3 Key Reasons Why Dollar Tree Stock Crashed After Earnings

Shares of Dollar Tree DLTR crashed more than 15% in early morning trading Wednesday, shortly after the discount retailer posted its latest quarterly financial report. Prior to the earnings announcement, Dollar Tree shares were up 40% within the past year, and the company was looking like one of the strongest in the retail sector. So what went wrong? Let's take a closer look.

Earnings & Revenue Miss

For the fourth quarter of fiscal 2017, Dollar Tree reported adjusted earnings of $1.89 per share, missing the Zacks Consensus Estimate by a penny. That result did represent a 36% improvement from the year-ago period, but the miss broke Dollar Tree's streak of two-consecutive positive surprises.

Meanwhile, consolidated net sales of $6.36 billion also missed our consensus estimate of $6.40 billion. Quarterly revenues were up nearly 13% on a year-over-year basis, but investors were clearly disappointed by the company's top-line performance.

Disappointing Comps

Same-store sales in the quarter improved 2.4% in constant currency, with comps growth at Dollar Tree stores increasing 3.8% and Family Dollar comps moving just 1% higher. According to analysts surveyed by Reuters, comps growth was expected to come in at 1.5% at Family Dollar and 4% at Dollar Tree. Analysts also expected total same-store sales to gain 2.7%.

Weak Guidance

Dollar Tree said that it expects consolidated net sales to fall in the range of $5.53 billion to $5.63 billion for the first quarter. Before today's report, our consensus estimate was calling for revenues of $5.6 billion in the quarter. Management also expects adjusted Q1 earnings of $1.18 to $1.25 per share, which is well below the current Zacks Consensus Estimate of $1.32 per share.

The company's full-year guidance was also disappointing. Dollar Tree now expects net sales in the range of $22.70 billion to $23.12 billion for fiscal 2018, with adjusted earnings expected to come in at $5.25 to $5.60 per share. Our consensus estimates were calling for full-year revenues of $23.10 billion and earnings of $5.85 per share.

Bottom Line

Dollar Tree was showing signs of strength, especially over the last six months. Analysts were expecting that its core customer base—lower income families in suburban and rural areas—would continue driving its growth in the holiday quarter. Today's disappointing results have taken the wind out of the company's sails.

Looking ahead, Dollar Tree's sluggish guidance does not spell good news for fiscal 2018. However, the company said that it will use its new tax benefit to raise wages and increase employee benefits, which is typically a positive sign. Moreover, its core customers should have more money to spend this year.

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