Dollar Tree Earnings: Theft, Mix Shifts Weigh on Results, and Shares Still No Bargain

Although no-moat Dollar Tree’s shares plummeted by a midteens percentage in the wake of its first-quarter (ended April 29) earnings announcement, as theft and heightened sales of less-lucrative consumables weighed on margins, we plan to reduce our $113 per share valuation by only a mid-single-digit percentage. While we believe the company’s new leadership (with Richard Dreiling becoming CEO in late January) will improve performance, we had suspected sentiment was assuming a sharp, linear turnaround, and we attribute the difference between our reaction and the shares’ trading price slide to overinflated expectations. Our long-term forecast (mid-single-digit revenue growth rates against high-single-digit operating margins over the next decade) is intact.