The selloff is a bit of a head scratcher, but it could be an opportunity for investors.
Dollar Tree (NASDAQ:DLTR) posted strong second quarter results on Wednesday that beat Wall Street estimates, yet the stock was tanking, down about 8%.
In many respects, it was a blowout quarter for the discount retailer. Is this a buying opportunity for investors? Let’s look at the numbers.
- Revenue increased 12% in the quarter to $4.57 billion, which beat estimates of $4.48 billion.
- Same store sales jumped 6.5% year-over-year, with traffic up 3.0% and ticket (customer spend per visit) up 3.4%.
- Net income skyrocketed 42% to $188.4 million, while earnings rose 46% to 91 cents per share.
- Adjusted earnings, excluding discontinued operations, increased 13% to 77 cents per share. That crushed estimates of 42 cents per share.
In addition, it opened 106 new stores and converted 585 stores to its new multi-price format, where they have items for more than a dollar at different price tiers. It also closed on its sale of Family Dollar.
“The strong sales growth, margin outperformance, and market share gains that Dollar Tree delivered in the second quarter against an increasingly challenging economic backdrop reinforces the unique position that Dollar Tree occupies in today’s retail landscape,” Mike Creedon, CEO, said. “With the Family Dollar sale complete, Dollar Tree is now a fully focused business and every ounce of our leadership attention, capital investment, and operating resources is now directed toward strengthening the Dollar Tree brand.”
Stock drops on Q3 outlook
Dollar Tree stock was falling probably because investors were disappointed with its outlook for the rest of the year, even though Dollar Tree raised its guidance for the full year.
- Net sales from continuing operations for fiscal 2025 has been raised to $19.3 billion to $19.5 billion, up from previous range of $18.5 billion to $19.1 billion.
- Comparable store sales growth is expected to be 4% to 6%, up from 3% to 5%.
- Adjusted EPS is targeted at $5.32 to $5.72, up from $5.15 to $5.65.
The updated full-year guidance was higher than analysts expected and takes into account the impact of tariffs.
The reason shares plummeted was its Q3 outlook, which management said will be the same as Q3 2024. So, that means no increase. This is due to a 20 cent per share expected impact from tariffs.
Dollar Tree got a few price target downgrades, but the median target is still $110 per share, which suggests 8% growth. This looks like an excellent buying opportunity as the selloff was based on a near-term hiccup, yet the full-year guidance was raised.
Plus, even with its 33% return YTD, Dollar Tree stock is still relatively cheap trading at 19 times earnings. Yesterday’s selloff makes a good stock even more attractive.
