Will Dollar Tree Stock Fall More after Its Q4 Earnings?

So far, Dollar Tree (NASDAQ:DLTR) has fallen 10.1% this year. The company will likely release its results for the fourth quarter of fiscal 2019 on Wednesday. Notably, the company beat analysts’ sales expectations but lagged the third-quarter earnings forecast.

The company has been working to improve sales at Family Dollar stores. Some analysts have been cautious. The Family Dollar banner has dragged down Dollar Tree stores’ performance. On January 23, Bank of America downgraded Dollar Tree stock to “neutral” from “buy.” Bank of America was concerned that the changes in merchandising and leadership might have a negative impact on the Family Dollar banner’s margins.

Will Dollar Tree’s Q4 earnings be impressive?

Dollar Tree’s third-quarter sales grew 3.7% YoY (year-over-year) to $5.75 billion. The company’s same-store sales grew 2.5%. Notably, Dollar Tree and Family Dollar’s same-store sales growth rates were 2.8% and 2.3%, respectively. The company’s efforts to revamp its Family Dollar business, including store renovations and remodeling, led to improved sales.

Dollar Tree’s third-quarter adjusted EPS fell 8.5% YoY to $1.08 due to lower margins. Increased sales of lower-margin consumables, higher freight and distribution costs, and increased shrink impacted the company’s bottom line.

The company expects fourth-quarter net sales of $6.33 billion–$6.44 billion and low single-digit same-store sales growth. Dollar Tree expects its fourth-quarter EPS to be $1.70–$1.80. The company’s guidance reflects the impact of tariffs on Chinese imports, higher growth in lower margin consumables, and increased payroll costs in distribution centers.

Dollar Tree expects fiscal 2019 sales between $23.62 billion and $23.74 billion and an EPS of $4.66–$4.76. Meanwhile, analysts expect the company’s sales to rise 2.9% YoY (year-over-year) to $6.39 billion in the fourth quarter. However, they expect the adjusted EPS to decline by 9.3% YoY to $1.75.

Analysts expect Dollar General’s (NYSE:DG) fourth-quarter sales to rise 7.5% to $7.15 billion. They expect Dollar General’s adjusted EPS to grow 9.8% to $2.02.

Analysts’ sentiment for DLTR stock

Aside from Bank of America, Dollar Tree stock was also downgraded by KeyBanc in January. On January 21, KeyBanc downgraded the stock to “sector weight” from “overweight” due to margin concerns. On January 22, Morgan Stanley raised its target price to $105 from $95. However, on February 7, Deutsche Bank cut its price estimate to $94 from $96. Deutsche Bank lowered its price estimate to $93 on Monday.

As of Monday, 58% or 15 out of 26 analysts recommended Dollar Tree stock as a “hold,” nine recommended a “buy,” and two recommended a “sell.” The average 12-month target price of $101.83 indicates a 20% potential upside in Dollar Tree stock. However, the company’s fourth-quarter performance and the guidance for fiscal 2020 will likely impact analysts’ 12-month target price.

Currently, 70% or 19 out of 27 analysts have a “buy” recommendation for Dollar General stock. Seven analysts recommend a “hold,” while one recommends a “sell.” With an average target price of $174.08, analysts see a potential upside of about 9%.

In contrast to Dollar Tree stock, which has fallen 10.1% YTD, Dollar General stock has risen 2.3% as of Monday.