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Dollar Tree (DLTR) Earnings Preview: What’s in Store?
Stock Analysis & Ideas

Dollar Tree (DLTR) Earnings Preview: What’s in Store?

The pandemic-induced demand for food and everyday essentials drove same-store sales growth and boosted the overall profitability of the food and discount store operators in 2020, including Dollar Tree (DLTR). The discount store operator delivered stellar same-store sales growth and record profits in FY20. 

Come 2021, the moderation in growth rate, tough year-over-year comparisons, and higher cost guidance weighed on its stock price. Dollar Tree stock erased its gains and is trading in the red so far this year. (See Dollar Tree stock charts on TipRanks)  

Notably, Dollar Tree will announce its Q2 financials before the markets open on August 26. However, I maintain a Neutral outlook on the stock ahead of its earnings as tough comparisons, normalization in demand, and higher expenses could play spoilsport and hurt its profits.   

While I remain on the sidelines, let’s see what analysts on the Street are expecting.

Q2 Expectations

Before discussing Q2 projections, one should note that Dollar Tree’s prior-year quarter benefitted from the higher demand led by the COVID-19 pandemic, implying that it’s up against tough comparisons. 

The Street expects Dollar Tree to report revenues of $6.46 billion in Q2, implying year-over-year growth of 3%. It’s worth noting that Dollar Tree posted a 9.4% growth in its revenues during the prior year period. Moreover, the estimate reflects a slight decline on a sequential basis.  

Meanwhile, analysts expect the company to post earnings of $1.02 a share, reflecting a year-over-year and sequential decline of 7.3% and 36.6%, respectively. 

This shouldn’t surprise investors as the company’s CFO, Kevin Wampler, stated during the Q1 conference call that he expects increased freight and higher wages to impact Q2 and Q3 earnings. 

Analyst Weighs In

Echoing Dollar Tree’s management’s belief, Rupesh Parikh of Oppenheimer said, “cost headwinds such as freight continue to cloud the bottom-line delivery potential shorter-term.” However, Parikh expects Dollar Tree’s sales momentum to sustain in the post-pandemic era. Moreover, the analyst expects store growth to accelerate. Parikh has a Hold rating on Dollar Tree Stock.

Alongside Parikh, the majority of the analysts also remain sidelined on DLTR stock. On TipRanks, Dollar Tree is a Hold based on 2 Buys and 8 Holds. The average Dollar Tree price target of $109.25 implies approximately 3.8% upside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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