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Dollar Tree (NASDAQ:DLTR) dropped in early trading on Thursday after beating expectations with its Q2 earnings report, but seeing margins plunge from a year ago and issuing profit guidance with a midpoint below the consensus estimate.
Revenue was up 8.1% year-over-year to $7.32B during the quarter. Enterprise same-store sales increased 6.9% during the quarter to top the consensus expectation of +5.7%. Dollar Tree same-store sales increased 7.8%, driven by a 9.6% increase in traffic, partially offset by a 1.6% decline in average ticket. Same-store sales were up 5.8% for the Family Dollar segment, comprised of a 3.4% increase in traffic along with a 2.3% increase in average ticket.
Dollar Tree’s (DLTR) gross margin fell 220 basis points from a year ago to 29.2% of sales vs. 29.7% a year ago. The gross margin decline was driven by lower initial mark-on, unfavorable sales mix, elevated shrink, and wage investments in distribution center payroll, partially offset by lower freight costs. SG&A were 25.3% of sales vs. 24.0% ay ear ago. The increase was primarily due to wage investments in store and field payroll, higher incentive compensation, investments in repairs and maintenance to improve store standards, higher professional fees, elevated general liability insurance claims, and higher utilities expenses related to unseasonably high temperatures throughout much of the country, partially offset by sales leverage.
Operating income plunged to $287.8M from $505.4M a year ago.
The retailer opened 118 new stores during the quarter to end with a store count of 16,419, almost evenly split between the Dollar Tree and Family Dollar banners.
Looking ahead, Dollar Tree (DLTR) sees full-year revenue of $30.6B to $30.9B vs. a prior outlook for $30.0B to $30.5B. The retailer expects EPS of $5.78 to $6.08 vs. a prior outlook for $5.73 to $6.13 and $6.02 consensus. “Our outlook takes into consideration several factors including shifting sales mix, unfavorable shrink trends, higher diesel fuel prices, incremental savings on ocean freight, and our improved sales performance,” updated CFO Jeff Davis.
Separate from earnings, U.S. regulators announced on Wednesday a settlement with Dollar Tree (DLTR) aimed at improving worker safety at thousands of stores under the Dollar Tree and Family Dollar banners across the U.S. Labor Department officials cited hazards at the stores including blocked exits, unsafe storage of materials, and improper access to fire extinguishers and electrical panels.
Shares of Dollar Tree (DLTR) fell 7.755% in premarket action to $131.20.