(MENAFN- ValueWalk)
Dollar Tree (NASDAQ:DLTR) stock plummeted 22.16% in US markets on Wednesday after slipping 3.36% on Tuesday. This occurred even though the discount-products retail store chain reported 1.3% year-over-year net same-store sales growth for its Dollar Tree Segment in fiscal 2024's second quarter.
dollar tree stock price | source
I mentioned in June 2024 that there are better ways to put your money to work than Dollar Tree .
Dollar Tree's Family Dollar Segment net same-store sales declined 0.1%. That's not the worst part of Dollar Tree's Q2-FY2024 report, though.
Dollar Tree also delivered worse-than-anticipated top-line and bottom-line quarterly results. The company also slashed its full-year earnings guidance range. This suggests that Dollar Tree stock might not present an irresistible discount, even after the share-price haircut.
Inflation takes a toll on Dollar Tree's customers
Without using the word“inflation,” Dollar Tree's management made it crystal clear that price pressures created problems for Dollar Tree and its customers. In particular, Dollar Tree CEO Rick Dreiling observed“immense pressures from a challenging macro environment.” At the same time, Chief Financial Officer (CFO) Jeff Davis noted an“increasing effect of macro pressures on the purchasing behavior of Dollar Tree's middle- and higher-income customers.”
This inflationary“pressure” appeared in Dollar Tree's second-quarter fiscal 2024 results. The company's Dollar Tree Segment same-store sales grew 1.3% year over year, and this segment's traffic increased by 1.4%, but the Dollar Tree Segment's average“ticket” or purchase size decreased by 0.1%.
This suggests that Dollar Tree's customers came to shop but spent less per visit. Dreiling claimed that Dollar Tree's customers“are responding favorably to initiatives like our expanded multi-price offering.”
Still, it would require more than a moderate uptick in Dollar Tree Segment same-store sales growth to back up this cheerful claim.
Results and guidance fall flat
A 20% or more share-price dump might seem like an extreme response from Dollar Tree stock traders. However, there's no denying that Dollar Tree's Q2-FY2024 results and forward guidance missed the mark.
Starting with the top-line results, Dollar Tree's net sales grew 0.7% year over year (YoY) to $7.37 billion. This might sound respectable, but bear in mind that analysts had expected Dollar Tree to generate $7.49 billion in net sales.
Turning to Dollar Tree's bottom-line results, the company's adjusted operating income decreased 24.2% to $218.1 million. Furthermore, Dollar Tree reported adjusted earnings of $0.67 per share, down 26.4% and substantially below Wall Street's consensus estimate of $1.04 per share.
In addition, Davis stated that Dollar Tree's adjusted EPS of $0.67 was $0.38 below the midpoint of the company's previously disclosed outlook range. He claimed that the“vast majority of this variance was attributable to an adjustment of our general liability accrual,” which I would interpret as an accounting anomaly.
At the same time, Davis couldn't deny that a“portion” of Dollar Tree's subpar quarterly earnings result“was attributable to a comp shortfall which reflected the increasing effect of” the aforementioned“macro pressures.” Thus, Davis couldn't entirely shift the blame to accounting-related irregularities.
Moreover, Dollar Tree slashed its full fiscal year earnings guidance, which ranged from $6.50 to $7 per share previously to $5.20 to $5.60 per share currently. That's a sizable outlook reduction, which seems to contradict Dreiling's cheerful commentary.
Dollar Tree stock may be“cheap for a reason”
When a stock falls sharply, as Dollar Tree did on Wednesday, it may be considered a bargain for contrarian investors. Alternatively, it might be a“falling knife” that investors shouldn't be too eager to catch.
To put it another way, DLTR stock looks cheap, but it may be“cheap for a reason,” as the old saying goes. Going forward, and in light of Dollar Tree's less-than-stellar quarterly results and reduced full-year EPS guidance, investors may choose to stay out of the trade and let the market punish Dollar Tree for a little while.
MENAFN26092024005205011743ID1108717702
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.