On Wednesday, Telsey Advisory Group maintained its Outperform rating on Dollar Tree (NASDAQ:DLTR) with a steady price target of $120.00, despite the retailer reporting weaker-than-expected results for the second quarter of 2024 and reducing its guidance for the year.
Dollar Tree's performance reflected broader macroeconomic challenges, which also affected middle and upper-income consumers, similar to its competitor Dollar General (NYSE:DG). These challenges, along with ongoing transformation efforts, have impacted the company's financial outcomes.
Dollar Tree disclosed earnings per share (EPS) of $0.67 for the second quarter, which included higher-than-anticipated general liability claims costing $0.30 per share. This figure fell short of both Telsey's prediction of $1.01 and the FactSet consensus of $1.04. Comparable store sales grew by a modest 0.7%, with an increase in traffic by 1.1% but a decrease in average ticket size by 0.5%.
These results did not meet Telsey's expectation of a 0.8% rise or the FactSet consensus of 1.5%. The company also experienced a contraction in operating margin by approximately 100 basis points to 3.0%.
The softer operating margin was largely due to a rise in selling, general and administrative (SG&A) expenses, which increased by roughly 185 basis points to 27.1%. This increase was attributed to higher general liability claims, depreciation, temporary labor, and utility expenses, although it was partially offset by lower incentive compensation.
On a positive note, the gross margin improved by 87 basis points to 30.0%, thanks to reduced freight costs, though this was somewhat negated by product cost inflation, higher occupancy costs at core Dollar Tree stores, and increased distribution costs at Family Dollar locations. Overall, EBIT (earnings before interest and taxes) declined by 24% to $218 million, which was below the Telsey estimate of $316.5 million and the FactSet consensus of $322 million.
Telsey expressed disappointment with Dollar Tree's second-quarter performance and the significant reduction in its guidance for 2024. The company's struggles with its long-term business transformation were noted, and Telsey stated that its rating, estimates, and price target are pending further details, which were expected to be discussed during the company's conference call scheduled for 8:00 am ET.
In other recent news, Dollar Tree has been the subject of various analyst reviews and significant internal developments. The company's second-quarter earnings fell short of expectations, primarily due to an increase in General Liability Claims expenses, leading to a 20% reduction in the earnings per share (EPS) guidance. BMO Capital maintained its Outperform rating on Dollar Tree, despite these challenges, expressing continued confidence in the company's performance.
Truist Securities reaffirmed a Buy rating for Dollar Tree, while Telsey Advisory Group adjusted their 12-month price target for the company to $120, maintaining an Outperform rating. Oppenheimer and Citi maintained their neutral stance on Dollar Tree, citing ongoing difficulties faced by lower-income consumers and challenges in the discretionary category.
The company also granted performance-based restricted stock units to Lawrence Gatta Jr., the Chief Merchandising Officer for Family Dollar, as part of its 2021 Omnibus Incentive Plan.
Dollar Tree's shareholders re-elected all director nominees to the board for one-year terms and approved the compensation of Dollar Tree's named executive officers. However, a proposal for the Board to adopt a policy requiring an independent Chairman did not pass.
Lastly, the company ratified the appointment of KPMG LLP as its independent registered public accounting firm for the fiscal year 2024.
InvestingPro Insights
In light of Telsey Advisory Group's maintained Outperform rating on Dollar Tree (NASDAQ:DLTR), a look at the InvestingPro data and tips may offer additional context for investors. Dollar Tree's market capitalization stands at $17.55 billion, and while the company has faced challenges, management's aggressive share buybacks signal confidence in the company's future. The adjusted P/E ratio for the last twelve months as of Q1 2025 is 16.43, which may appeal to value-oriented investors, especially considering the stock is trading near its 52-week low.
InvestingPro Tips suggest a mixed outlook: on one hand, net income is expected to grow this year, and the company's cash flows can sufficiently cover interest payments, indicating financial stability. On the other hand, nine analysts have revised their earnings downwards for the upcoming period, reflecting concerns about the company's near-term earnings potential. Notably, the stock's price has fallen significantly over the last three months, which could represent a buying opportunity for long-term investors if they believe in the company's profitability turnaround, as suggested by analysts' predictions for this year.
For investors seeking a deeper dive into Dollar Tree's financial health and future prospects, InvestingPro offers additional tips, providing a comprehensive analysis that could prove invaluable in making informed investment decisions. To explore these insights, visit https://www.investing.com/pro/DLTR for more details.
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