Dollar Tree, Inc. DLTR has experienced a pullback in its share performance, losing half of its value and falling far below its 52-week high of $151.22 touched on Sept. 4. The company’s current price of $75.67 reflects a 49.9% discount from its peak.
Over the past three months, Dollar Tree shares have plunged 29.7% against the broader industry's growth of 2.4% and the S&P 500's 2.7% rise in the same period.
The recent decline in share performance is attributed to the challenges stemming from the company’s product cost inflation, an unfavorable sales mix and elevated shrink, which have been hurting its results.
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Dollar Tree’s stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investors’ concerns about the stock’s short-term outlook.
Reflecting the negative sentiment around Dollar Tree, the Zacks Consensus Estimate for fiscal 2024 and 2025 has seen downward revisions. In the past 60 days, analysts have lowered estimates for fiscal 2024 by 17.8% to $5.45 and for fiscal 2025 by 20.3% to $6.21 per share. This implies a year-over-year earnings decline of 7.47% for fiscal 2024.
What Derailed the Dollar Tree Stock?
Dollar Tree’s Family Dollar segment has been witnessing soft spending trends among low-income consumers for many quarters, which has resulted in soft demand for discretionary items. The lower-income customers have been affected by reductions in the government’s SNAP benefits.
The Family Dollar segment's financial performance has been affected by the above constraints, resulting in a 0.1% dip in comparable store sales in second-quarter fiscal 2024. This decline is driven by a 0.8% decrease in the average ticket size and a 1.7% drop in discretionary comps. Lower SNAP benefits were a 60-basis point headwind for Family Dollar. Categories such as home decor, seasonal items and beauty products, which are more discretionary, have been among the worst performers.
Driven by the soft Family Dollar results and a tough macroeconomic environment, the company’s second-quarter fiscal 2024 earnings and sales declined year over year. The company revised its fiscal 2024 outlook to account for these challenges, including a general liability charge and a more conservative sales forecast for the remainder of the year.
The macroeconomic factors have been hurting customer sentiment and, in turn, the discretionary demand and buying behavior. In the fiscal second quarter, the company witnessed inflation, interest rates and other macro pressures weighing on the buying behavior of the customers. Management has taken a more cautious approach toward comp sales in the back half of fiscal 2024. Comps growth is estimated to be in the low-single-digits for the enterprise and both in the Dollar Tree and Family Dollar segments.
Dollar Tree has been grappling with higher selling, general and administrative (SG&A) expenses for the past few quarters, owing to elevated operating costs. The increase was driven by unfavorable development of general liability claims, increased depreciation expenses from store investments, temporary labor in the Dollar Tree unit to aid multi-price rollout, elevated utility costs and loss of leverage from comps increase.
Final Words on Dollar Tree Stock
Quite apparent, Dollar Tree’s significant stock decline, softening demand in its Family Dollar segment, rising costs, margin pressures and a challenging macroeconomic environment have weighed on its overall performance. If the company continues to report disappointing earnings results or revises its future earnings guidance downward, it could indicate deeper structural issues.
These factors suggest that it may be wise to avoid this Zacks Rank #5 (Strong Sell) stock until there are clear positive developments.
Three Stocks to Consider
We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. ANF, Deckers DECK and Burlington Stores BURL.
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 13% and 63.4%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago reported figures.
Burlington Stores is a nationally recognized off-price retailer of high-quality, branded apparel, footwear, accessories and merchandise for the home at everyday low prices. It currently sports a Zacks Rank #2. BURL has a trailing four-quarter earnings surprise of 18.4%, on average.
The Zacks Consensus Estimate for Burlington Stores’ current financial-year sales and earnings suggests growth of 10.1% and 30.5%, respectively, from the year-ago reported numbers.
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