Dollar Tree falls after weak forecast; Dollar General, Five Below also fall

Dollar Tree (NASDAQ:DLTR) fell early in the session on Wednesday after the retailer missed estimates in its second-quarter results.

Sales rose 0.7% to $7.37 billion in the quarter ended Aug. 3. Enterprise’s same-store sales rose 0.7% in the quarter, driven by 1.1% increase in traffic, partially offset by a 0.5% decrease in the average ticket price. Same-store sales were up 1.3% at Dollar Tree and down 0.1% at Family Dollar.

Gross margin increased 80 basis points to 30.0% of sales. The improvement in margin was primarily due to lower transportation costs, partially offset by increased sales of higher-priced consumer goods, higher occupancy costs in the Dollar Tree segment resulting from loss of leverage from low-single-digit comparable store net sales growth, and higher distribution costs in the Family Dollar segment. Selling, general and administrative expenses were 27.3% of sales, compared with 25.3% a year earlier. The increase was primarily due to unfavorable development of general liability claims, higher depreciation and amortization costs from store investments, temporary labor in the Dollar Tree segment to support the implementation of multiple pricing, higher utility costs, and loss of leverage from low-single-digit comparable store net sales growth. Earnings per share were $0.67, compared with the consensus of $0.74 and $0.91 a year earlier.

“Customers are responding positively to initiatives like our expanded multi-price offering, and we’re already seeing significant sales growth in the 1,600 Dollar Tree stores that have converted to our newest multi-price format. With thousands of stores to go, we believe we’re still in the early stages of this rollout, with many years of runway ahead of us,” noted CEO Rick Dreiling.

The retailer opened 127 new Dollar Tree stores during the quarter and 28 new Family Dollar stores.

Looking ahead, Dollar Tree (DLTR) is forecasting Q3 revenue of $7.4 billion to $7.6 billion (mid-point $7.5 billion) vs. consensus of $7.6 billion and EPS of $1.05 billion to $1.15 (mid-point $1.10) vs. consensus of $1.32. The Q3 EPS guidance reflects a revised sales guidance, approximately $0.07 of additional upfront costs related to the acquisition and reopening of acquired 99 Cents Only Stores leases, and approximately $0.06 of additional depreciation and amortization costs resulting from higher project and cadence costs. The retailer also lowered its full-year guidance to below consensus.

Dollar Tree (DLTR) stocks fell 11.97% in premarket trading on Wednesday, after falling more than 10% last week. Dollar General (DG) lost another 2.10% and Five Below (FIVE) dropped 1.05%. Ollie’s Bargain Outlet (OLLI) stores were 1.66% lower at the beginning of the session.