Key takeaways from Dollar Tree’s (DLTR) Q1 2023 earnings report

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) were down 9% on Thursday after the company delivered mixed results for the first quarter of 2023. The discount retailer missed expectations on earnings and also cut its full-year profit outlook. The Street was not impressed and the stock suffered. Here are a few key points from the Q1 report:

Mixed results

Dollar Tree’s consolidated net sales in Q1 2023 increased 6% year-over-year to $7.32 billion, surpassing expectations of $7.2 billion. The company reported GAAP EPS of $1.35 for the quarter, which was down 43% from last year. Adjusted EPS fell 38% YoY to $1.47, missing estimates of $1.52.

Comparable sales and margins

Enterprise same-store sales increased 4.8% in Q1. Same-store sales grew 3.4% for the Dollar Tree segment and 6.6% for the Family Dollar segment. Both segments saw a growth in traffic during the quarter but while Family Dollar recorded a 2.2% increase in average ticket, Dollar Tree saw a 2.1% drop in average ticket.

Gross margin decreased 340 basis points to 30.5% while operating margin dropped by 490 basis points to 5.7%. Margins were impacted by higher shrink and consumables forming a greater part of sales. The gross margin decline was partly offset by lower freight costs.

Stores

During the first quarter, Dollar Tree opened 107 new stores, relocated 33 stores and closed 29 stores. At the end of the quarter, the company had a total of 16,419 stores. Its selling square footage grew by 2.5% in Q1. For the full year of 2023, selling square footage is expected to grow by 3.0-3.5%.

Guidance

For the second quarter of 2023, Dollar Tree expects consolidated sales to range between $7.0-7.2 billion. Same-store sales are expected to increase in the mid-single digits for the enterprise as well as both the segments. The company expects EPS to range from $0.79-0.89.

Dollar Tree revised its guidance for the full year of 2023. The company now expects consolidated sales to range between $30.0-30.5 billion versus the previous range of $29.9-30.5 billion. Enterprise comparable sales are expected to increase in the low to mid-single digits, with a low to mid-single digit increase in the Dollar Tree segment and a mid-single digit increase in the Family Dollar segment.

The company expects to see impacts from higher shrink and unfavorable sales mix through the rest of the year, and it expects earnings to be more back-end loaded. It lowered its full-year EPS guidance to a range of $5.73-6.13 from the prior outlook of $6.30-6.80.