Dollar Tree misses bottom line expectations; Set to close 970 stores
AInvestWednesday, Mar 13, 2024 9:41 am ET
3min read

Dollar Tree (DLTR), a leading discount retail chain, recently reported its earnings for the fourth quarter of the fiscal year. The company missed the top and bottom-line expectations and provided guidance that fell short of consensus. The news has weighed on shares as the stock is down 10% in the pre-market, erasing nearly all of February"s gains. 

The company announced Q4 (Jan) earnings of $2.55 per share, which was $0.12 worse than the consensus of $2.67. Revenues for the quarter rose 11.9% year-over-year to $8.63 billion, slightly missing the consensus of $8.66 billion. 

Enterprise same-store net sales increased 3.0%, driven by a 4.6% increase in traffic, partially offset by a 1.5% decline in average ticket. Dollar Tree same-store net sales increased 6.3 %, fueled by a 7.1% increase in traffic, partially offset by a 0.7% decline in average ticket. Family Dollar's same-store net sales decreased 1.2%, with a 0.7% increase in traffic being partially offset by a 2.0% decline in average ticket. 

Gross profit increased 16.2% to $2.77 billion and gross margin expanded 120 basis points to 32.1%. Gross margin expansion was driven by lower freight costs, sales leverage, the impact of the 53rd week in fiscal 2023, and higher allowances, offset by product cost inflation, unfavorable sales mix, elevated shrink, and higher distribution and markdown costs. On a non-GAAP basis, which excludes distribution and markdown costs related to the store portfolio optimization review, adjusted gross profit increased 19.8% to $2.86 billion and adjusted gross margin expanded 220 basis points to 33.1%.

Selling, general and administrative expenses were 54.0% of total revenue, compared to 22.9%. The increase was due to a non-cash goodwill impairment charge, a non-cash trade name impairment charge, a non-cash store asset impairment charge, a litigation charge, unfavorable development of general liability claims, labor investments in store and field payroll, investments in repairs and maintenance, and higher depreciation and amortization, partially offset by sales leverage, the impact of the 53rd week in fiscal 2023, and lower utility costs. On a non-GAAP basis, which excludes the impairment and litigation charges, adjusted selling, general and administrative costs were 24.4% of total revenue.

The company issued guidance for Q1, expecting EPS of $1.33 to $1.48, well below expectations of $1.71. Revenues for the quarter are expected to be in the range of $7.6 to $7.9 billion, also missing the consensus of $7.68 billion. The guidance is based on a low-to-mid-single digit increase in same-store sales for the enterprise and the Dollar Tree segment, and approximately flat same-store sales growth for the Family Dollar segment. 

For the full fiscal year 2025, the company expects EPS to range from $6.70 to $7.30, which is in line with the consensus of $7.04. Revenues for the year are expected to be in the range of $31.0 to $32.0 billion, placing the midpoint slightly below Street expectations of $31.72 billion.  The company anticipates delivering a low-to-mid-single digit comparable store net sales increase for the year, comprised of a mid-single-digit increase in the Dollar Tree segment and a low-single-digit increase in the Family Dollar segment. 

While DLTR expects current shrink and mix levels to be a headwind in the first half of the year, it is expecting to benefit from favorable freight rates and moderating headwinds from reduced SNAP benefits throughout the year.

The company's results for the quarter and full year fiscal 2023 were influenced by a number of factors, including a $594.4 million charge for a portfolio optimization review, a $1.07 billion goodwill impairment charge, and a $950 million trade name intangible asset impairment charge. Excluding these charges , adjusted earnings per share (EPS) was $2.55, which included $0.17 of costs primarily related to general liability claims. It is important to note that the quarter and annual results reflected an extra week as fiscal 2023 was a 53-week year. The portfolio optimization review identified approximately 600 Family Dollar stores for closure in the first half of fiscal 2024, with an additional 370 stores slated to close as their leases expire. 

Given the portfolio review process, the Company did not repurchase any shares during the quarter. While share repurchases are not included in the outlook, the Company has $1.35 billion remaining under its share repurchase authorization as of February 3, 2024.

In conclusion, the company's earnings report for Q4 (Jan) and full-year fiscal 2023 showed mixed results, with revenues slightly missing expectations while same-store sales showed growth. The company's guidance for Q1 and full-year fiscal 2024 suggests a potential decline in earnings and revenues, with the enterprise and Dollar Tree segment expected to drive growth. is focused on key growth initiatives and business transformation efforts to improve its performance in the coming years.


Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.