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On Wednesday, CFRA updated its outlook on Dollar Tree (NASDAQ:), raising its price target to $109 from $104, but maintaining its “sell” rating on the stock. The company's analysts cited revised earnings per share (EPS) estimates for the fiscal year ending January 2025, adjusting the estimate from $6.49 to $6.61, with an EPS estimate of $7.42 for fiscal 2026. . This valuation is based on a multiple. That compares to 16.5x expected FY2025 EPS and the stock's long-term average of 20x.
Dollar Tree reported adjusted EPS of $2.55 for the fourth fiscal quarter. This marked a 25.1% increase over the same period last year, but was $0.10 below expectations. The company's comparable sales growth rate was 3.0%, missing the consensus estimate of 3.3%. Nevertheless, Dollar Tree's comparable sales recorded a positive increase of 3.3%, a trend that continues as the retailer continues to expand its multi-price offerings, including $3 and $5 items in more stores. It is expected to continue until 2025.
In contrast, Family Dollar, a subsidiary of Dollar Tree, saw comparable sales decline 1.2% year-over-year. In response to poor business performance, Dollar Tree plans to close approximately 600 Family Dollar stores in the first half of 2025 and will allow the leases of an additional 370 stores to expire. The combination is expected to result in a 2025 EPS benefit of approximately $0.15 for Dollar Tree.
Further financial improvement for Dollar Tree is expected from additional freight savings, which could improve EPS by $0.85 to $0.90. Nevertheless, the company faces headwinds heading into fiscal 2025, including increased downsizing, a negative sales mix, and investments related to personnel costs and store maintenance. These factors contributed to CFRA's decision to maintain a Sell rating on Dollar Tree's stock given the potential downside risks to its future performance.
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