Why Did Dollar Tree Stock Drop Today?
Key Points
Dollar Tree beat on sales in Q2.
It beat on earnings.
Then Dollar Tree raised guidance -- and investors sold the stock.
Modern-day five-and-dime retailer Dollar Tree (NASDAQ: DLTR) stock tumbled 3.7% through 1 p.m. ET Thursday despite crushing analyst forecasts for Q2 earnings.
Heading into the report, Wall Street had Dollar Tree pegged for a $1.11 per share profit on $4.85 billion in sales. Dollar Tree beat the sales estimate with $4.9 billion, and more than doubled Wall Street's expected profit, earning $2.70 per share -- then raised guidance on top of that!
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So why is Dollar Tree stock sliding?
Image source: Getty Images.
Dollar Tree Q2 earnings
Dollar Tree grew its sales 7% year over year in Q2, helped by a 3.7% increase in same-store sales. The company's net profit of $2.70 per share included a $1.31 benefit from refunds of the Trump tariffs. Even without that windfall, however, the company would have earned $1.39 per share- 25% more than Wall Street analysts had predicted and still a strong beat.
CEO Mike Creedon credited better foot traffic at his stores, and also more spending per customer visit, for the improvement, adding that Dollar Tree is making an effort to run its stores better as well (and this seems to be paying off in the form of more and more freely spending customers arriving in his stores).
What's next for Dollar Tree stock?
Can Dollar Tree keep it up? Management thinks so.
Turning to guidance, Dollar Tree anticipates same-store sales growing 3% to 4% again in Q3, and indeed all year long, resulting in sales north of $5 billion next quarter, and between $20.5 billion and $20.7 billion by year-end. Profits should range from $0.80 to $0.95 in Q3, and from $7.70 to $8.05 per share for the year.
That works out to about a 16x price-to-earnings ratio on Dollar Tree stock. Given how well it's doing, that price seems more than fair.
Rich Smith 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.