Dollar Tree (DLTR) stock price has collapsed and is hovering at its lowest level since May 2020. It has plunged by about 60% from its highest level in 2022, bringing its market cap from over $47 billion to about $16 billion.
Dollar stores are in trouble
The Dollar Tree stock collapse happened in sync with other discount stores like Dollar General and Five Below. Dollar General shares have crashed by about 70% from its all-time high, while Five Below is down by 58% from its record high.
These companies have crashed because of the ongoing rotation from discount stores to larger names like Amazon and Walmart. A key benefit that these firms have is their subscription services like Amazon Prime and Walmart+.
The two subscriptions give customers more value. For example, Walmart+ offers users free delivery, video streaming access to Paramount+ and Pluto TV, and Burger King savings. Amazon Prime also offers fast and free delivery and access to Amazon Prime.
Walmart and Amazon also offer fairly cheap products, which explains why their retail sales have done well in the past few months.
Dollar Tree, which also owns Family Dollar, is also seeing a substantial increase in business costs. The firm has been forced to increase wages to meet the minimum wage.
Therefore, while its top-line growth has been strong, its bottom line has struggled. Its annual revenue has jumped from over $23 billion in 2019 to over $30.5 billion in the last financial year.
However, the net profit has moved from over $1.6 billion in 2022 to a loss of $998 million in 2023. Its net loss rose to over $1 billion in the trailing twelve months.
Read more: Why are Dollar Tree and Dollar General stocks falling apart?
DLTR earnings ahead
The Dollar Tree stock price will be in the spotlight this week as it delivers its earnings on Wednesday. These results will provide more information about its progress and whether the management was still considering separating the two businesses.
The most recent results showed that the Dollar Tree business remained under intense pressure as customer traffic continued falling. Its same-store net sales at Dollar Tree was 1.3%, while in Family Dollar it dropped to 0.1%.
Its sales rose by 0.7% to $7.3 billion, while its gross profit rose 3.7% to $2.2 billion. Altogether, its operating income fell by almost 30%, while the net income fell to $132 million.
Analysts expect Dollar Tree’s results to show that its revenue rose by 1.75% to $7.4 billion. The guidance for the next quarter will be $8.2 billion, a 4.6% annual decline. For the year, Dollar Tree is expected to make $30.7 billion.
To a large extent, Dollar Tree’s main problem is not its top-line, but its costs. Also, there are concerns that Family Dollar, which it acquired for over $9 billion, is not living up to expectations.
Analysts have largely turned bearish on the Dollar Tree stock. Keybanc recently downgraded the stock from overweight to sector weight, while Telsey Advisory Group slashed it from outperform to market perform.
The average Dollar Tree stock price forecast is $82.25, higher than the current $72.81, implying a 15% increase from the current level.
Dollar Tree stock price analysis
DLTR chart by TradingView
The weekly chart shows that the DLTR share price has been in a strong downtrend in the past few months. It has retreated from $176.63 in April 2022 to below $80 today.
The stock moved slightly below the key resistance level at $102.85, its lowest swing on September 25. It has moved below the 50-week and 200-week moving averages, which formed a bearish crossover pattern.
The MACD and the Relative Strength Index (RSI) have all continued falling. Therefore, the stock may continue falling as sellers target the next key support at $60. However, a move above the key resistance at $80 will invalidate the bearish view.
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