Dollar Tree (DLTR): A look at the discount chain’s near-term expectations

Dollar Tree Inc. (NASDAQ: DLTR) shares remained in green territory on Monday. The stock has gained 52% over the past 12 months. The company last week reported mixed results for the second quarter of 2022 and lowered its outlook for the full year as it expects inflationary pressures to weigh on its margins. Here’s a look at what the discount store expects in the near term:

Revenue

Dollar Tree generated consolidated net sales of $6.77 billion in the second quarter of 2022, up 6.7% from the prior year. Sales increased 9% in the Dollar Tree segment and 4% in the Family Dollar segment. Company same-store sales increased 4.9%, with Dollar Tree growing 7.5% and Family Dollar growing 2%. In both banners, the increase in the average ticket more than compensated for the decline in the number of transactions, as customers bundled their trips due to higher gas prices.

Family Dollar and Dollar Tree saw their consumables strengthen in the quarter, with increases of 4% and 7.9% respectively. The discretionary category was impacted by inflationary pressures with a 4.1% drop in Family Dollar compensation. Dollar Tree posted 6.7% comp growth in discretionary despite a helium shortage that hurt sales of balloons and other party products.

The helium shortage continues to impact Dollar Tree sales in the party department. Additionally, over-the-counter categories are impacted by supply chain challenges. The company revised its full-year 2022 sales forecast to a range of $27.85-28.10 billion from the previous range of $27.76-28.14 billion. Same-store sales are expected to grow about 10% for the year.

For the third quarter of 2022, consolidated net sales are expected to be $6.75 billion to $6.87 billion, while comparable store sales are expected to increase in the mid-single digit.

Profitability and margins

Dollar Tree’s net income rose 27.4% to $359.9 million while EPS rose more than 30% to $1.60 in the second quarter from a year ago. Gross margin improved by 200 basis points to 31.4%. Due to inflation, customer preferences have shifted more towards consumables, which impacts margins through the product mix. These inflationary pressures, combined with competitive prices, should have an impact on gross margins in the short term.

Dollar Tree cut its full-year 2022 EPS forecast to reflect its planned pricing investments at Family Dollar, the shift to lower-margin consumer goods and higher cost inflation. EPS is now expected to be between $7.10 and $7.40 from the previous range of $7.80 to $8.20. For the third quarter of 2022, EPS is expected to be $1.05-1.20.

Capex

Capital expenditures were $276.2 million in the second quarter of 2022. For fiscal 2022, consolidated capital expenditures are estimated to be approximately. $1.4 billion.

Click here to read the full transcript of Dollar Tree’s Second Quarter 2022 Earnings Conference Call