Why Dollar Tree Stock Dropped This Week

Actions of The dollar tree (DLTR 7.72%) were hit this week as the discount retailer posted disappointing results in its second-quarter earnings report. He followed in his footsteps general dollarits bigger rival, which also missed the mark in its earnings report, a sign that lower-income consumers are cutting back on spending.

As a result, shares of Dollar Tree traded down 19.8% for the week on the news as of 3:08 p.m. ET Thursday, according to data from S&P Global Market Intelligence.

Image source: Getty Images.

Dollar Tree needs more dollars

The discount chain, which also owns Family Dollar, said on Wednesday that second-quarter comparable sales rose 0.7 percent and total revenue rose the same percentage to $7.38 billion, which missed estimates. to 7.49 billion dollars.

Dollar Tree posted an 80 basis point increase in gross margin to 30% due to lower shipping costs. However, selling, general and administrative expenses rose from 25.3% to 27.3%, in part due to additional legal expenses, which weighed on the bottom line.

Adjusted operating income fell 24% to $218.1 million, and adjusted earnings per share fell from $0.91 to $0.67, well below the $1.04 consensus.

CEO Rick Dreiling said the company was facing “immense pressures from a challenging macro environment,” but added that initiatives such as its expanded multi-price offering were paying off.

Can Dollar Tree make a comeback?

Investors were also unhappy with Dollar Tree’s guidance, as the company forecast full-year revenue of $30.6 billion to $30.9 billion, down from a previous range of $31 billion of dollars – 32 billion dollars and below estimates of 31.2 billion dollars.

It also cut its adjusted EPS forecast from $6.50-$7.00 to $5.20-$5.60, though that was due in part to a general liability charge related to customer accidents and of increasing costs to manage them.

This should have a one-time impact on business, but it’s clear that weak demand is also weighing on Dollar Tree.

With interest rates expected to drop later in the month, Dollar Tree may get a reprieve, but it’s clear why investors are disappointed by the latest update.