Dollar Tree Stock Sinks As Macro Pressures Impact Consumers

The outside of a Dollar Tree store in California — (Image credit: Justin Sullivan/Getty Images)

Dollar Tree (DLTR) stock is spiraling in Wednesday's session after the dollar-store chain missed top- and bottom-line expectations for its second quarter and slashed its full-year outlook.

In the 13 weeks ended August 3, Dollar Tree's revenue increased 0.7% to $7.4 billion, helped by a 0.7% improvement in same-store sales growth. Its earnings per share (EPS) decreased 26.4% from the year-ago period to 67 cents.

The "vast majority" of the earnings slump was "attributable to an adjustment of our general liability accrual, a portion was attributable to a comparable-store-sales shortfall which reflected the increasing effect of macro pressures on the purchasing behavior of Dollar Tree's middle- and higher-income customers," said Dollar Tree Chief Financial Officer Jeff Davis in a statement.

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The results came up short of analysts' expectations. Wall Street was anticipating revenue of $7.5 billion and earnings of $1.04 per share, according to Yahoo Finance.

As a result of its weak performance in the first half and "a more conservative sales outlook at Dollar Tree for the balance of the year," the company cut its full-year outlook.

It now anticipates revenue in the range of $30.6 billion to $30.9 billion, comparable-store sales growth in the low-single-digits and earnings per share to arrive between $5.20 to $5.60.

This compares with Dollar Tree's previous outlook of revenue in the range of $31 billion to $32 billion, comparable-store sales growth in the low-to-mid-single digits, and earnings per share of $6.50 to $7.00.

Is Dollar Tree stock a buy, sell or hold?

Similar to its peer Dollar General (DG), which recently suffered its worst day ever after earnings, Dollar Tree has struggled on the charts this year, down 54% so far. Yet, Wall Street remains bullish on the consumer staples stock.

According to S&P Global Market Intelligence, the average analyst target price for DLTR stock is $131.13, representing implied upside of roughly 100% to current levels. Meanwhile, the consensus recommendation is a Buy. However, analysts may very well revise their ratings and price targets lower following the earnings miss and reduced guidance.

Financial services firm UBS Global Research is one of the more bullish outfits on DLTR stock with a Buy rating and $155 price target.

“We believe the DLTR story remains compelling," said UBS analyst Michael Lasser in an August 29 note.

Lasser says there are several potential catalysts for Dollar Tree, including it being a beneficiary to moderating inflation or deflation in some categories, its rollout of higher shelves and merchandising resets, its expansion of multi-price assortment, and an improvement in profitability from its portfolio review of its Family Dollar brand.

However, the analyst adds that "the market probably won't recognize these favorable attributes until estimates stop moving lower."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.