Dollar Tree (DLTR) earnings Q1 2023

Shares of Dollar Tree plunged more than 16% in intraday trading Thursday after the company fell short of Wall Street’s earnings expectations for the most recent quarter and slashed its profit outlook for the full year.

The stock closed about 12% lower at $136.66 a share.

Here’s how the discounter did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.47, adjusted, vs. $1.52 expected 
• Revenue: $7.32 billion vs. $7.28 billion expected 

The company’s reported net income for the three-month period that ended April 29 was $299 million, or $1.35 a share, compared with $536.4 million, or $2.37 a share, a year earlier. On an adjusted basis, the company reported earnings of $1.47 per share, falling below Wall Street projections.

Sales rose to $7.32 billion, up from $6.9 billion a year earlier. 

Same store sales were up 4.8% compared to an expected uptick of 3.6%, according to Street Account estimates. 

Following the disappointing quarter, Dollar Tree lowered its profit outlook for the full year to a range of $5.73 to $6.13 per share, down from a prior range of $6.30 to $6.80 per share. Analysts polled by Refinitiv had been expecting full-year earnings of $6.68 per share.

The lower outlook was attributed to elevated shrink, or items that were damaged, lost or stolen, and a shift in product mix to consumables, which carry lower margins, Dollar Tree’s CEO Rick Dreiling said in a news release. 

“While we are seeing early results from our initiatives, we are not immune to the external pressures affecting all of retail,” said Dreiling.

“We are adjusting our EPS outlook as we expect the elevated shrink and unfavorable sales mix to persist through the balance of the year. We still expect earnings to be more back-end loaded this year as the benefits of lower ocean freight rates flow through.” 

The company largely maintained its full-year sales forecast, however, projecting net sales in the tightened range of $30 billion to $30.5 billion. Its forecasting 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 its second quarter versus Refinitiv consensus estimates of $1.22. 

Dollar Tree, which runs its namesake banner and Family Dollar, has been in the midst of a turnaround after shuffling up its executive leadership and raising prices. In January, Dreiling, a former executive with rival Dollar General, took over as CEO. Prior to that, it named Jeffrey Davis as its new chief financial officer in August.

Family Dollar has been in the midst of a reset, and it’s made progress, many stores remain “sub-par and very down-at-heel,” said analyst Neil Saunders, managing director of GlobalData.

“With competition in the value space increasing from the expansion of other dollar store rivals and the growth of players like Aldi, it is imperative that Family Dollar offers a reasonable experience,” said Saunders. “The reward should be increased shopper share which is already starting to come through as consumers respond to the improvements being made.”

The company said it is also lapping outsized growth that came from its decision to increase prices from $1 to $1.25 on most products. 

Gross margins in the quarter declined 3.4 percentage points to 30.5% compared to the year ago period. The company attributed that to an “outsized margin benefit” that came when the company was first transitioning to its raised price. 

While other value-oriented retailers, such as TJ Maxx, have seen promising results this retail earnings season, Dollar Tree has fallen short. Even with the companies low prices, Dollar Tree shoppers have been focusing their spending on essential items, which carry lower margins, over discretionary purchases.