What to expect when Dollar Tree (DLTR) reports its Q2 2024 earnings results

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) were down 1% on Friday. The stock has dropped 28% over the past three months. The discount store chain is slated to report its second quarter 2024 earnings results on Wednesday, September 4, before markets open. Here’s a look at what to expect from the earnings report:

Revenue

Dollar Tree has guided for net sales to range between $7.3-7.6 billion for the second quarter of 2024. Analysts are projecting revenue of $7.5 billion for Q2. This compares to sales of $7.32 billion reported in the second quarter of 2023. In the first quarter of 2024, net sales increased 4% year-over-year to $7.63 billion.

Earnings

DLTR has guided for adjusted EPS in Q2 2024 to range between $1.00-1.10. The consensus estimate for EPS is $1.04. This compares to adjusted EPS of $0.91 reported in Q2 2023. In Q1 2024, adjusted EPS fell nearly 3% YoY to $1.43.

Points to note

For the second quarter of 2024, Dollar Tree expects comparable sales growth in the low single-digits for the enterprise, 2-4% for the Dollar Tree segment, and approx. flat for the Family Dollar segment. In Q1 2024, enterprise same-store sales increased 1%. Dollar Tree segment same-store sales grew 1.7% while Family Dollar same-store sales rose 0.1%.

Customers experiencing inflationary pressures tend to shop at discount stores in search of more value. Dollar Tree has benefited from a rise in traffic at its stores and this gain is likely to continue in the second quarter. However, it saw a drop in average ticket last quarter, which was due to weakness in discretionary demand. This trend is likely to persist in the second quarter as well.

In a challenging economic environment, consumers tend to focus more of their spending on consumables while putting off discretionary purchases. Last quarter, Dollar Tree saw growth in consumables comps and a decline in discretionary comps across both its divisions. This pattern could continue in Q2.

Margins in Q2 are likely to be impacted by a larger portion of sales coming from the low-margin consumables category. Last quarter, gross margin expanded 30 basis points to 30.8%, driven mainly by lower freight costs. This expansion was partly offset by a higher mix of consumables sales, and higher shrink.

The company is exploring strategic alternatives for its Family Dollar business. It has been reviewing its store portfolio and as part of its efforts to streamline, it has decided to close around 600 Family Dollar stores in the first half of 2024. These efforts are expected to improve the long-term returns of the business. It is also working on driving growth in the Dollar Tree segment through its multi-price offering, new store openings, and strategic transactions.