On Thursday, BofA Securities made adjustments to its outlook on Dollar Tree (NASDAQ:DLTR) shares, reducing the price target to $117 from $120 while retaining an Underperform rating on the stock.
The price target revision reflects concerns over the financial implications of Dollar Tree's ongoing transition to a multi-price point strategy.
According to BofA Securities, the retailer is facing potential risks due to the costs associated with converting approximately 4,500 stores to offer multiple price points in 2025. This is an increase from the roughly 3,000 store conversions slated for this year.
The firm also highlighted the possibility of sustained higher labor costs following the store conversions. The integration of various price points is expected to add complexity to store operations, which might necessitate additional staffing or increased labor expenses.
Furthermore, there are concerns about the impact of potential minimum wage hikes and enhanced overtime protections for salaried workers on Dollar Tree's operational costs.
In the words of the analyst, "We maintain our Underperform & see continued risks associated with the multi-price rollout at DT including elevated temporary labor costs in 2025 as DT converts ~4,500 stores to multi-price (vs. ~3,000 stores this year), and the potential for elevated labor costs post-conversion given the increased complexity of integrating multiple price points into the aisles."
The revised price objective of $117 is based on a 15x multiple of the firm's forecasted fiscal year 2026 earnings per share (EPS), which remains unchanged. However, the EPS estimate has been lowered from $8.00 to $7.80.
This adjustment takes into account the anticipated increase in operating expenses as Dollar Tree continues to evolve its pricing strategy across its store network.
In other recent news, Dollar Tree has been the subject of various adjustments by financial firms following its first-quarter performance and strategic decisions.
Deutsche Bank lowered its price target for Dollar Tree to $149 from $151, citing the company's modest increase in comparable store sales and a strategic review of its Family Dollar business.
BMO Capital also reduced its price target from $150 to $145, due to increased distribution center costs affecting future earnings per share and a conservative estimate of comparable sales for the coming years.
Piper Sandler reduced its price target to $143 from $168, noting concerns over slowing comparable store sales growth. Despite this, the firm maintained an Overweight rating on the stock, expressing confidence in Dollar Tree's potential for operational improvements.
Truist Securities revised its price target for Dollar Tree shares to $140 from $147 due to weaker-than-expected results, while Citi downgraded the stock from a Buy to a Neutral rating, reducing the price target to $120 from $163.
Dollar Tree reported a consolidated net sales increase of 4.2% to $7.6 billion in its first quarter, with comparable store sales rising by 1.7%. The company's full-year adjusted earnings per share is projected to be in the range of $6.50 to $7. These are recent developments that highlight the operational and financial performance of Dollar Tree.
InvestingPro Insights
Amid the concerns raised by BofA Securities about Dollar Tree's transition to a multi-price point strategy, real-time data from InvestingPro offers a broader perspective on the company's financial health and market performance. The current Market Cap of Dollar Tree stands at $24.11 billion, indicating a significant presence in the retail sector. Despite a challenging past quarter, with a P/E Ratio (Adjusted) for the last twelve months as of Q1 2025 at 22.53, Dollar Tree's Revenue Growth during the same period was 7.51%, suggesting that the company is still expanding its top line.
InvestingPro Tips highlight that while analysts have revised their earnings downwards for the upcoming period, they also predict that the company will be profitable this year. Additionally, Dollar Tree's cash flows are strong enough to cover interest payments, and its liquid assets exceed short-term obligations, providing some financial stability in the face of operational changes.
For investors considering the long-term value of Dollar Tree, it's worth noting that the company's Price % of 52 Week High is at 72.89%, reflecting the recent price movements. Those interested in further analysis and additional InvestingPro Tips can find more in-depth insights for Dollar Tree, including 7 additional tips, at: https://www.investing.com/pro/DLTR. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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