On Tuesday, Citi reiterated its Neutral rating on Dollar Tree (NASDAQ:DLTR), with a steady price target of $64.00. The firm's analysis focused on the upcoming third-quarter earnings, noting that the emphasis will likely be on the fourth-quarter guidance rather than the third-quarter results themselves.
This perspective comes after Dollar Tree confirmed its third-quarter guidance on November 4, which included an earnings per share (EPS) forecast of $1.05 to $1.15. The announcement coincided with the news of CEO Rick Dreiling's departure.
Citi's own estimate for Dollar Tree's third-quarter EPS stands at $1.08, slightly above the consensus of $1.07. The firm anticipates comparable store sales to increase by 0.8%, which is below the consensus expectation of a 1.3% rise. However, Citi is adopting a cautious stance for the fourth quarter, anticipating that increased promotions may be a strategic move for Dollar Tree to preserve market share during this period.
The analyst projected a decline in fourth-quarter gross margin by 110 basis points, contrasting with the consensus, which suggests a 20 basis point increase to 33.4%. Such an increase would set a record high for Dollar Tree's fourth-quarter gross margin. Despite these concerns, Citi expects management to approach the fourth-quarter outlook with caution.
Citi believes that the potential for a decline in Dollar Tree's stock price is limited, attributing this resilience to the already bearish sentiment among investors as the company approaches its earnings announcement. The firm's position indicates that while there may be challenges ahead, particularly in the fourth quarter, the current market expectations have largely accounted for these factors.
In other recent news, Dollar Tree has undergone significant leadership and financial changes. The company reported a modest 0.7% increase in net sales to $7.4 billion in its second quarter, while its adjusted operating income fell by 13% to $344 million. Dollar Tree also revised its executive compensation agreements and announced a series of executive promotions, with Steve Schumacher being elevated to Executive Vice President and Chief People Officer, Jocelyn "Jocy" Konrad appointed as Chief of Dollar Tree Stores and Enterprise Store Operations, and Jason Nordin stepping into the role of President of Family Dollar Stores.
Following the resignation of CEO Rick Dreiling due to health issues, Mike Creedon was appointed as the interim CEO. Telsey Advisory Group downgraded the stock from Outperform to Market Perform, Loop Capital maintained its Hold rating, and KeyBanc Capital Markets retained an Overweight rating.
Dollar Tree also announced the closure of nearly 1,000 stores across the United States as part of an ongoing strategic review of its Family Dollar operations.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Dollar Tree's financial situation, complementing Citi's analysis. Despite the challenges highlighted in the article, InvestingPro Tips suggest that Dollar Tree's management has been aggressively buying back shares, which could be seen as a sign of confidence in the company's long-term prospects. Additionally, net income is expected to grow this year, potentially offsetting some of the concerns about margin pressure in the fourth quarter.
InvestingPro data shows that Dollar Tree's market capitalization stands at $15.0 billion, with a forward P/E ratio of 15.0. This valuation metric, when considered alongside the company's revenue of $30.97 billion over the last twelve months and a revenue growth of 5.65%, provides context to Citi's Neutral rating and $64 price target.
It's worth noting that while the article discusses potential margin pressures, InvestingPro data indicates that Dollar Tree's gross profit margin over the last twelve months was 31.06%, which investors may want to monitor in light of Citi's projections for the fourth quarter.
For readers interested in a more comprehensive analysis, InvestingPro offers 8 additional tips for Dollar Tree, providing a deeper dive into the company's financial health and market position.
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