Shares of Dollar Tree gapped sharply lower Wednesday even though the company beat quarterly sales and profit expectations and raised its full-year outlook. The stock continued lower Thursday.
The discount retailer — which completed the sale of Family Dollar in July — reported adjusted earnings from continuing operations of 77 cents a share, up 13%. Sales climbed 12.3% year over year to $4.6 billion. Analysts had projected 41 cents a share on sales of $4.480 billion, according to FactSet.
Dollar Tree's same-store sales rose 5.9%, a combination of 2.8% higher shopper traffic and a 3.1% higher average ticket.
The company raised its sales forecast for the fiscal year ending in January to between $19.3 billion and $19.5 billion, projecting comparable-store sales growth of 4% to 6%. It now expects adjusted EPS from continuing operations of $5.32 to $5.72.
It previously forecast EPS of $5.15 to $5.65, sales of $18.5 billion to $19.1 billion, and same-store sales growth of 3% to 5%.
Executives told analysts in the earnings call they're trying to maintain margins while facing uncertainties on tariffs and consumer trends. Although the second quarter saw net benefits from steps taken to cushion against tariffs, tariff impacts are now shifting into the second half of the year.
High-Income Shoppers Flock To Dollar Tree
In a positive trend, Dollar Tree is expanding its customer base and attracting higher-income shoppers.
As of the end of Q2, the company had added 2.4 million customers from a year ago, and nearly two-thirds of those new customers came from households earning $100,000 or more, said CEO Mike Creedon.
The company has converted 3,600 stores to its 3.0 format, which includes merchandise with higher price tags. Dollar Tree plans to have 5,000 3.0-style stores by year-end.
And in a sign of growing engagement, the number of shoppers visiting three or more times a month increased by 11% in Q2.
Dollar Tree Stock Analysis
The stock sold off 8.4% Wednesday after paring some losses. Shares gapped below the 50-day moving average in heavy volume. The break of support marked a sell signal. Dollar Tree stock had climbed as much as 48% from a breakout at 79.80 in April. Thursday afternoon, the stock was down more than 2%.
On July 5, the company completed its $1 billion sale of the Family Dollar business to Brigade Capital Management and Macellum Capital Management. The deal left Dollar Tree free to focus on its main brand.
"The strategic refocus appears to be already paying off," retail analytics firm Placer.ai said in a report Tuesday. Year-over-year visits climbed 10.4%, 6.9% and 8.1% in May, June and July, respectively. Same-store visits rose 5.9%, 2.9% and 4.4% in the same months. The numbers indicate strong organic performance amplified by store expansion, Placer.ai added. (An earlier version of this article gave incorrect numbers for visits.)
