Dollar Tree reported an earnings miss Tuesday, due mostly to the costs of its merger last month with dollar-store rival Family Dollar. Q2 same-store sales increased 4.5% with more customers coming in and spending more on average.With Canadian currency exchange rates factored in, same-store sales increased 2.4%.
Stocks fell as the company’s Family Dollar stores reported smaller profit margins than analysts expected.
Still, the company appears to be successfully encroaching on Wal-Mart Stores’ turf and will continue to work on product mix and store location to compete for lower-income customers, CEO Bob Sasser said.
Many on Wall Street don’t like the fact that Dollar Tree is reserving any earnings guidance for the next several quarters as it integrates Family Dollar into its operations, with analysts saying that makes it hard to know how that integration is going.
But Sasser continues to emphasize that the process is a longer term proposition — a “marathon not a sprint” — that will entail making decisions on merchandise, pricing, and store locations that will take time.
And other analysts are buying that. Cantor Fitzgerald, for example, lowered its price target from $90 to $95 but remains optimistic.
“Our target is based on our pro forma model that reflects the $300 million in annual cost savings Dollar Tree expects to generate by year three,” according to the note. “We believe there is considerable upside as management’s synergy estimates appear very conservative to us, and they do not include operational improvements we expect as Family Dollar benefits from Dollar Tree’s strong management and superior merchandising team.”