Dollar Tree’s Strategic Review of Family Dollar Too Late, Analysts Cut Price Forecast

Dollar Tree, Inc. (NASDAQ:DLTR) shares are trading marginally lower on Thursday.

Yesterday, the retail giant reported 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 First Quarter Results; Stock slides

Here’s a glimpse at analyst reactions to the company’s quarterly performance:

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

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

Feldman emphasizes that the company faces difficult decisions, especially when it comes to strategic alternatives to Family Dollar.

According to the analyst, assessing strategic alternatives for Family Dollar is overdue and the best course of action as the company has tried to revive the segment several times and has failed to make much progress despite store closures, remodels and changes in merchandising. and leadership.

Feldman writes that Family Dollar could achieve a valuation of $3.0 billion to $7.5 billion, with gains if its business improves.

A spinoff could be easier to execute, but a sale would be better at generating cash to invest and buy back shares, the analyst added.

For the second quarter, the analyst lowered the profit forecast from $1.27 to $1.08.

JP Morgan: Longer term, the analyst sees Dollar Tree returning to a double-digit EPS compounder with top and bottom line drivers at the core DT banner (with incremental rollout of DT Plus) and stabilization at Family Dollar. concept.

Looking ahead, Dollar Tree plans to open 99 Cents Only Stores under the new name DT banner stores as early as fall 2024. The analyst sees the opportunity to increase the opening pace as a result, with every 100 stores representing an incremental ~10. cents in EPS.

BofA Effects: Ohmes sees easing of comps and ramping up of multi-priced DT stores to drive sequential comp improvement in the second half.

The analyst also expects pressure on SG&A costs from temporary labor needed to support the multi-price DT rollout, as well as $0.20-0.30 in additional transportation and other costs associated with the Marietta DC of Dollar Tree ($0.10 expected in Q2).

Price promotion: DLTR shares are trading 1.54% lower at $112.62 at last check on Thursday.

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