Dollar Tree Q2 Earnings Coming Up: What Should Investors Focus On?

Dollar Tree, Inc. DLTR is likely to register top-line growth when it reports second-quarter fiscal 2024 results on Sept. 4. The Zacks Consensus Estimate for revenues is pegged at $8.5 billion, indicating an improvement of 2.5% from the prior-year quarter's figure.

The bottom line of the discount variety stores retailer is expected to have risen year over year. The Zacks Consensus Estimate for fiscal second-quarter earnings is pegged at $1.03 per share, indicating growth of 13.2% from the year-ago period's figure. The consensus mark has moved down by a penny in the past seven days.

The company has a trailing four-quarter negative earnings surprise of 1.3%, on average. In the last reported quarter, the Chesapeake, VA-based company reported earnings in line with the Zacks Consensus Estimate.

Dollar Tree's Zacks Model Findings

Our proven model does not conclusively predict an earnings beat for Dollar Tree this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that's not the case here.

Dollar Tree has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.94%.

Trends to Watch Before Dollar Tree's Big Reveal

Dollar Tree's second-quarter fiscal 2024 results are expected to reflect continued pressures from soft demand for discretionary items owing to reduced spending trends among low-income consumers. Due to these trends, management expected elevated shrink and unfavorable mix to remain headwinds in the first half of fiscal 2024. Additionally, the company has been facing headwinds related to product cost inflation. These factors are expected to have collectively marred the top and bottom lines in the fiscal second quarter.

On the last reported quarter's earnings call, management expected net sales for the Family Dollar segment to drop 1-3% year over year for the fiscal second quarter. Additionally, DLTR expects consolidated net sales of $7.3-$7.6 billion, based on low to low-single-digit comps growth for the enterprise. Comps are expected to improve 2-4% for the Dollar Tree banner and remain nearly flat for the Family Dollar banner.

Our model predicts year-over-year enterprise comps growth of 1.9% for the fiscal second quarter, with a 3.6% increase in comps for the Dollar Tree banner and flat Family Dollar comps.

Dollar Tree has also been witnessing higher SG&A expenses for the past few quarters, owing to elevated operating costs, including labor investments to support multi-price rollouts, higher depreciation expenses and costs related to severance and retention of store closures in the Family Dollar segment.

On the last reported quarter's earnings call, management indicated that incremental transportation and other expenses due to the recent destruction of a distribution center by a tornado in Marietta, OK, are expected to result in high SG&A expenses in the forward quarters. The company incurred losses of $117 million as of May 4, 2024, related to the issue, comprising $70 million for damaged inventory and $47 million for property and equipment. The costs related to the distribution center mishap are likely to have resulted in elevated SG&A expenses in the to-be-reported quarter.

The company expects adjusted earnings per share of $1-$1.10, including about 10 cents of incremental transportation and other costs related to the loss of the Marietta distribution center.

As a percentage of sales, we expect adjusted SG&A expenses to increase 30 basis points year over year to 25.6% in the fiscal second quarter. In dollar terms, SG&A expenses are anticipated to increase 4.1% year over year.

Driven by an 80-bps increase in the gross margin and a higher SG&A rate, our model predicts an adjusted operating margin of 4.4%, indicating a 50-bps expansion from the year-ago quarter.

However, DLTR is expected to have displayed continued progress on its restructuring and expansion initiatives, driven by steady store openings and improvement of distribution centers, which is likely to have partly cushioned revenues. The company has been benefiting from various initiatives like a multi-price point strategy, restructuring and expansion initiatives and efforts to optimize its store portfolio through store openings, renovations, re-banners and closings. These actions have led to consistent sales growth across various segments and gains in market share.

DLTR's digital and omnichannel capabilities and same-day delivery service with Instacart are expected to have driven traffic trends in the fiscal second quarter.

DLTR's Stock Price & Valuation Picture

From a valuation perspective, Dollar Tree shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 11.87X, below the five-year median of 18.17X and the Retail-Discount Stores industry's average of 30.9X, the company's shares offer compelling value for investors seeking exposure to the sector. Additionally, the stock currently has a Value Score of A, further validating its appeal.

Image Source: Zacks Investment Research

Recent market movements show that Dollar Tree's shares have lost 40.5% year to date against the industry's 20.6% growth.

Image Source: Zacks Investment Research

Stocks With the Favorable Combination in DLTR's Sector

Here are some companies, which according to our model,  have the right combination of elements to post an earnings beat this season:

DICK'S Sporting Goods DKS presently has an Earnings ESP of +3.05% and a Zacks Rank 2. The company is likely to register growth in the top and bottom lines when it reports fiscal second-quarter results. The Zacks Consensus Estimate for DKS' quarterly revenues is pegged at $3.4 billion, which indicates 6.4% growth from the prior-year quarter.

The consensus mark for DKS' quarterly earnings has moved up 1.6% in the past seven days to $3.77 per share. The consensus estimate indicates growth of 33.7% from the year-ago quarter.

Casey's General Stores CASY currently has an Earnings ESP of +0.21% and a Zacks Rank of 3. The company is likely to register top and bottom-line growth when it reports second-quarter fiscal 2024 results. The consensus mark for CASY's quarterly revenues is pegged at $4.1 billion, which indicates growth of 6.3% from the prior-year quarter.

The Zacks Consensus Estimate for CASY's earnings has moved up 0.9% to $4.54 per share in the past seven days. The consensus estimate indicates a 0.4% increase from the year-ago quarter's figure.

Costco Wholesale COST currently has an Earnings ESP of +0.89% and a Zacks Rank of 3. The company is likely to register top and bottom-line growth when it reports fourth-quarter fiscal 2024 results. The consensus mark for COST's quarterly revenues is pegged at $80.2 billion, which indicates growth of 1.6% from the prior-year quarter.

The Zacks Consensus Estimate for Costco's earnings has been unchanged at $5.02 per share in the past 30 days. The consensus estimate indicates growth of 3.3% from the year-ago quarter.

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