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Dollar Tree shares target cut by Deutsche on mixed results

EditorEmilio Ghigini
Published 06/06/2024, 09:46 PM

On Thursday, Deutsche Bank adjusted its outlook on Dollar Tree (NASDAQ:DLTR) shares, lowering the price target to $149 from $151, while still recommending a Buy rating for the discount retailer's stock.

The revision follows the company's recent announcement of a strategic review of its Family Dollar business, which may include a sale, and its first-quarter performance that did not meet expectations.

Dollar Tree reported a modest increase in comparable store sales (comps) of 1.7% for the core Dollar Tree brand, falling short of the anticipated 3% to 4% growth. This was attributed to a weaker Easter season and softer discretionary demand.

The company's guidance for second-quarter same-store sales (SSS) is set at 2% to 4%, with the full-year forecast reaffirmed at mid-single-digit (MSD) growth.

To meet these projections, second-half sales at Dollar Tree will need to pick up, reaching the high-single-digit (HSD) range, an acceleration from the low-single-digit (LSD) growth seen in the first half of the year.

Despite the underwhelming top-line results, traffic at Dollar Tree stores remained robust. The shortfall was partly due to unfavorable weather conditions and a subdued Easter, which together accounted for a 150 basis points negative impact. The performance at Family Dollar, however, exceeded modest expectations and turned a profit in the first quarter.

Deutsche Bank also highlighted several positive factors for Dollar Tree, including the potential benefits from the introduction of multi-price points, which could lead to increased average basket sizes.

Additionally, the reduction in headwinds from the Supplemental Nutrition Assistance Program (SNAP) at Family Dollar and the expected rise in discretionary spending were seen as encouraging signs.

Furthermore, the acquisition of 170 new stores from the 99 Cents Only Stores chain is expected to contribute positively, as these locations have historically generated above-average sales and profits.

In conclusion, despite the recent pullback in Dollar Tree's stock price following the earnings report, Deutsche Bank views the valuation as attractive and maintains its Buy rating.

In other recent news, Dollar Tree has seen several adjustments in its stock price targets and ratings by multiple financial firms. BMO Capital, Piper Sandler, Truist Securities, Citi, and Evercore ISI have all revised their outlooks following Dollar Tree's recent earnings announcement and strategic decisions. The earnings per share met expectations, but concerns arose due to weaker-than-anticipated comparable sales.

In addition, Dollar Tree's consideration of a potential sale or spin-off of the Family Dollar segment has drawn heightened scrutiny. Despite the challenges, Dollar Tree reported a consolidated net sales increase of 4.2% to $7.6 billion in its first quarter, with comparable store sales rising by 1.7% for Dollar Tree and Family Dollar's increasing by 0.1%. The company's full-year adjusted earnings per share is projected to be in the range of $6.50 to $7.

These developments have led to a reassessment of the risk/reward balance for Dollar Tree's stock, with firms like Citi downgrading the stock from a Buy to a Neutral rating.

Despite these adjustments, firms like BMO Capital and Piper Sandler maintain a positive outlook for Dollar Tree's long-term potential. This news reflects the recent developments in Dollar Tree's operational and financial performance.

InvestingPro Insights

Following Deutsche Bank's revision of Dollar Tree's price target, a look at InvestingPro data shows a mixed picture for the discount retailer. With a market capitalization of $24.13 billion and a P/E ratio that has adjusted to 22.53 for the last twelve months as of Q1 2023, investors may find the valuation compelling. The revenue growth of 7.51% during the same period indicates a healthy expansion, although the company's price has seen a significant drop of 23.31% over the last three months.

InvestingPro Tips suggest that while analysts have revised earnings downwards for the upcoming period, they still predict the company will be profitable this year. Additionally, Dollar Tree's cash flows are noted to sufficiently cover interest payments, and its liquid assets exceed short-term obligations, which could provide some financial stability for the company amidst the strategic review of its Family Dollar business.

For those interested in a deeper analysis, InvestingPro offers additional insights on Dollar Tree, which can be accessed at https://www.investing.com/pro/DLTR. Readers can also take advantage of the offer to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more detailed InvestingPro Tips for informed investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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