Why Dollar Tree Shares Are Crumbling

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Dollar Tree Inc. (NASDAQ: DLTR) saw its shares slip early in Wednesday’s session after reporting weaker-than-expected fiscal fourth-quarter results before the markets opened. Although the results were a surprise, the sizeable reaction was even more so.

Competitor Dollar General Corp. (NYSE: DG) has yet to report earnings (March 15), but the stock is down in response to Dollar Tree’s weak quarter. Each of these stocks is up at least 29% over the past 52 weeks — beating out the broad markets — but the year-to-date numbers are a different story.

As for Dollar Tree’s earnings, the dollar store said that it had $1.89 in earnings per share (EPS) on $6.36 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $1.90 in EPS on $6.39 billion in revenue. The same period of last year reportedly had EPS of $1.36 and $5.64 billion in revenue.

During the quarter, enterprise same-store sales increased 2.4% on a constant currency basis. The same-store sales growth was driven by increases in average ticket and comparable transaction count. Same-store sales for the Dollar Tree banner increased 3.8% on a constant currency basis (or 3.9% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for the Family Dollar banner increased 1.0%.

Looking ahead to the fiscal first quarter, the company expects to see EPS in the range of $1.18 to $1.25 and revenues between $5.53 billion and $5.63 billion. The consensus estimates are $1.31 in EPS on $5.6 billion in revenue.

Gary Philbin, president and CEO, commented:

I am proud of our team’s performance in the fourth quarter and our results for 2017. For the quarter, we posted positive same-store sales in our Dollar Tree and Family Dollar banners, while improving gross margin and leveraging costs. For the year, we opened 603 new stores, exceeded $22 billion in sales and improved our operating margin by 80 basis points. I would like to thank each of our associates for their dedicated work and continued efforts throughout the year to deliver value, convenience and our brand standards to our customers every day.

Shares of Dollar Tree were last seen on Wednesday down 16% at $87.55, with a consensus analyst price target of $120.15 and a 52-week trading range of $65.63 to $116.65.

Dollar General shares were down 4% at $89.42, in a 52-week range of $65.97 to $105.82 and with a consensus price target of $106.56.