Earnings preview: Weak comps to hurt Dollar Tree Q4 results

Discount variety retail stores operator Dollar Tree (DLTR) is scheduled to release its fourth-quarter earnings on Wednesday before the market opens. The results will be hurt by the trade war between the Trump administration and China. Also, with weak comparable-store sales throughout 2018, the company is likely to continue the uncertain sales trends in the fourth quarter.

The eight-month trade war is almost coming to an end as both sides are nearing a deal, the Bloomberg stated citing to Jenny Leonard reports. This could lift most or all of US tariffs if China concludes on pledges of intellectual-property rights and purchasing of a significant amount of American products.

The pressure has been mounting for dollar store chains recently as competition is rising from the likes of Walmart (WMT), grocery chains Aldi and Lidl. Also, the shopping experiences of certain customers have been widened due to the combination of low unemployment and tax reform.

Along with this, the company has been undergoing weak same-store sales trends during last year as market experts believe that the ill-advised acquisition of Family Dollar chain in 2015 continued to hurt Dollar Tree. The Family Dollar chain’s results are expected to hurt the company’s bottom line for the fourth quarter. The rising costs for freight, labor and even tariffs could drag the earnings also down.

Analysts expect Dollar Tree to report earnings of $1.92 per share on revenue of $6.19 billion for the fourth quarter. In comparison, during the previous year quarter, the company posted a profit of $1.89 per share on revenue of $6.36 billion. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $102.38 per share in the next 52 weeks.

For the third quarter, Dollar Tree posted a 17% jump in earnings helped by same-store sales growth, with increases in both customer transactions and average ticket. Revenue rose by 4.2% year-over-year. During the quarter, Dollar Tree opened 127 stores, expanded or relocated 14 stores, and closed 18 stores. Additionally, 30 Family Dollar stores were re-bannered to Dollar Tree.

For fiscal 2019, the company has planned to renovate at least 1,000 Family Dollar stores, open 350 new Dollar Tree and 200 new Family Dollar stores. About 200 Family Dollar stores are expected to be re-bannered as well in the period.

For the fourth quarter, the company had expected consolidated net sales in the range of $6.10 billion to $6.21 billion, due to a low single-digit rise in same-store sales for the combined enterprise. Earnings were anticipated to be in the range of $1.86 to $1.95 per share.

Shares of Dollar Tree opened higher on Monday but changed course to the red territory. The stock has fallen over 8% in the past year while it has risen over 9% in the past three months.

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