Dollar Tree misses on earnings, plans to close 600 Family Dollar stores in 2024

By Tomi Kilgore and James Rogers

'Lower-income consumers continue to be very deliberate about their spending,' says Dollar Tree CEO Rick Dreiling

Shares of Dollar Tree Inc. were suffering their worst selloff in nearly two years on Wednesday, after the discount retailer missed fiscal fourth-quarter profit expectations, provided a downbeat outlook and said it planned to close a significant number of Family Dollar stores.

The plan to close stores follows a review initiated during the fourth quarter, which evaluated market conditions and individual store performances. The company expects to close 600 Family Dollar stores in the first half of 2024. Another 370 Family Dollar stores, and 30 Dollar Tree stores are expected to close over the next several years.

As of Feb. 3, 2024, Dollar Tree had 16,774 stores, of which 8,539 are Family Dollar stores.

"Family Dollar is a victim of the macro environment out there," said Dollar Tree Chief Executive Rick Dreiling, during a conference call to discuss the results. He added that shrink, a category of lost inventory that can include theft, has been increasing. Shrink has been a key theme of retail earnings in recent years.

Related: Earnings this week will look at the shoppers hit hardest by inflation

The stock (DLTR) tumbled 13.9% toward a three-month low in morning trading. That put it on track to suffer the biggest one-day selloff since it sank 14.4% on May 18, 2022.

For the quarter to Feb. 3, the company swung to a net loss of $1.71 billion, or $7.85 a share, from net income of $452.2 million, or $2.04 a share, in the same period a year ago.

Excluding nonrecurring items, such as $1.66 billion in charges related to the company's review of its stores and the impairment of goodwill, adjusted earnings per share of $2.55 missed the FactSet consensus of $2.66.

Gross margin improved 1.2 percentage points to 32.1%.

Related: Customers still piling into Dollar Tree and Dollar General stores, research says

Total revenue grew 11.9% to $8.64 billion, just below the FactSet consensus of $8.67 billion.

Same-store sales, or sales of stores open at least a year, rose 3% to beat expectations of 2.8% growth, as a 4.6% increase in traffic was partially offset by a 1.5% decline in the average ticket. Dollar Tree same-store sales were up 6.3%, while Family Dollar store sales were down 1.2%.

Speaking during the conference call Dreiling said that persistent inflation and reduced government benefits "continue to pressure" many Family Dollar consumers. "Lower income consumers continue to be very deliberate about their spending," he said.

Related: Despite fears, retailers have so far avoided impact of Red Sea disruption

Looking ahead, the company expects first-quarter sales of $7.6 billion to $7.9 billion, compared with the current FactSet consensus of $7.68 billion, and EPS of $1.33 to $1.48 versus expectations of $1.70.

For fiscal 2024, the company expects EPS of $6.70 to $7.30 and sales of $31 billion to $32 billion, compared with the current FactSet consensus for EPS of $7.04 and sales of $31.68 billion.

The stock has now slipped 1.2% over the past three months, while the S&P 500 has advanced 9.8%.

-Tomi Kilgore -James Rogers

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03-13-24 1011ET

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