Why Dollar Tree Shares Are Falling Today

Dollar Tree Inc DLTR reported second-quarter FY23 sales growth of 8.2% year-on-year to $7.33 billion, beating the analyst consensus of $7.18 billion.

Enterprise same-store sales increased 6.9%. Dollar Tree same-store sales increased 7.8%, driven by a 9.6% increase in traffic, partially offset by a 1.6% decline in average ticket. Family Dollar's 5.8% same-store sales increase was comprised of a 3.4% increase in traffic along with a 2.3% increase in average ticket.

Gross profit for the quarter gained 0.5% Y/Y to $2.13 billion, and the gross margin contracted 220 basis points to 29.2%.

Operating margin contracted by 350 basis points to 3.9%, and operating income for the quarter plunged 43.1% to $287.8 million.

The company held $512.7 million in cash and equivalents as of July 29, 2023. Operating cash flow for six months totaled $923.8 million.

Adjusted EPS of $0.91 beat the consensus of $0.87.

The company opened 118 new stores in Q2, and closed 63 stores. Dollar Tree repurchased 703,713 shares in Q2 for $99.9 million.

"While factors like sales mix and elevated shrink continue to pressure margins, we generated a year-over-year increase in gross profit dollars. We are pleased with the progress of our transformation to date and remain confident in our ability to deliver our growth objective of $10 or more of diluted EPS by 2026," stated CFO Jeff Davis.

"We are bringing in the high and low end of our outlook range for diluted EPS to better reflect the balance of opportunities and risks we see in the current operating environment," Davis added.

Outlook: Dollar Tree sees Q3 sales of $7.3 billion - $7.5 billion versus the consensus of $7.3 billion.

The company expects Q3 EPS of $0.94 - $1.04, against the consensus of $1.28.

For FY23, DLTR raised its sales guidance from $30 billion-$30.5 billion to $30.6 billion - $30.9 billion against the consensus of $30.41 billion.

The company tightened its FY23 EPS outlook from $5.73 - $6.13 to $5.78 - $6.08 (consensus $6.03), including the $0.12 charge for the legal reserve taken in the first quarter and the impact of the 53rd week in fiscal 2023.

Price Action: DLTR shares are trading lower by 6.67% at $132.73 in premarket on the last check Thursday.