S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
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Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
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Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Critical asset just had biggest fall on record (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Critical asset just had biggest fall on record (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Critical asset just had biggest fall on record (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway

Dollar Tree Falls As Theft Cuts Into Bottom Line

Dollar Tree stock price

Key Points

  • Dollar Tree shares imploded after weak guidance caused by increased shrinkage. 
  • Despite this, the company is on track to grow and improve operations in 2023. 
  • The long-term outlook is bright, but headwinds may keep the stock moving sideways. 
  • 5 stocks we like better than Dollar Tree

Sad but true, Dollar Tree confirms a growing trend in the retail world. Theft, euphemistically known as shrinkage, is on the rise and cutting into earnings, and this isn’t the 1st company to say so. Target NYSE: TGT has mentioned a growing problem with shrinkage for the last 2 quarters, and there are others. What this means for Dollar Tree is a downgrade to guidance. The company narrowed its revenue range and trimmed the earnings target due to expected shrinkage, so the stock is down double-digits. However, trading at the new low, the stock becomes attractive again because of the turn-around efforts. 

Dollar Tree has been investing in efficiency and customer acquisition, and the efforts are working. Traffic and comp sales are up across the network, driving improvement in results despite the Q1 weakness and revised guidance. The takeaway is that increased traffic and market share is a lever for growth that will drive shareholder value over the long term. 

“We are rapidly executing on a multi-faceted plan to fundamentally transform and improve the operating performance of Dollar Tree and Family Dollar for the long-term,” said CEO Rick Dreiling.

Dollar Tree Has Solid Quarter, Trims Guidance 

Dollar Tree had a solid quarter despite the impact of shrinkage. The company reported $7.33 billion in revenue for a gain of 6.2% compared to last year. The gain was driven by an increase in traffic offset by a decline in average tickets as habits shifted from merchandise to consumables. On a segment basis, the core DLTR segment grew by 3.4% and was outpaced by a 6.6% gain at Family Dollar. Enterprise sales grew by 4.8%. 

The margin news is also a drag on the share price. The margins were expected to contract, but the impact of shrinkage amplified pricing and product-mix headwinds to shave 340 bps off the gross margin. SG&A also increased, primarily due to a legal reserve build, to leave operating income and EPS down by double digits. The bad news is that the adjusted $1.47 missed the consensus by $0.07 and sparked a market re-evaluation. 

The guidance amplified the re-evaluation. The company narrowed revenue guidance but trimmed the EPS outlook because of shrinkage. Execs expect shrinkage to shave $0.40 to $0.80 off the Marketbeat.com consensus estimate or 600 to 1200 basis points. The risk is that shrinkage will be worse than anticipated and may lead to increased security spending by the company. 

Capital Returns Are Safe 

Dollar Tree doesn’t pay dividends but repurchases shares, which should continue in 2023. The company’s earnings were impacted by shrinkage, but the FCF is up YOY, and the balance sheet is in good shape. The company repurchased $151 million worth of shares in Q2, about 1 million shares, or roughly 0.5% of the shares outstanding.

Dollar Tree shares may fall further, but the floor is in sight. The stock has a firm floor at the $125 level, which should keep the stock from falling further. Assuming that is the case, DLTR shares should continue to move sideways within their trading range.  

Dollar Tree stock chart

→ Critical asset just had biggest fall on record (From Stansberry Research) (Ad)

Should you invest $1,000 in Dollar Tree right now?

Before you consider Dollar Tree, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Dollar Tree wasn't on the list.

While Dollar Tree currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Target (TGT)
4.6757 of 5 stars
$155.29+1.5%2.83%19.81Moderate Buy$152.83
Walmart (WMT)
4.2834 of 5 stars
$58.76+0.3%1.29%30.71Moderate Buy$61.03
Dollar Tree (DLTR)
3.7576 of 5 stars
$148.44+1.2%N/A28.17Moderate Buy$149.44
Compare These Stocks  Add These Stocks to My Watchlist 

Thomas Hughes

About Thomas Hughes

  • tmhughes.writeon@gmail.com

Contributing Author

Technical and Fundamental Analysis

Experience

Thomas Hughes has been a contributing writer for MarketBeat since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 


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