Can the Rebound in Dollar Tree (DLTR) Stock Continue as Q3 Earnings Approach?

After experiencing a notable rebound of 20% from its 52-week low of $60 per share in early November, investors are keen to understand whether the recent momentum in Dollar Tree (DLTR) stock can sustain itself. Presently, Dollar Tree’s stock remains about 50% lower than its one-year high of over $150 achieved last March but has seen significant upward movement as it prepares to release its Q3 earnings report on Wednesday, December 4.

The market's attention is heightened, especially following Target’s (TGT) recent stock decline after it reported disappointing Q3 results. This development has raised the stakes for Dollar Tree as it finds itself under increased scrutiny from Wall Street.

Dollar Tree's Q3 Expectations (Overview)

According to estimates from Zacks, Dollar Tree’s Q3 sales are expected to reach $7.45 billion, reflecting a 2% increase year-on-year. In terms of profitability, analysts anticipate a 10% rise in earnings, projecting Q3 earnings per share (EPS) at $1.07 compared to $0.97 in the same quarter last year.

However, it is important to note that Dollar Tree has recently struggled to meet its earnings expectations. In September, it fell short of Q2 expectations by 37%, reporting EPS of $0.67 versus the Zacks Consensus estimate of $1.03. This performance was also a decline from the previous year's EPS of $0.91. Economic challenges and an increase in general liability claims have affected Dollar Tree’s net income.

Concerns surrounding slower growth in its subsidiary, Family Dollar, have also emerged, especially after missing Q2 sales expectations of $7.5 billion by 2%. Similar to other retailers, Dollar Tree has faced challenges related to inventory issues and retail theft, which contributed to missed earnings expectations in three of its last four quarterly reports, resulting in an average EPS surprise of -10.85%.

Tracking Dollar Tree’s Potential Rebound

Looking ahead, overall sales for Dollar Tree in its current fiscal year (FY25) are projected to be relatively flat, estimated at $30.71 billion. Optimistically, FY26 sales are anticipated to rise by 4% to approximately $31.97 billion.

Annual earnings are forecasted to decline by 9% in FY25; however, they are expected to bounce back, rising by 13% in FY26 to reach about $6.04 per share.

DLTR Valuation Comparison

Dollar Tree’s potential for a rebound is particularly notable given its current valuation. DLTR trades at 13.6 times forward earnings, significantly lower than the benchmark S&P 500’s valuation of 25.5 times. Additionally, Dollar Tree's valuation is below Target’s 15.1 times forward earnings multiple and is considerably discounted when compared to the average of 21.2 times within their Zacks Retail-Discount Stores Industry.

Notably, Dollar Tree trades at a sales multiple of just 0.5 times, which aligns with Target and the industry average.

Bottom Line

Ahead of the upcoming Q3 report, Dollar Tree currently holds a Zacks Rank of #3 (Hold). While the stock’s valuation is tempting to consider at near historical lows, the continuation of its recent rally will likely depend on the company's ability to meet or exceed Q3 expectations, along with providing positive guidance for the future.

Rebound, DollarTree, Earnings