Dollar Tree, a leading bargain store chain, witnessed a significant decline in its share prices during intraday trading on Wednesday, as unexpected challenges in its fiscal second-quarter earnings surfaced. The company reported a year-over-year earnings slump, which raised concerns among investors and analysts alike, while sales figures fell short of expectations amid prevailing macroeconomic pressures affecting consumer behavior. In the recent earnings report, Dollar Tree disclosed that its adjusted earnings per share dwindled by 26% to $0.67, which starkly contrasts with the average analyst estimate of $1.04, as recorded on Capital IQ.
The total revenue showed a slight increase, rising to $7.38 billion for the three-month period ending on August 3, up from $7.33 billion in the previous year. However, this figure missed Wall Street’s expectations, which were set at $7.48 billion. When looking at enterprise comparable sales, the results revealed a modest uptick of 0.7%.
Analyzing the company's performance by segment, Dollar Tree managed to achieve a same-store sales increase of 1.3%, whereas its sister brand, Family Dollar, faced challenges as sales dipped by 0.1%. The market responded negatively to the news, resulting in a considerable 19% drop in Dollar Tree's share price during Wednesday's trading session. Chief Financial Officer Jeff Davis provided insights during a conference call with analysts, emphasizing that the softness in comparable sales was predominantly linked to discretionary spending patterns.
He pointed out that macroeconomic pressures are increasingly influencing the purchasing behaviors of Dollar Tree's middle and higher-income consumers. This shifting landscape is a crucial aspect for the company as it navigates financial hurdles. In light of these developments, Dollar Tree has revised its full-year sales outlook, now expecting figures to fall between $30.6 billion and $30.9 billion, a reduction from its previous forecast of $31 billion to $32 billion.
Furthermore, the company's adjusted EPS forecast has been lowered to a range of $5.20 to $5.60, adjusted from the earlier projection of $6.50 to $7. In the ongoing year, analysts anticipate revenue and normalized EPS to reach approximately $30.97 billion and $6.22, respectively, as indicated by Capital IQ. Looking ahead, Dollar Tree has updated its expectation for enterprise comparable sales growth, now predicting low-single-digit growth compared to prior forecasts that indicated low-to-mid-single-digit increases.
The company has cited several factors contributing to this revision, including general liability claims stemming from customer accidents and other incidents in its stores, a more cautious sales outlook specific to Dollar Tree, and additional costs related to the integration of the recently acquired portfolio of 99 Cents Only stores, as stated by Davis. For the upcoming third quarter, Dollar Tree is advising that sales will hover between $7.4 billion and $7.6 billion, coupled with expectations for low-single-digit comparable sales growth.
The adjusted EPS projection for this period is estimated to fall between $1.05 and $1.15, a stark contrast to the previous year’s figures which stood at $7.31 billion in sales and $0.97 in adjusted EPS during the same quarter. The consensus forecasts indicate expectations for sales and normalized EPS of approximately $7.54 billion and $1.21, respectively, for this quarter. Scot Ciccarelli, Managing Director at Truist Securities, expressed severe criticism regarding the results, describing them as "a mess" and remarked that the dollar store sector is currently facing "extreme pressure." The challenges faced by companies targeting lower-income consumers are exacerbated, he explained, highlighting the substantially negative impacts that cumulative inflation has had on market performance..