FX.co ★ Dollar Tree Slips To Hefty Loss In Q4 On Charges

Dollar Tree Inc. reported a significant net loss for its fourth quarter, coming in stark contrast to last year's profit. This was driven by substantial charges, even though there were improvements in gross margin and increased revenue. The company's quarterly adjusted earnings per share and net sales did not meet analysts' projections, and it provided a muted earnings forecast for the first quarter.

On Wednesday, Dollar Tree shares fell significantly by $22.21 or 14.83 percent to $127.49 in normal trading on the Nasdaq.

According to Rick Dreiling, Chairman and Chief Executive Officer, the company ended the year robustly, with the fourth quarter showcasing positive customer traffic patterns, gains in market share, and a notable margin improvement across both sectors.

The company reported a massive net loss of $1.71 billion or $7.85 per share in the fourth quarter, a turnaround from the net income of $452.2 million or $2.04 per share recorded the previous year. This was largely due to a Goodwill Impairment Charge of $4.91 per share, as well as a $4.36 per share Trade Name Intangible Asset Impairment Charge.

In contrast, the adjusted earnings for the quarter were $2.55 per share, higher than the $2.04 per share from the same period last year. However, 20 analysts polled by Thomson Reuters expected the company to deliver earning of $2.65 per share for that quarter.

Net sales for the quarter increased by 11.9 percent to $8.63 billion, up from $7.72 billion registered the previous year. However, these still fell short of analysts’ projections, who anticipated revenues of $8.67 billion for the quarter.

As part of their performance, Dollar Tree recorded a same-store sales increase of 3.0 percent, driven by a 4.6 percent rise in customer traffic, which was slightly offset by a 1.5 percent decrease in average ticket.

Dollar Tree brand net sales grew to $4.96 billion from $4.30 billion, with same-store sales growth of 6.3 percent. Meanwhile, Family Dollar brand net sales rose to $3.67 billion from $3.42 billion, albeit recording a same-store sales dip of 1.2 percent.

The gross margin for the quarter improved 120 basis points to 32.1 percent. This was mainly due to lower freight costs, sales leverage, the impact of an extra week in fiscal 2023, and increased allowances. However, it was slightly impacted by product cost inflation, a mix of unfavourable sales, elevated shrinkage, and higher distribution and markdown costs.

Administrative expenses also spiked significantly to 54.0 percent, mainly due to various non-cash impairment charges and an adverse development of general liability claims.

In the fourth quarter, the company initiated a comprehensive review of its store portfolio, which involved identifying stores for closure, relocation, or rebranding based on market conditions and individual store performance.

This exercise identified approximately 600 Family Dollar Stores for closure in the first half of fiscal 2024, and an additional 370 locations set for closure upon lease expirations.

CFO Jeff Davis noted that the company is seeing encouraging results from its early business transformation efforts.

Looking to the future, the company estimates first quarter earnings to range between $1.33 and $1.48 per share, with consolidated net sales estimated between $7.6 billion and $7.9 billion. This is based on low to mid-single-digit growth in same-store sales for the combined enterprise. However, analysts expect the company to report earnings of $1.69 per share and sales of $7.68 billion for the quarter.

For fiscal 2024, the company predicts earnings ranging from $6.70 to $7.30 per share on consolidated net sales between $31.0 billion and $32.0 billion, which is based on low to mid-single-digit growth in the same store sales for the combined enterprise.

Market analysts forecast earnings of $7.04 per share and sales of $31.65 billion for the year.

The outlook for fiscal 2024 includes approximately $0.15 per share benefit from the expected closure of underperforming Family Dollar stores during the first half of fiscal 2024, mostly in the latter part of the year.