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

Dollar Tree (DLTR) stock has seen a significant rebound of 20% from its 52-week low of $60 a share, which was reached in early November. However, investors are now questioning whether this upward trend can continue as the company's Q3 earnings report approaches, scheduled for release on Wednesday, December 4.

Despite the recent gains, Dollar Tree's stock price remains about 50% lower than its one-year high of over $150, which was achieved in March. The stock has been gaining momentum in anticipation of the upcoming Q3 results.

Adding to the market's anxiety is the recent decline in shares of Target (TGT), which experienced a sharp drop following disappointing Q3 earnings. This circumstance places additional scrutiny on Dollar Tree as investors look for solid performance from the discount retailer.

Dollar Tree's Q3 Expectations

According to estimates from financial analysts, Dollar Tree's Q3 sales are projected to reach approximately $7.45 billion, reflecting a 2% increase compared to the same period last year. From an earnings perspective, forecasts suggest a 10% rise in Q3 earnings, with expected earnings per share (EPS) of $1.07, compared to $0.97 in the corresponding quarter last year.

It is worth noting that in its most recent Q2 earnings report, Dollar Tree missed expectations by a significant margin—37% lower than anticipated—with EPS of $0.67, falling short of the Zacks Consensus estimate of $1.03. This was also a decrease from EPS of $0.91 in the previous year, highlighting the retailer's struggle amid broader macroeconomic challenges and rising general liability claims that have adversely impacted net income.

Moreover, the slower growth rate for Dollar Tree's subsidiary, Family Dollar, has raised concerns. The company reported Q2 sales figures of $7.5 billion, which was 2% below analysts' estimates. Like Target, the issue of shrink (retail theft) along with various inventory challenges has weighed heavily on profits. As a result, Dollar Tree has missed earnings expectations in three of its last four quarterly reports, showcasing an average earnings surprise of -10.85%.

Tracking Dollar Tree’s Potential Rebound

Looking ahead, Dollar Tree's total sales are anticipated to remain relatively flat for the current fiscal year 2025, with estimates around $30.71 billion. Fortunately, optimistic projections suggest that FY26 could see a 4% increase in sales, reaching approximately $31.97 billion.

In terms of profitability, annual earnings are expected to drop by 9% in FY25, but a recovery is anticipated, with earnings projected to rise by 13% in FY26, leading to an EPS of $6.04.

DLTR Valuation Comparison

The potential for Dollar Tree's rebound becomes even more intriguing when considering its valuation. Currently, DLTR trades at 13.6 times forward earnings, significantly lower than the S&P 500's average of 25.5 times. Additionally, Dollar Tree's forward earnings multiple is less than Target's, which stands at 15.1 times, and considerably lower than the Zacks Retail-Discount Stores Industry average of 21.2 times.

Furthermore, shares of Dollar Tree are priced at approximately 0.5 times sales, aligning closely with Target and the industry average.

Bottom Line

As Dollar Tree prepares to release its Q3 earnings report, the stock currently holds a Zacks Rank of 3 (Hold). While buying Dollar Tree shares at or near historical lows in terms of its P/E valuation may appear attractive, the future trajectory of the stock will largely hinge on whether the company can meet or surpass Q3 expectations, as well as offer encouraging forecasts for the upcoming quarters.

DollarTree, Earnings, Stocks