Discount retailers Dollar Tree and Dollar General reported earnings Thursday morning. Dollar Tree slashed its full year outlook, while Dollar General beat estimates. DLTR stock plunged while DG stock rebounded to close well off lows.
Shoppers are spending selectively as inflation pressures cut into their wallets. Retailer performances are mixed as a result. Walmart beat estimates last week. And Target missed earnings but hit revenue predictions. Both big-box giants reaffirmed guidance for the rest of the year. Discount retailer TJX missed on revenue, while wholesaler BJ's Wholesale Club topped views.
Dollar Tree Stock: Earnings
Expectations: Analysts saw Dollar Tree earnings jumping 30% to $1.60 per share, with revenue growing 7% to $6.79 billion for the period.
Results: Dollar Tree earnings met the FactSet consensus at $1.60 per share. But sales growth stopped just short of estimates at $6.56 billion.
Dollar Tree cut its full-year earnings forecast to range between $7.10 and $7.40 per share, from $7.80 and $8.20. The new outlook would still represent 22% to 27% year-over-year earnings growth. But Dollar Tree slightly raised its revenue views. It now expects sales to range between $27.85 billion and $28.1 billion, from $27.76 billion and $28.16 billion.
The revised outlooks are below Wall Street's expectations of $8.19 EPS and $28.16 billion in revenue.
Dollar Tree says it is investing in its Family Dollar segment to improve merchandising and store standards and its pricing strategy. The company says competitive pricing will enhance long-term sales productivity and profitability, as well as accelerate store growth.
With shoppers watching their wallets, Dollar Tree will focus on its needs-based consumable products, which will cut into its gross margins for the second half of the year. The company lowered its outlook as a result.
Dollar Tree stock tumbled 10% to 149, below its 50-day and 200-day lines. The day's price action pushed DLTR stock below its daily and weekly moving averages. Shares are trading more than 10% below the 166.45 buy point for a cup-with-handle base. Any move of more than 7% to 8% below a buy point triggers the automatic sell rule.
Dollar General Rations, Forecasts
Deutsche Bank and Wells Fargo both raised their price targets for DG stock on Wednesday ahead of the results. Deutsche Bank raised its target to $266 from $264, with a buy rating. It also increased its same store-sales expectations based on "favorable read-throughs and data throughout the quarter."
And Wells Fargo raised its target $15, to $275. Analyst Edward Kelly says Dollar General is a "high-quality defensive name with an attractive multiyear outlook." He predicts a modest earnings beat for the second quarter on comparative strength. But Kelly noted mix pressure could limit the upside for DG stock, which has been a popular long play. He rates the stock as overweight.
In its Q1 earnings report, Dollar General noted that consumer spending began shifting more toward its lower-margin consumables category in Q2 last year. The company is implementing initiatives to make up for the trend away from its non-consumables category, which tend to have higher gross margins. Among them, Dollar General is expanding its footprint to include more touch points with shoppers both through its digital app and brick and mortar stores.
Expectations: Watchers view DG earnings climbing 9.3% to $2.94 per share and revenue edging up 8.8% to $9.4 billion.
Dollar General Earnings Results
Results: Dollar General's EPS rose 10.8% to $2.98. And revenue climbed to $9.425 billion for the period.
Inventories rose 25.1% on a per-store basis to a total of $6.9 billion. And same-store sales increased 4.6% over the year.
Dollar General expects 12% to 14% earnings per share growth for the year. The company plans to spend $2.75 billion on share repurchases and $1.4 billion to $1.5 billion in capital expenditures for its strategic initiatives.
In a separate announcement Thursday morning, Dollar General promoted John Garratt, executive vice president and CFO, to president of the company. He will retain his role as chief financial officer and begin his duties as president starting September 1.
Shares of Dollar General fell 0.55% to 246.08 on Thursday after tumbling to 235.48 near the open. Shares remain above a 240.07 entry in a cup-with-handle base. But the steep drop below 10-week support sent a clear sell signal.
Correction: An earlier version of this article stated John Garratt was promoted to president as well as CEO, which is not the case.
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