Dollar Tree, Inc. (NASDAQ:DLTR) Hits the Wall of China

Dollar Tree, Inc. (NASDAQ:DLTR) Hits the Wall of China


Shares of Dollar Tree, Inc. (NASDAQ:DLTR) were crushed this week after the company reported an earnings miss and guided under expectations based on cost pressures due to tariffs on imported goods sourced from China. This is the dilemma felt most acutely by the discount retail space. The trade war is taking a heavy toll.

In all, the company reported Q3 EPS of $1.08 vs. the $1.13 consensus and revenue of $5.75 bln compared to the $5.74 bln estimate. The company has now missed analysts’ EPS expectations in back-to-back quarters. A big driver for this underperformance is tariffs on Chinese imports, which impact about 40% of the company’s product margins. For Q4, the company guided for EPS of $1.70-1.80 vs. the $2.03 consensus. This Q3 miss and weak guidance caused DLTR to cut its FY20 EPS guidance to $4.66-4.76 from $4.90-5.11, below the $5.11 consensus. The company anticipates that tariffs will increase cost of goods by $19 mln in Q4, with most of the impact resulting from upcoming List 4 tariffs.

Dollar Tree, Inc. (NASDAQ:DLTR) frames itself as a company that operates discount variety retail stores. It operates through two segments, Dollar Tree and Family Dollar.

The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; variety merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods that include Valentine’s Day, Easter, Halloween, and Christmas merchandise.

This segment operates 7,001 stores under the Dollar Tree and Dollar Tree Canada brands, as well as 12 distribution centers in the United States and 2 in Canada; and a store support center in Chesapeake, Virginia.

The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food and beverages, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home décor, and giftware, as well as domestics, such as comforters, sheets, and towels. Its stores also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise that include Valentine’s Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics, which comprise pre-paid cellular phones and services, stationery and school supplies, and toys.

This segment operates stores under the Family Dollar brand; and 11 distribution centers, as well as a store support center in Matthews, North Carolina.

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As noted above, DLTR just reported an earnings miss and guided under expectations based on cost pressures due to tariffs on imported goods sourced from China.

Traders will note a drop of about -10% during the past week. In addition, the company has witnessed a pop in interest, as transaction volume levels have recently pushed nearly 220% beyond its prior sustained average level.

“The third quarter represented another period of solid sales performance for both brands, Dollar Tree and Family Dollar. Our store optimization efforts and sales driving initiatives are working. The teams have completed more than 1,150 Family Dollar H2 renovations, nearly 200 Dollar Tree re-banners, more than 1,000 Dollar Tree Snack Zones and launched our Dollar Tree Plus! test already this year,” stated Gary Philbin, President and Chief Executive Officer. “Fiscal 2019 has been a unique year as the result of several factors: the material acceleration in our Family Dollar store optimization initiatives, the consolidation of our two store support centers into southeast Virginia, the global helium shortage, and the continued uncertainty regarding trade and the related tariffs. I am proud of our team’s efforts and the sales execution through this environment.”

Earning a current market cap value of $22.5B, DLTR has a significant war chest ($623.4M) of cash on the books, which stands against about $4.1B in total current liabilities. One should also note that debt has been growing over recent quarters. DLTR is pulling in trailing 12-month revenues of $23.3B. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 3.9%. You can bet we will update this one again as new information comes into view. Sign-up for continuing coverage on shares of $DLTR stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $DLTR, either long or short, and we have not been compensated for this article.

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