Main takeaways from Dollar Tree’s (DLTR) Q4 2023 earnings report

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) plunged over 14% on Wednesday after the company delivered lower-than-expected earnings results for the fourth quarter of 2023. Its earnings outlook for the upcoming quarter was also below expectations. Here are the main takeaways from the quarterly report:

Results miss estimates

Dollar Tree’s consolidated net sales increased nearly 12% year-over-year to $8.63 billion in Q4 2023 but missed estimates of $8.67 billion. Enterprise same-store sales rose 3%.

On a GAAP basis, the company reported a net loss of $7.85 per share compared to earnings of $2.04 per share in the prior-year quarter. The GAAP results included charges related to portfolio optimization review, goodwill impairment and intangible asset impairment. Adjusted EPS of $2.55 rose 25% from last year, but fell below projections of $2.65.

Business performance

In Q4, enterprise same-store sales increased 3%, helped by a 4.6% rise in traffic, partly offset by a 1.5% drop in average ticket. Same-store sales in the Dollar Tree segment rose 6.3% while in the Family Dollar segment, it fell 1.2%. Both segments saw growth in traffic but average ticket declined YoY.

During the quarter, DLTR’s gross margin expanded 120 basis points to 32.1%, driven by factors such as lower freight costs and higher allowances. Margins were negatively impacted by product cost inflation, unfavorable sales mix, elevated shrink, and higher distribution and markdown costs.

Net sales grew 17% in the Dollar Tree segment and 6% in the Family Dollar segment in the fourth quarter. Dollar Tree opened 146 new stores under its namesake banner and 73 new stores under the Family Dollar banner, bringing its total new store count to 219.

After undertaking a store portfolio optimization review during the fourth quarter, Dollar Tree now plans to close approx. 600 Family Dollar stores in the first half of 2024. The discount store chain also plans to close around 370 Family Dollar stores and 30 Dollar Tree stores over the next several years at the end of each store’s current lease term.

Outlook

Dollar Tree expects to face challenges from shrink and mix during the first half of 2024 but it also expects to benefit from favorable freight rates and moderating headwinds from reduced SNAP benefits throughout the year.

For fiscal year 2024, consolidated net sales are expected to range between $31-32 billion and EPS is expected to range between $6.70-7.30. Comparable store sales are expected to increase in the low-to-mid-single digits, with a mid-single digit increase in the Dollar Tree segment and a low-single-digit increase in the Family Dollar segment.

For the first quarter of 2024, consolidated sales are expected to range between $7.6-7.9 billion. Same-store sales are expected to increase in the low-to-mid single digits for both Dollar Tree and its namesake banner while the Family Dollar segment is expected to see approx. flat same-store sales growth. EPS is expected to range between $1.33-1.48 in Q1, which is lower than analysts’ projections of $1.69.