Dollar Tree Q1 earnings: $DLTR could sell or spinoff Family Dollar

Dollar Tree Inc (NASDAQ: DLTR) is trading down in premarket on Wednesday after reporting in-line financial results for its first quarter. 

Why is Dollar Tree stock sinking today?

The stock is slipping primarily because the chain of discount variety stores announced a strategic review of Family Dollar which could conclude in a spinoff or even an all-out sale of that business. 

$DLTR spent $8.0 billion on buying Family Dollar some ten years ago. It did not disclose a definitive timeline for completion of the review on Wednesday. 

The retail chain has lost $117 million so far due to a tornado that destroyed its distribution facility in Marietta, Oklahoma, as per a press release this morning. 

Expected insurance recoveries for business interruption and redevelopment costs greater than the losses recognised cannot be estimated at this time.

Dollar Tree Q1 earnings snapshot

• Earned $300 million versus the year-ago $299 million
• Per-share earnings also improved from $1.35 to $1.38
• Adjusted EPS printed at $1.43 as per the earnings report
• Revenue climbed 4.2% year-over-year to $7.633 billion
• Consensus was $1.43 a share on $7.633 billion in revenue

Dollar Tree generated $224 million of free cash flow in its first financial quarter. Rick Dreiling – chief executive of the Nasdaq-listed firm said in a press release today:

At Dollar Tree, we remain focused on rapidly rolling out our next-gen of multi-price stores and at Family Dollar, we’re taking steps necessary to position the business for long-term success.

$DLTR is now down more than 20% versus its year-to-date high in March. 

Dollar Tree shares hit on downbeat guidance

Dollar Tree is in the red at writing also because the management failed to impress with its guidance for the current fiscal quarter. The retail chain now forecasts its revenue to fall between $7.3 billion and $7.6 billion on up to $1.10 of adjusted per-share earnings. 

Analysts, in comparison, were at $7.6 billion and $1.19 a share, respectively. Still, Jeff Davis – the chief financial officer of $DLTR said today:

Our operating performance was solid despite a soft Easter season for Dollar Tree. The results reflect our operating discipline and careful expense management throughout the quarter.

The $26 billion company based out of Chesapeake, Virginia opened 116 new namesake stores in Q1. Wall Street currently has a consensus “overweight” rating on Dollar Tree stock.