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Dollar Tree tops earnings estimates as consumers trade down

Yahoo Finance Live anchors discuss the decline in stock for Dollar Tree following third-quarter earnings.

Video Transcript

JULIE HYMAN: Dollar Tree also out with its numbers this morning, and those numbers look pretty good. And we've been talking about this tradedown effect, but the shares don't look pretty good. We've been talking about the shared tradedown effect that we've been seeing at a lot of the retailers. Expected Dollar Tree to benefit from this. As far as I can tell, the numbers look pretty decent here. The company's earnings per share beating estimates. Comp sales up 6 and 1/2%. That's ahead of estimates as well.

BRIAN SOZZI: Yeah, Dollar Tree crushed it here. What you are essentially seeing right now is what they call profit taking. Dollar Tree shares ran up about almost 19% in the past month alone. This was probably one of the best quarters you're going to see in retail, and of course, I think mirrors what we heard from Walmart when they reported earnings last week.

That low income shopper is-- or actually, I should say that middle income consumer is trading down to the likes of Walmart and Dollar Tree ahead of the holiday shopping season. Dollar Tree same store sales up 8.6%. Even that Family Dollar business, which has been just not a good acquisition since they acquired it, they even saw same store sales up 4.1%.

BRAD SMITH: Dollar Tree understands the assignment. This is a brand that they know, in an economic downturn, how important they're going to be for so many consumers, especially if you did get a tradedown effect. Within this as well, you also have a period where they had seen some of their net sales increase 8.1%. They also saw their gross profit increase 17 and 1/2% as well.

And so with that type of improvement, both on the margin side and then just understanding where you can service consumers, in any type of economic or spending pullback for consumers as well at the household level, I think Dollar Tree really executed.

And now it's just a matter of going forward from here, how can they maintain either some of the inventory levels that they need and foot traffic over that extended period of time for the different kind of store movements that they've also been talking about within this most recent quarter. And that was kind of a constant theme that we heard from some of the earnings today, too.

JULIE HYMAN: If there's anything that's a little bit more negative here, the company's outlook is perhaps a little bit cautious when it comes to profit. The profit forecast for the company for the full year, 710 to 740. And the company said that they'll be in the lower half of that range. So again, I mean, in addition-- so it's sort of the flip side of Best Buy and what you were saying, right? Like, expectations for Best Buy were very bad. Expectations for Dollar Tree were quite high. So you get--

BRIAN SOZZI: One of the coolest things I found in Dollar Tree recently, they sell dollar steak. Now I'm not trying this stuff, but it's--

BRAD SMITH: $1 steak. That sounds trustworthy.

BRIAN SOZZI: Yeah, it's a little suspect, but look, if you can no longer afford the $7 steak at Walmart, maybe you're getting the dollar steak at Dollar Tree.

JULIE HYMAN: A, what animal? B--

BRIAN SOZZI: Don't want to know.

JULIE HYMAN: What cut?

BRIAN SOZZI: Yeah, I will-- I have the photo. I will report back to you guys, and we'll follow this over.

BRAD SMITH: That is the scrapple of steak.

BRIAN SOZZI: Dollar steak. They're getting rid of their steak. Yeah.