Dollar Tree (DLTR): A look at the discount store chain’s near-term expectations

Shares of Dollar Tree Inc. (NASDAQ: DLTR) stayed in green territory on Monday. The stock has gained 52% over the past 12 months. Last week the company delivered mixed results for the second quarter of 2022 and lowered its outlook for the full year as it expects inflationary pressures to take a toll on its margins. Here’s a look at the discount store’s expectations for the near-term:

Revenue

Dollar Tree generated consolidated net sales of $6.77 billion in Q2 2022, which was up 6.7% from the previous year. Sales grew 9% in the Dollar Tree segment and 4% in the Family Dollar segment. Enterprise same-store sales were up 4.9%, with a 7.5% comp growth for Dollar Tree and a 2% growth for Family Dollar. At both banners, the increase in average ticket more than offset the decline in transaction count as shoppers consolidated trips due to higher gas prices.

Both Family Dollar and Dollar Tree saw strength in consumables during the quarter, with comp increases of 4% and 7.9% respectively. The discretionary category was impacted by inflationary pressures with comps declining 4.1% in Family Dollar. Dollar Tree recorded a comps growth of 6.7% in discretionary despite the helium shortage hurting the sales of balloons and other party products.

The helium shortage continues to impact Dollar Tree’s sales in the party department. In addition, the over-the-counter categories are being impacted by supply chain challenges. The company has revised its sales guidance for the full year of 2022 to a range of $27.85-28.10 billion from the previous range of $27.76-28.14 billion. Comparable store sales are expected to increase in the mid-single digits for the year.   

For the third quarter of 2022, consolidated net sales are expected to be $6.75-6.87 billion while same-store sales are expected to increase in the mid-single digits.

Profitability and margins

Dollar Tree’s net income increased 27.4% to $359.9 million while EPS rose over 30% to $1.60 in Q2 compared to last year. Gross margin improved 200 basis points to 31.4%. Due to inflation, customer preferences have shifted more towards consumables and this is impacting margins through product mix. These inflationary pressures, along with competitive pricing, are expected to impact gross margins in the near term.

Dollar Tree reduced its EPS guidance for the full year of 2022 to reflect its planned pricing investments at Family Dollar, the shift towards low-margin consumable goods and higher cost inflation. EPS is now expected to range between $7.10-7.40 versus the prior range of $7.80-8.20. For the third quarter of 2022, EPS is expected to be $1.05-1.20.

Capex

Capital expenditures were $276.2 million in Q2 2022. For FY2022, consolidated capital expenditures are estimated to be approx. $1.4 billion.

Click here to read the full transcript of Dollar Tree’s Q2 2022 earnings conference call