It has been about a month since the last earnings report for Dollar Tree (DLTR). Shares have lost about 9.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dollar Tree due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Dollar Tree Q4 Earnings Beat Estimates, Sales Rise Y/Y
Dollar Tree reported fourth-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but sales lagged the same. Although it witnessed drab holiday season sales, results gained from the initial launch of the Dollar Tree Plus! initiative and sturdy performance of renovated stores.
Quarter in Detail
Dollar Tree’s earnings declined 5.8% year over year to $1.79 per share but exceeded the Zacks Consensus Estimate of $1.76. The bottom line was toward the higher end of the company’s guidance of $1.70-$1.80 per share.
Consolidated net sales rose 1.8% to $6,315.3 million but lagged the Zacks Consensus Estimate of $6,393 million. Enterprise same-store sales (comps) grew 0.4%. Comps growth was backed by a 1.5% improvement in Dollar Tree (taking into account the impact of Canadian currency fluctuations), while the metric fell 0.8% in Family Dollar. This marked the 48th straight quarter of comps growth for the Dollar Tree segment.
Quarterly gross profit improved 2.5% year over year to $1,960.5 million, while gross margin contracted 50 bps to 31%. The margin contraction mainly resulted from higher tariffs, and increased occupancy, shrink and distribution costs as a percentage of sales, which were partly compensated by lower freight expenses.
Adjusted selling, general and administrative (SG&A) expense rate expanded 60 bps to 21.9% as a percentage of sales due to elevated payroll and higher depreciation costs.
Adjusted operating income declined 8.3% to $580.4 million. Due to the soft gross margin and higher SG&A costs, adjusted operating margin contracted 100 bps to 9.2%.
Dollar Tree ended the quarter with cash and cash equivalents of $539.2 million, net merchandise inventories of $3,522 million, net long-term debt (excluding current maturities) of $3,522.2 million and shareholders’ equity of $6,254.8 million. Further, it still has nearly $800 million under the current share-buyback plan.
In fourth-quarter fiscal 2019, Dollar Tree opened 112 stores, expanded or relocated 17 outlets, and shuttered 95 stores. Moreover, it re-bannered 10 Family Dollar stores into Dollar Tree. It also completed the renovation of five Family Dollar stores to the H2 format. For fiscal 2020, management anticipates renovating nearly 1,250 Family Dollar stores to the H2 format.
As of Feb 1, 2020, Dollar Tree operated 15,288 stores in 48 states and five Canadian provinces.
The company issued fiscal 2020 view, wherein it expects sales to be $24.21-$24.66 billion and same-store sales to grow in low-single digit. Also, adjusted earnings are envisioned to be $4.8-$5.15.
This view includes a tariff impact of $47 million, with most of it being incurred in the first half of the fiscal year. Further, it excludes any impact of COVID-19 on the supply chain or other aspects of the business. Additionally, it is gearing up for the launch of the Dollar Tree Plus! 2.0 initiative in fiscal 2020.
For first-quarter fiscal 2020, the company projects sales of $5.89-$5.99 billion along with same-store sales growth in low-single digit. Further, adjusted earnings are estimated to be $1-$1.09 per share. The first-quarter guidance is inclusive of adverse impacts from higher tariffs and promotions.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -19.14% due to these changes.
At this time, Dollar Tree has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dollar Tree has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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