Dollar Tree (DLTR -4%) is experiencing a dip after its Q1 results. The dollar store chain reported in-line EPS and revenues, but Q2 guidance fell below expectations. While DLTR reaffirmed full-year revenue guidance at $31-32 billion and comparable store sales (comps), it lowered full-year adjusted EPS guidance to $6.50-7.00 from $6.70-7.30.
- Q1 enterprise same-store comps increased by 1.0%, driven by a 2.1% increase in traffic, offset by a 1.1% decrease in average ticket. Dollar Tree segment comps rose by 1.7%, while Family Dollar segment comps edged up by just 0.1%. The average ticket declines reflected weaker discretionary demand, particularly in the Dollar Tree segment.
- Dollar Tree Q1 segment comps fell short of expectations due to a challenging Easter season. An early Easter and an extra week last year shortened the selling season. Additionally, cold and wet weather negatively impacted family celebrations of this traditionally spring-oriented holiday.
- For Q2, the company expects low-single-digit enterprise comps, with Dollar Tree segment comps at 2-4% and flat comps for Family Dollar. For the full year, DLTR reaffirmed comp guidance of a low-to-mid-single-digit increase, with a mid-single-digit rise for Dollar Tree and a low-single-digit increase for Family Dollar.
- Major news outside of earnings: DLTR announced a formal review of strategic alternatives for its Family Dollar segment, including a potential sale, spin-off, or other disposition. Last year, DLTR closed 970 underperforming Family Dollar stores and is now seeing progress. The company continues to expand the Dollar Tree banner with multi-price offerings, new store openings, and transactions like acquiring up to 170 stores from 99 Cents Only.
Overall, this was another disappointing quarter for Dollar Tree. Family Dollar has been struggling, and even Dollar Tree stumbled in Q1. This wasn't entirely unexpected, as peer Dollar General (DG, Financial) offered cautious commentary last week. However, the strategic review of Family Dollar is a positive development. A sale or spin-off could allow DLTR to focus more on its better-performing Dollar Tree stores. Positive changes at Family Dollar might also boost its sales price.
