$DLTR Q3 2022 Earnings Report

$DLTR Short

Dollar Tree is a retail chain that mostly specializes in cheap items. Most if not all grocery chain or supply chain stocks have had a rough year with their revenue margins decreasing due to inflation and the customers having less spending power. I believe Dollar Tree will especially be affected by this one as they always try to keep their prices as low as possible with minimal profit margins. Another reason that adds to why I believe this company should be shorted is the fact that currently, it’s trading near its all-time highs and it would be very unlikely for them to stay at this price, especially during a recession. Moreover, the macro environment is particularly tough on Dollar Tree due to the company’s focus on keeping its products at the price point of $1 for several decades. During a recession like now, most businesses pass some of that inflation back to the customer via way of raising prices. For Dollar Tree to raise its prices, it necessarily must accept upsetting its customer base. They already raised their prices to $1.25 during the last quarter, and we’ll be able to see this quarter just how much damage it did in terms of sales. I think it will be more than analysts expect, not just because Dollar Tree has shot itself in the foot with its unique selling prices, but also because expectations about consumer demand remain too high. I think in the coming quarter, we are going to see consumers greatly decrease their spending, and that’s going to lead to an inventory buildup which is what happened to Capri. The expected EPS for Dollar Tree this quarter is 28% higher than the EPS for Q2 of 2021. Some people could say the reason why their EPS has increased is due to the extra 25% price increase for their items however, considering the 9% year-over-year inflation, which not only decreases their profits but also reduces consumer spending by a big amount. The stock is likely to drop even with a positive EPS surprise if they don't provide a strong forecast for Q3. So far, the price increase hasn’t seemed to add much to the company’s profits, so the question in many analysts’ minds is likely what Dollar Tree management has planned in the case of continued inflation and decreasing consumer demand. Further price hikes are unlikely to be good news to investors as it will make more customers walk away and I think many investors will believe they are seeing peak EPS prices for now as the company is at the highest it has been. Taking a look at Dollar Tree’s website traffic, there has been a slight decrease in customer visits during the last month. From May to June there was a big hike however, I believe that was due to the summer season starting and people having more time for shopping and going out more often. Similar stocks have also recently come out with their reports and based on their results, we can higher or lower our expectations for Dollar Tree. Macy’s was able to beat the estimates however, they lowered their guidance for the year. The same thing also happened to Capri but due to having a big inventory of items people weren’t interested in anymore, their price dropped. Another similar stock is Target which missed all of the estimates. Why I could be wrong: As prices are soaring and customers are having less buying power as compared to before, many of them might start shopping at cheaper places such as Dollar tree. Considering how many chains they have and how widely known they are, they will become many customers who go to places when they want something but don’t have the budget to buy it at places such as Walmart or Target. As they were also one of the last supply chains to come out with a report, investors will now have a much lower expectation from them and by comparing their results to other companies, their price could go up even if they miss the estimates

Market Cap: 37,723,168,488 P/E Ratio: 25.28 Initial reaction: Long Researched reaction: Short CEO: Time: Before open Estimate: -15% Top 10 Owners of Dollar Tree Inc Stockholder Stake Shares owned Total value ($) Shares bought / sold Total change The Vanguard Group, Inc. 10.35 % 23,241,91 9 3,843,283,726 -295,857 -1.26% Mantle Ridge LP 5.06% 11,365,53 1 1,879,404,206 0 0.00% BlackRock Fund Advisors 4.93% 11,075,79 3 1,831,493,130 +633,717 +6.07% Capital Research & Management Co.... 4.57% 10,271,27 9 1,698,458,695 +4,476,656 +77.26% Fidelity Management & Research Co... 4.29% 9,637,862 1,593,716,860 -794,080 -7.61% SSgA Funds Management, Inc. 3.94% 8,840,066 1,461,793,314 -422,255 -4.56% Nomura Securities Co., Ltd. (Priv... 3.41% 7,664,106 1,267,336,568 -7,508 -0.10% Edgepoint Investment Group, Inc. 2.31% 5,192,955 858,707,039 -64,156 -1.22% Geode Capital Management LLC 2.03% 4,566,392 755,098,581 +113,942 +2.56% Capital Research & Management Co.... 1.64% 3,672,854 607,343,137 +109,997 +3.09%