Shares of Dollar Tree (NASDAQ: DLTR) are down 14.9% this week as of the market's close on Thursday after the value-oriented retail chain announced weaker-than-expected quarterly results.
Why Dollar Tree's "strong" quarter just wasn't enough
For its fiscal fourth quarter ended Feb. 3, 2024, Dollar Tree's total revenue grew 11.9% year over year to $8.64 billion, including a 3% increase in same-store net sales (note there was an extra week this quarter as compared to the same year-ago period).
On the bottom line, that translated to a massive net loss of $1.71 billion, or $7.85 per share during the quarter based on generally accepted accounting principles (GAAP). But that was primarily due to around $2 billion of goodwill impairment and asset impairment charges incurred during the quarter stemming from the company's ongoing store portfolio review. Adjusted for those charges, Dollar Tree's non-GAAP earnings were $555.7 million, or $2.55 per share.
In any case, analysts were expecting higher adjusted earnings of $2.65 per share on revenue of $8.65 billion.
Same-store net sales at Dollar Tree climbed 6.3% during the quarter, offset partially by a 1.2% decline in Family Dollar same-store sales. Comparable transaction count grew 7.1% and 0.7% at Dollar Tree and Family Dollar, respectively.
Still, Dollar Tree Chairman and CEO Rick Dreiling insisted the company "finished the year strong," pointing to "positive traffic trends, market share gains, and adjusted margin improvement" across both its Dollar Tree and Family Dollar segments.
What's next for Dollar Tree investors?
As part of its ongoing portfolio optimization review, Dollar Tree identified around 600 Family Dollar stores for closure in the first half of the new fiscal year. The company will also close around 370 Family Dollar locations and 30 Dollar Tree stores over the next several years as their current lease terms expire.
Looking ahead to the full fiscal year 2024, Dollar Tree expects revenue in the range of $31 billion to $32 billion, which should translate to earnings per share of $6.70 to $7.30. Both ranges were again slightly below Wall Street's expectations.
In the end, Dollar Tree's massive (non-cash) losses aren't as bad as they seem as the company works through the accounting adjustments required to right-size its store portfolio. But until we see more tangible signs of sustained improvement after those stores close, it's hard to blame some investors for taking their money and putting it to work in any number of other promising stocks.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
