Dollar Tree Evaluates Family Dollar's Fate After Mixed Q1 Results; Stock Slides

Dollar Tree Inc DLTR shares are ticking lower after the company reported its first-quarter FY24 earnings and announced a review of strategic alternatives for its Family Dollar business segment.

The company reported first-quarter FY24 sales growth of 4.22% at $7.63 billion, which was in-line with the analyst consensus estimate.

Same-store sales increased 1.7% for the Dollar Tree segment, 0.1% for Family Dollar, and 1% for Enterprise.

Gross profit for the quarter increased 5.3% Y/Y to $2.35 billion, and the gross margin expanded 30 basis points to 30.8%.

Operating income for the quarter rose 0.2% to $420.6 million, and the margin contracted 20 basis points to 5.5%. 

Adjusted EPS of $1.43 beat the consensus estimate of $1.42.

The company held $618.5 million in cash and equivalents as of May 4. Operating cash flow for the quarter totaled $695.7 million.

The company opened 157 new stores in the quarter and closed 529 stores. Dollar Tree repurchased 2.5 million shares for $313 million, including applicable excise tax.

Dollar Tree has initiated a formal review of strategic alternatives of its Family Dollar business segment, which could include among others, a potential sale, spin off or other disposition of the business.

“The unique needs of each banner at this time – transformation at Family Dollar and growth acceleration at Dollar Tree – lead us to the decision to conduct a thorough review of strategic alternatives for the Family Dollar business,” said Chairman and CEO Rick Dreiling.

Outlook: Dollar Tree reaffirmed FY24 net sales outlook of $31 billion – $32 billion versus the consensus of $31.41 billion. 

The company lowered FY24 adjusted EPS guidance from $6.70 – $7.30 to $6.50 – $7.00 against an estimate of $6.89.

The updated guidance reflects incremental transportation and other expenses related to the loss of its Marietta distribution center.

Dollar Tree expects second-quarter net sales of $7.3 billion – $7.6 billion versus the $7.59 billion estimate. Adjusted EPS of $1.00 – $1.10 against the Street view of $1.19.

Price Action: DLTR shares are trading lower by 3.49% at $116.10 in premarket at  the last check Wednesday.

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