Actions from Dollar tree plunged more than 16% in intraday trading Thursday after the company missed Wall Street profit expectations for the latest quarter and cut its full-year profit outlook.
Shares closed roughly 12% lower at $136.66 a share.
Here’s how the discounter fared in its own fiscal first quarter compared to what Wall Street expected based on a survey of analysts by Refinitiv:
- Profit per share: $1.47, adjusted, versus $1.52 expected
- income: $7.32 billion vs. $7.28 billion expected
The company’s net income for the three months ended April 29 was $299 million, or $1.35 per share, compared with $536.4 million, or $2.37 per share, a year earlier. On an adjusted basis, the company reported earnings of $1.47 per share, which fell short of Wall Street projections.
Revenue rose to $7.32 billion from $6.9 billion a year earlier.
According to Street Account estimates, same-store sales rose 4.8%, compared with an expected increase of 3.6%.
After a disappointing quarter, Dollar Tree lowered its full-year earnings outlook to a range of $5.73 to $6.13 per share, down from a previous range of $6.30 to $6.80 per share. Analysts polled by Refinitiv were expecting full-year earnings of $6.68 per share.
The lower outlook was attributed to increased shrinkage or items that were damaged, lost or stolen and a shift in the product mix to consumables, which have lower margins, Dollar Tree CEO Rick Dreiling said in a news release.
“While we are seeing early results from our initiatives, we are not immune to external pressures affecting the entire retail industry,” Dreiling said.
“We are revising our earnings EPS outlook as we expect increased declines and an unfavorable sales mix to persist through the end of the year. We still expect earnings to be more buoyant on the back end this year as the benefits of lower ocean freight rates flow.” ”
The company largely maintained its full-year revenue forecast, but projected net sales in a tightened range of $30 billion to $30.5 billion. It forecasts low to mid-single digit comparable store sales.
For the second quarter, the company expects earnings per share of 79 cents to 89 cents in the second quarter, versus the Refinitiv consensus of $1.22.
Dollar Tree, which operates its namesake banner and Family Dollar, has been in the midst of a turnaround after shuffling its executive leadership and raising prices. Dreiling, a former executive at rival Dollar General, took over as CEO in January. It previously named Jeffrey Davis as its new chief financial officer in August.
Family Dollar has been in the midst of a reset and has made progress, with many stores remaining “subpar and very subpar,” said analyst Neil Saunders, managing director of GlobalData.
“As competition in the value space increases due to the expansion of other dollar store competitors and the growth of players like Aldi, it is imperative that Family Dollar offers a reasonable experience,” Saunders said. “The reward should be increased customer share, which is already starting to show as consumers respond to the improvements made.”
The company said it was also halting the excessive growth that resulted from its decision to raise prices from $1 to $1.25 on most products.
Gross margins in the quarter fell 3.4 percentage points to 30.5% compared to the year-ago period. The company attributed this to the “advantage of excess margins” that came when the company was first transitioning to the increased price.
While other value-oriented sellers, such as TJ Maxx, have seen promising results this retail earnings season, Dollar Tree is lagging behind. Even though the companies have low prices, Dollar Tree customers focus their spending on essential items that have lower margins than on clearance purchases.
