Dollar Tree's Q4 Results Are Rooted In Family Dollar's Performance

Anthony Chukumba of Loop Capital expects the fourth-quarter earnings of Dollar Tree, Inc. DLTR to be below consensus expectations amid weak Family Dollar sales.

Fourth-Quarter Expectations

Dollar Tree is scheduled to report its fourth-quarter results before the market open on March 1. Chukumba sees fourth-quarter EPS of $1.31, $0.01 below consensus.

“We believe the Street continues to underestimate the difficulties Dollar Tree is having turning around Family Dollar, as evidenced by the inconsistent store level execution we saw during our late January channel checks,” Chukumba wrote in a note.

The analyst’s concerns assume significance as Family Dollar has posted same-store sales declines in the past two quarters and a 120-bps operating margin decline in the third quarter.

“We expect investor focus to primarily be on the performance of the Family Dollar segment, which we believe is central to the "bull" thesis on Dollar Tree,” Chukumba continued.

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The analyst believes investors will primarily focus on Family Dollar's same-store sales and operating margin amid recent lackluster performance.

Chukumba currently projects a 1 percent increase in Family Dollar's fourth-quarter same-store sales and a 30-bps operating margin decline, driven by continued store payroll investments.

The analyst would become more constructive on the stock if Dollar Tree shows sequential improvement in Family Dollar comp trends, year-over-year improvement in Family Dollar profitability and sequential improvement in Dollar Tree segment comps and margins.

Rating And Movement

Chukumba has a Hold rating and $80 price target on Dollar Tree shares.

At last check, shares of Dollar Tree were down 0.63 percent to $78.91.