On Wednesday, CFRA updated its outlook on Dollar Tree (NASDAQ:DLTR), increasing the price target to $109 from the previous $104 while keeping a Sell rating on the stock. The firm's analyst cited a revised earnings per share (EPS) forecast for the fiscal year ending January 2025, adjusting the estimate to $6.61, up from $6.49, and initiating an EPS projection of $7.42 for fiscal year 2026. This valuation is based on a multiple of 16.5 times the anticipated FY 2025 EPS, compared to the stock's long-term average of 20 times.
Dollar Tree reported an adjusted EPS of $2.55 for the fourth fiscal quarter, which marked a 25.1% increase year-over-year but fell short of expectations by $0.10. The company's comparable sales growth was 3.0%, not meeting the consensus estimate of 3.3%. Despite this, Dollar Tree's comparable sales saw a positive increase of 3.3%, a trend expected to persist into FY 2025 as the retailer continues to expand its multi-price offerings, including items priced at $3 and $5, across more stores.
In contrast, Family Dollar, a subsidiary of Dollar Tree, experienced a decline in comparable sales by 1.2% year-over-year. As a response to underperformance, Dollar Tree has plans to close approximately 600 Family Dollar stores in the first half of FY 2025 and will allow leases to expire for another 370 stores. This consolidation is anticipated to benefit Dollar Tree's EPS by about $0.15 in FY 2025.
Further financial improvements for Dollar Tree are expected from additional freight savings, which could enhance EPS by $0.85 to $0.90. Nevertheless, the company is facing headwinds for FY 2025, including increased shrink, a negative sales mix, and investments related to labor and store maintenance. These factors contribute to CFRA's decision to maintain a Sell rating on the stock, as they see potential downside risks to Dollar Tree's future performance.
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