Market Overview

The Street Is Mixed After Dollar Tree's Q1

The Street Is Mixed After Dollar Tree's Q1

Dollar store chain Dollar Tree, Inc. (NASDAQ: DLTR) reported Thursday first-quarter results, which received a mixed reaction from the Street. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

KeyBanc Capital Markets' Bradley Thomas maintains an Overweight rating on Dollar Tree with a price target lifted from $108 to $115.

UBS' Michael Lasser maintains at Buy, unchnaged $120 price target.

BMO Capital Markets' Kelly Bania maintains at Market Perform, price target lowered from $105 to $102.

KeyBanc: Positioned To Benefit

Dollar Tree's earnings report is highlighted by in-line EPS and the 45th consecutive quarter of positive comp growth at 2.5 percent, although it did miss expectations of 3 percent, Thomas wrote in a note. The Family Dollar chain recorded a comp gain of 1.9 percent, which marks the strongest performance since the metrics were reported. In fact, the Family Dollar brand continues to represent a "compelling, multi-faceted story" with strong execution and synergy benefits stemming from the 2015 merger.

Looking forward, Dollar Tree continues to expand its multi-price format, which is likely to lift sales and margins, the analyst wrote. The Family Dollar brand is likely to similarly benefit from an acceleration in store remodels, optimization strategies and an improved merchandising assortment.

Related Link: Is Dollar Tree A Bargain Stock After Q4 Earnings?

UBS: Family Dollar Has 'Some Work To Do'

Family Dollar showed some signs of "progress" on the top line and the brand narrowed the comp gap with its parent company to the lowest levels since 2017 at 190 basis points, Lasser wrote in a note. It is likely the Family Dollar's renovation initiatives accounted for 50 to 80 basis points to same-store sales and this could improve to 120-140 basis points throughout the end of the year.

Despite some improvements, management still has "some work to do" as Family Dollar's brand showed an EBIT decline of 37 percent from last year, the analyst wrote.

Nevertheless, there are several paths forward for Dollar Tree's stock to move higher if the core brand shows consistency and benefits from its "defensive positioning" in the current uncertain economic environment. These two factors are not fully factored into the stock at current levels.

BMO: 'A Lot Of Work To Be Done'

Dollar Tree's in-line earnings report was accompanied with management lowering its full year 2020 GAAP EPS guidance, Bania wrote in a note. This creates a scenario where expectations for a rebound in earnings growth the following year has now been reduced.

The company's earnings report also signals management has "a lot of work to be done," especially ahead of expectations for new tariffs, the analyst wrote. Specifically, Dollar Tree's single-price-point strategy under its core banner gives the company less flexibility to manage a new round of tariffs.

Meanwhile, the Dollar Tree Plus! concept could become a driver of comps for the company but any long-term impact is difficult to imagine today as the impact on price perception is hard to measure, the analyst wrote.

Price Action

Shares of Dollar Tree closed Friday at $101.59.

Posted-In: BMO Capital Markets Bradley Thomas dollar storesAnalyst Color Earnings News Price Target Analyst Ratings Best of Benzinga


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