint of previous outlook range, mainly due to an adjustment of its general liability accrual, as well as a comp shortfall which reflected the increasing effect of macro pressures on the purchasing behavior of Dollar Tree's middle- and higher-income customers.

Total revenue edged up to $7.38 billion from last year's $7.33 billion. Consolidated net sales increased 0.7 percent to $7.37 billion from last year's $7.32 billion. The Street was looking for revenues of on sales of $7.49 billion for the quarter.

In the quarter, Enterprise same-store net sales increased 0.7 percent, driven by a 1.1 percent increase in traffic, offset by a 0.5 percent decrease in average ticket.

Dollar Tree same-store net sales increased 1.3 percent, driven by a 1.4 percent increase in traffic, while Family Dollar's same-store net sales decreased 0.1 percent.

In pre-market activity on the Nasdaq, Dollar Tree shares were losing around 12.7 percent to trade at $71.30.

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