Dollar Tree's Strategic Review Of Family Dollar Overdue, Analysts Cut Price Forecast

Zinger Key Points
  • Analysts urge Dollar Tree to review Family Dollar's fate due to past performance struggles despite numerous efforts.
  • Dollar Tree's Q1 same-store sales growth varies across segments, prompting analysts to adjust price forecasts.

Dollar Tree, Inc. DLTR shares are trading marginally lower on Thursday.

Yesterday, the retail behemoth reported its first-quarter same-store sales growth of 1.7% for the Dollar Tree segment, 0.1% for Family Dollar, and 1% for Enterprise.

Check This Out: Dollar Tree Evaluates Family Dollar’s Fate After Mixed Q1 Results; Stock Slides

Here’s a glimpse into analysts’ reactions to the company’s quarterly performance:

  • Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating, lowering the price forecast to $155 from $160.
  • JPMorgan analyst Matthew R. Boss maintained an Overweight rating, reducing the price forecast of $135 from $152.
  • BofA Securities analyst Robert F. Ohmes reiterated the Underperform rating, lowering the price forecast to $117 from $120.

Telsey Advisory Group: According to the analyst, Dollar Tree is doing what is necessary to transform the business to drive future growth and value.

Feldman highlights that the company is faced with difficult decisions, especially related to strategic alternatives for Family Dollar.

According to the analyst, the review of strategic alternatives for Family Dollar is overdue and the best course of action, given the company has tried reviving the segment multiple times and has failed to show much progress, despite store closures, remodels, and changes in merchandising and leadership.

Feldman writes, Family Dollar could obtain a valuation of $3.0 billion- $7.5 billion, with upside if the business improves.

A spin-off could be easier to execute, but a sale would be better to generate cash to invest and repurchase shares, the analyst adds.

For the second quarter, the analyst lowered the EPS estimate to $1.08 from $1.27.

JPMorgan: Over the long term, the analyst sees Dollar Tree returning to a double-digit EPS “compounder” with top- and bottom-line drivers in place at the core DT banner (with incremental DT Plus roll-out) and stabilization at the Family Dollar concept.

Looking ahead, Dollar Tree plans to open 99 Cents Only Stores as rebranded DT banner stores as early as fall 2024. The analyst sees the opportunity for the opening cadence to be pushed higher as a result, with every 100 stores equating to an incremental ~10 cents in EPS.

BofA Securities: Ohmes sees easing comparisons and the ramping up of multi-price DT stores to drive sequential comp improvement in the second half.

The analyst also expects SG&A pressure from temporary labor needed to support DT’s multi-price rollout as well as $0.20-0.30 of incremental transportation and other costs related to Dollar Tree’s Marietta DC ($0.10 expected in the second quarter).

Price Action: DLTR shares are trading lower by 1.54% to $112.62 at last check Thursday.

Read Next: Bath & Body Works To See More Comfort In Second Half Numbers With Further Improvement: Analysts

Image by Jonathan Weiss via Shutterstock

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