Dollar Tree (DLTR) Slid as Results Fell Short Of Expectations

Dollar Tree (DLTR), the discount retailer known for its $1.00 price point, has seen its stock slide following a disappointing earnings report. The company's shares fell nearly 14% in early trading on Wednesday, as investors reacted to results that missed estimates and announced plans to close 1,000 stores over the next several years. This article explores the reasons behind Dollar Tree's recent struggles and the potential impact on its future prospects.

Dollar Tree's fourth-quarter earnings report revealed a significant loss, driven by a $2.61 billion charge that included goodwill impairment charges and nearly $600 million on its store portfolio review. When adjusted for these charges, the company reported net income of $555.7 million and earnings per share (EPS) of $2.55, both below analyst estimates. The retailer also announced plans to close 600 Family Dollar locations in the first half of the 2024 fiscal year, as well as another 370 Family Dollar and 30 Dollar Tree locations that will close once current leases on the locations end "over the next several years," for a total of 1,000 Family Dollar and Dollar Tree closures over that time frame.



The closures are part of Dollar Tree's ongoing portfolio optimization review, which has identified approximately 970 underperforming Family Dollar stores. The company has already closed around 670 stores as of November 2, 2024, and plans to close another 25 stores during the remainder of the fiscal year. These closures are expected to result in an overall net negative number of stores in the next few years, as the retailer opened 219 new stores in the fourth quarter for a total of 641 for the full fiscal year.

Dollar Tree's struggles can be attributed to several factors, including increased competition from other discount retailers and online players, shifting consumer spending habits, and the impact of inflation on its core customer base. The company's same-store sales growth of 1.3% in the fourth quarter was lower than expected, with the Family Dollar segment reporting a marginal decline of 0.1%. The retailer has also faced challenges in integrating the Family Dollar brand, which it acquired for nearly $9 billion in 2015.



Dollar Tree's response to these challenges has been to close underperforming stores and review strategic alternatives for the Family Dollar business. The company has also reduced the value of some of its assets, including the Family Dollar name by some $950 million, as well as taking a goodwill impairment charge to the Family Dollar brand of $1.07 billion. For the full fiscal year, Dollar Tree bought back $504.3 million in its own stock, and still has $1.35 billion allotted to buy back more in the future, but did not include plans to do so in its 2024 guidance.

In the 2024 fiscal year, Dollar Tree projected an increase in sales with a range of $31 billion to $32 billion, and a full-year EPS of $6.70 to $7.30. In the current quarter, Dollar Tree projected $7.6 billion to $7.9 billion in sales, with an EPS of $1.33 to $1.48, below analyst estimates. The company's shares were down 13.6% at $129.30 about half an hour after the opening bell on Wednesday.

Dollar Tree's recent struggles highlight the challenges faced by discount retailers in a changing retail landscape. As consumers increasingly turn to online shopping and value-conscious competitors like Walmart and Target, dollar stores like Dollar Tree and Dollar General face an uphill battle to maintain market share and pricing power. The company's strategic review of the Family Dollar business and store closures are necessary steps to address these challenges and ensure the long-term viability of the company.

As an investor, it is essential to stay informed about the latest developments in the retail sector and the specific challenges faced by individual companies. Dollar Tree's recent struggles serve as a reminder that even established retailers can face significant headwinds in a rapidly evolving market. By carefully evaluating the company's financial performance, strategic initiatives, and competitive landscape, investors can make informed decisions about whether to buy, sell, or hold their shares in the company.