Shares of Dollar Tree, Inc. dropped nearly 13 percent in pre-market trading on the Nasdaq following the company’s disappointing third-quarter outlook and revised fiscal 2024 forecast, both of which fell short of market expectations. The outlook came in the wake of second-quarter results that revealed weaker-than-anticipated earnings despite a modest rise in net sales.
Chief Financial Officer Jeff Davis stated, "We are updating our full-year outlook to reflect second quarter results, including the general liability charge, a more conservative sales outlook at Dollar Tree for the balance of the year, and incremental start-up costs associated with the conversion of our recently acquired portfolio of 99 Cents Only Stores leases."
The company announced a formal review of strategic alternatives for its Family Dollar segment. This process could result in a sale, spin-off, or other forms of disposition of the business. However, no specific deadline or definitive timetable has been set for completing the review. The company also cautioned there could be no assurance that the process will result in any transaction or specific outcome.
For the third quarter, Dollar Tree expects adjusted earnings per share (EPS) between $1.05 and $1.15. Consolidated net sales for the period are projected to be in the range of $7.4 billion to $7.6 billion, based on low-single-digit growth in comparable store net sales for both the Dollar Tree and Family Dollar segments.
Analysts, on average, had predicted earnings of $1.32 per share on sales of $7.59 billion for the quarter, as per Thomson Reuters. Analysts' estimates typically exclude special items.
Looking further ahead, for fiscal 2024, Dollar Tree forecasts adjusted EPS to be between $5.20 and $5.60, a reduction from the previously anticipated range of $6.50 to $7.00. Consolidated net sales are now expected to range from $30.6 billion to $30.9 billion, down from the earlier forecast of $31.0 billion to $32.0 billion.
The consensus among analysts is for the company to report annual earnings of $6.55 per share on sales of $31.19 billion. Additionally, Dollar Tree expects low-single-digit growth in comparable store net sales for the enterprise and both the Dollar Tree and Family Dollar segments. This is a revision from the prior guidance, which projected low-to-mid-single-digit growth for the enterprise, mid-single-digit growth for Dollar Tree, and low-single-digit growth for Family Dollar.
In the second quarter, net income fell to $132.4 million from $200.4 million the previous year. EPS declined 32 percent to $0.62 from $0.91 a year ago. Adjusted net income was $143.4 million or $0.67 per share, missing analysts' expectations of $1.04 per share.
The company attributed the $0.38 per share shortfall mainly to an adjustment in its general liability accrual and a comp shortfall reflecting increased macro pressures affecting the purchasing behavior of Dollar Tree’s middle- and higher-income customers.
Total revenue slightly increased to $7.38 billion from $7.33 billion the previous year, with consolidated net sales rising 0.7 percent to $7.37 billion from $7.32 billion. This, however, fell short of the expected $7.49 billion.
For the quarter, enterprise same-store net sales grew 0.7 percent, supported by a 1.1 percent rise in traffic, which was partially offset by a 0.5 percent decrease in the average ticket. Dollar Tree same-store net sales increased 1.3 percent owing to a 1.4 percent rise in traffic, while Family Dollar’s same-store net sales decreased by 0.1 percent.
In pre-market trading on the Nasdaq, Dollar Tree shares were down approximately 12.7 percent, trading at $71.30.
