Dollar Tree Cuts EPS Guidance, Shares Tumble

© Reuters. Dollar Tree (DLTR) Cuts EPS Guidance, Shares Tumble

By Sam Boughedda

Shares of Dollar Tree (NASDAQ:DLTR) are down more than 11% Thursday after the company reported earnings premarket, which missed revenue and guidance expectations.

The discount store chain reported a second-quarter profit of $1.60, $0.01 better than the analyst estimate of $1.59, with revenue missing the consensus estimate, coming in at $6.77 billion versus the $6.8 billion expected.

The company's same-store sales increased with Dollar Tree at +7.5%, Family Dollar at +2.0% and Enterprise at +4.9%.

"Our second quarter performance reinforces the relevance of our brands for millions of households pressured by higher costs for food, fuel, rent and more. We delivered increases of 6.7% in sales, 14.2% in gross profit, 25.7% in operating profit and 30.1% in EPS in the face of great macroeconomic uncertainty," stated Mike Witynski, President and Chief Executive Officer.

Dollar Tree cut its FY2022 EPS forecast and now sees it between $7.10 and $7.40, versus the consensus of $8.19. In addition, its revenue forecast was raised to between $27.85 billion and $28.1 billion, versus the consensus of $28.2 billion.

Following the report, analysts at KeyBanc Capital markets, Goldman Sachs and Evercore ISI commented:

A KeyBanc analyst said in his note: "DLTR reported 2Q EPS above expectations, but lowered 2022 EPS guidance on numerous investments. Comps accelerated for both banners, with Tree continuing to benefit from the price increase to the $1.25 price point. Results align with our proprietary KFL Data, which pointed to Dollar Stores being a bright spot for Retail with sequential improvement. Looking ahead, DLTR announced new investments in price and labor, as well as operational headwinds. As such, 2022 EPS guidance was lowered substantially, though we believe many of these investments can help position DLTR for better growth in 2023."

A Goldman Sachs analyst, who has a Neutral rating and $153 price target on the stock, said: "DLTR reported 2Q22 EPS of $1.60 (vs $1.23 a year ago), in-line with consensus (StreetAccount) and above our $1.53 estimate. Consolidated SSS of +4.9% was lower than GS/consensus at +5.6%/+5.0%. By banner, comparable sales for Dollar Tree SSS increased +7.5% vs GS/consensus at +10.0%/+8.7%, and Family Dollar SSS increased +2.0% vs GS/consensus at +0.5%/+0.5%. The company also updated its FY22 outlook and introduced 3Q guidance."

Finally, an Evercore ISI analyst, who has an In Line rating and $175 price target on Dollar Tree, stated: "DLTR's 2Q results were largely in line with expectations, with the surprise coming from the profit guide down. DLTR's new EPS guidance midpoint is $7.25, or 11% below the Street's prior outlook. 2Q EPS of $1.60 was in line with sales slightly lower (enterprise comps up 4.5% vs Street 5.2%) but with greater profit margin expansion. What is likely to weigh on DLTR and the space today is the lowered full-year guidance to $7.25 at the midpoint vs. an $8.00 midpoint prior with sharper pricing at Family Dollar (60% of the reduction), negative mix shift (20%), inflationary cost pressure (15%), and wages/store conditions (5%)."