Dollar Tree Stock Price (DLTR) Rising Into Earnings – What To Expect

Dollar Tree's stock price (NASDAQ: DLTR) is trading 2.39% higher today at $11.78, a strong outperformer despite having pulled back 5% in the last month. This pullback comes amidst a year of substantial gains for the discount retailer, with the stock having added an impressive 46% year-to-date. As markets brace for the upcoming earnings report tomorrow, before the market open, the question is whether this rally can continue, or if headwinds are gathering.

Analysts anticipate earnings per share (EPS) of $0.41 for the upcoming quarter, a notable decrease from the $0.67 reported in the same quarter last year. Revenue is expected to come in at $4.48billion, down 39.28% Y/Y, although this is not directly comparable, with the firm having sold Family Dollar.

Dollar Tree has been undergoing significant strategic shifts. The most notable is the sale of the Family Dollar chain to private equity firms Brigade Capital Management and Macellum Capital Management for $1 billion. This decision follows years of struggling to integrate Family Dollar, acquired for over $8 billion, and completed early in July.

Supply chain issues, suboptimal store locations, and operational difficulties have plagued the integration process. The sale allows Dollar Tree to refocus on its core business and customer base, which consists primarily of middle-income shoppers.

In the March period, the company reported a net loss of $3.7 billion, or $17.17 per share, for the fourth quarter of fiscal 2024, or $2.11 per share after adjustments. Revenue for the quarter was $5 billion, also falling short of expectations.

As a result, Dollar Tree announced plans to close approximately 1,000 stores over the next several years. These closures are part of a strategic effort to address underperforming stores and enhance profitability, and also provide funds for reinvestment.

While the prevailing narrative focuses on the challenges and strategic shifts, a closer look suggests Dollar Tree might be underappreciated. The influx of higher-income shoppers, driven by inflation fears, could represent a fundamental shift in the company's customer base. These shoppers, accustomed to higher price points, may be less sensitive to minor price increases, allowing Dollar Tree to improve margins without significantly impacting sales volume.

Furthermore, the store closures, while initially painful, could be a necessary step to streamline operations and focus on more profitable locations. The capital freed up from the Family Dollar sale can be reinvested in the core Dollar Tree brand, accelerating growth and innovation. While tariffs pose a threat, Dollar Tree's value proposition remains compelling, particularly in an environment where consumers are increasingly price-conscious.

For fiscal 2025, Dollar Tree projects net sales between $18.5 billion and $19.1 billion, with adjusted earnings per share expected to be between $5.00 and $5.50.

Dollar Tree's year-to-date rally has been impressive, but its sustainability hinges on the company's ability to execute its turnaround plan and adapt to changing consumer behaviour. While challenges remain, there are also reasons to be optimistic. The company's focus on its core business, coupled with the potential for attracting higher-income shoppers, could drive long-term value creation.

The next earnings report will provide valuable insights into the company's trajectory and its ability to maintain its competitive edge in the discount retail market.