Citi has adjusted its stance on Dollar Tree, Inc. (NASDAQ: NASDAQ:DLTR), reducing the price target significantly to $64 from the previous $120 while retaining a Neutral rating on the stock.
The adjustment follows Dollar Tree's reported earnings, which saw a miss on sales and earnings per share, primarily due to underperformance at the Dollar Tree banner. This resulted in a considerable 20% reduction in the forecast for fiscal year 2024 earnings per share.
The company is currently conducting a strategic review of the Family Dollar banner, but the focus remains on the Dollar Tree segment, which is deemed more critical at this juncture.
The transition to multi-price points in approximately 20% of the store fleet has yielded positive outcomes, yet broader concerns over temporary versus persistent challenges have been raised due to recent macroeconomic factors and execution missteps.
Dollar Tree's difficulties have been exacerbated by a shift in consumer behavior, with middle and upper-income shoppers who frequently patronize Dollar Tree increasingly turning to competitors such as Walmart (NYSE:WMT) and Target.
Competitive promotions from Walmart and Dollar General (NYSE:DG), along with issues in rolling out the multi-price point strategy, have also contributed to the retailer's disappointing performance and outlook.
In other recent news, Wells Fargo, BofA Securities, Evercore ISI, and BMO Capital Markets have all adjusted their outlooks on the company. Wells Fargo reduced the price target on the company's shares to $100 but maintained its Overweight rating, citing potential benefits from the company's multi-price point strategy and the ongoing review of its Family Dollar operations.
BofA Securities and Evercore ISI reduced their price targets for Dollar Tree to $70.00 and $78.00 respectively, while BMO Capital Markets downgraded Dollar Tree's stock from Outperform to Market Perform and reduced the price target to $68.00.
Dollar Tree's recent second-quarter earnings report revealed a 0.7% increase in net sales to $7.4 billion, with comparable store sales slightly rising by 1.3% at Dollar Tree and declining by 0.1% at Family Dollar.
The company also reported adjusted operating income falling by 13% to $344 million, with Family Dollar posting an adjusted operating loss of $3.6 million. The lowered earnings per share (EPS) forecast for fiscal year 2025/calendar year 2024 by BofA Securities now set at $5.40 reflects the weaker sales forecast and the anticipated impacts of higher initial costs from the acquisition of 99 Cents Only stores.
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