The retailer beat expectations … but the trade war looms
Discount retailer Dollar Tree’s stock is up after delivering a positive earnings report last week. Dollar Tree has consistently outperformed the S&P 500 in 2019, and its earnings report met investor expectations.
The company reported adjusted earnings of $1.14 per share and its same-store sales grew by 2.2%, beating investor expectations.
The company lowered its outlook for the remainder of 2019, and shares fell slightly in premarket trading. But the stock bounced back more than 5% after the opening bell.
Challenges Facing Dollar Tree
Dollar Tree struggled to gain momentum ever since its 2015 acquisition of Family Dollar. The acquisition made sense at the time … Dollar Tree was looking for a way to compete with Dollar General. But the acquisition quickly became problematic for the company.
The two companies market to different types of customers. And both the merchandise and Family Dollar store locations were badly neglected. Dollar Tree invested a lot of money into improving Family Dollar stores, but sales lagged regardless.
Earlier this year, company executives announced they were closing hundreds of Family Dollar locations. The remaining stores will either be renovated or rebranded as Dollar Tree stores. The company’s stock rose immediately following the announcement.
Another challenge for Dollar Tree is the ongoing trade war with China. 40% of Dollar Tree’s merchandise is imported from China, and it’s impacted by rising tariffs. And the company’s low price points don’t give it the same leeway as other retailers.
As a result, Dollar Tree is considering changing its long-held business model of never charging more than $1. The company is testing its Dollar Tree Plus model at certain locations to see how customers will respond to higher priced items.
Conclusion
Overall, analysts seem to have mixed outlooks when it comes to Dollar Tree. It’s unclear whether the company will be able to successfully turn around its remaining Family Dollar locations.
The company’s earnings forecast accounted for higher tariff costs but it doesn’t take the potential of additional levies into account. And there’s no telling how customers will respond to higher-priced items in its stores.
How is your portfolio faring in the U.S.-China trade tension? What’s your strategy for downtrends? Leave a comment and share your experience!
