Dollar Tree plunges after blaming tariffs for weak sales

Dollar Tree

Retail giant and discount store operator Dollar Tree (NASDAQ: DLTR) had a bad day on Tuesday, with shares falling by a significant margin following weak earnings in what was the worst trading day seen by the company in over seven years. The company’s management ended up putting the blame on the ongoing tariffs between the U.S. and China, a common excuse used by other retail chains so far this year.

In its Q3 2019 financial results that were just released, Dollar Tree’s results ended up disappointing Wall Street. For the full 2019 year, Dollar Tree now expects its earnings per share to come in at between $4.66 and $4.76, in comparison to previous estimates that were between $4.90 and $5.11 per share. At the same time, Dollar Tree stated that it expects Chinese tariffs to increase their costs by $19 million for Q4, further hurting the company’s bottom line.

Fiscal 2019 has been a unique year as the result of several factors: the material acceleration in our Family Dollar store optimization initiatives, the consolidation of our two store support centers into southeast Virginia, the global helium shortage, and the continued uncertainty regarding trade and the related tariffs,” said Dollar Tree CEO Gary Philbin in a press release.

On a positive note, Dollar Tree added 165 new stores during the quarter, in comparison to closing only 42 stores instead. Many retail brands have resorted to closing down a significant portion of their stores and limiting themselves to their top-performing locations or downgrading the size of their retail stores to save on costs. Dollar Tree isn’t doing this, which is a good sign for the company.

Shares of Dollar Tree ended up falling by 15.3% over the course of the day, with the company falling an extra 0.5% in after-hours trading. Dollar Tree, a $22.5 billion-dollar company, seems to be the latest in a long line of retail brands that have been hit hard not just by the ongoing trade tariffs between the U.S. and China, but also the consumer trend of moving towards e-commerce and online shopping.

While there are plenty of Wall Street analysts covering the stock, the consensus is almost equally split between those that have “neutral” price targets for the discount store brand and those that have an optimistic “buy.” Overall, now doesn’t seem like a good time for investors to put their money into retail chains, unless they are operating in a highly niche and specific sectors.

Dollar Tree Company Profile

Dollar Tree operates discount stores in the United States and Canada, including over 7,000 shops under its namesake banner and more than 8,200 Family Dollar locations. The eponymous chain features branded and private-label products at a fixed $1 price point (CAD 1.25 in Canada). About 49% of Dollar Tree stores’ fiscal 2018 sales came from consumables (including food, health and beauty, and household paper and cleaning products), 47% from variety items (including toys and housewares), and 5% from seasonal and holiday merchandise. Family Dollar features branded and private-label goods at prices generally ranging from $1 to $10, with consumables constituting 76% of fiscal 2018 sales, seasonal and electronic items (including prepaid phones and toys) 9%, home products 8%, and basic apparel 6%. – Warrior Trading News