DLTR holding recent gains after top and bottom line beats

Dollar Tree (DLTR) exceeded expectations for Q3 EPS and revenue, reporting adjusted EPS of $1.12, above estimates of $1.08, and revenue of $7.56 billion, which also beat consensus estimates of $7.47 billion. Comparable sales grew 1.8%, outperforming expectations of 1.34%, with Dollar Tree segment comps rising 1.8% and Family Dollar segment comps up 1.9%.

Gross profit margin improved to 30.9% from 29.7% year-over-year, driven by lower freight and shrink costs, though offset partially by higher distribution costs. Operating margin increased 35 basis points to 4.5%, reflecting cost management efforts. Family Dollar gross margin also rose to 24.9%, with operating margin expanding to 0.3% due to improved expense leverage.

Dollar Tree provided Q4 guidance with an adjusted EPS range of $2.10-$2.30, in line with estimates of $2.26, and sales guidance of $8.1 billion-$8.3 billion, slightly below consensus of $8.29 billion. The company projects low single-digit comparable sales growth across both the Dollar Tree and Family Dollar segments.

Full-year 2024 guidance was narrowed, with EPS expected in the range of $5.31-$5.51 versus prior guidance of $5.20-$5.60. Revenue guidance was slightly raised to $30.7 billion-$30.9 billion, reflecting the company's confidence in maintaining low single-digit comps for both segments.

Key drivers for the quarter included improved merchandising efforts and cost controls, particularly in the Dollar Tree segment, which posted robust sales growth of 8.3% year-over-year. However, Family Dollar sales declined by 2.5%, underscoring the ongoing challenges in this segment.

Dollar Tree announced the departure of CFO Jeff Davis, with plans to name a successor by early next year, following the recent exit of CEO Rick Dreiling. Interim CEO Mike Creedon emphasized the company's focus on accelerating Dollar Tree's growth and completing the strategic review of Family Dollar.

The strategic review of Family Dollar includes options such as a sale, spinoff, or other disposition, and the company has already closed approximately 670 underperforming Family Dollar stores, with 25 more closures expected by year-end. This portfolio optimization aims to improve profitability in the segment.

Despite solid Q3 results, leadership uncertainty and broader retail challenges, including increased promotions and competition, pose risks to sustained growth. The stock gained 11% premarket, signaling investor optimism about the company’s near-term performance and strategic direction.