Apparently investors believe that now is the time to get out of their positions in Dollar Tree, Inc. (DLTR). How else does one explain the 20 percent slide in the shares over a two-day span?
Yes, JP Morgan downgraded the stock from “Overweight” to “Neutral” the last week, but I doubt that would account for such a precipitous decline.
More likely it was the company’s tepid outlook that spooked investors.
Dollar Tree, whose store shelves are stocked with party supplies, seasonal décor, health and beauty items, toys, stationery, candy and a variety of other consumer items that cost $1 or less, said sales rose 6.8 percent in its fourth-quarter from a year ago to $1.39 billion. Comparable store sales for the quarter increased 2.2 percent.
It said sales for the full-year 2008 were a record $4.64 billion, up 9.5 percent from 2007 while same-store sales increased 4.1 percent from a year ago. The company will release its fourth-quarter and full-year earnings results on February 25, 2009.
Dollar Tree said it expects earnings per share for the quarter and year will be above the middle of its previous guidance range of $1.07 to $1.15 and $2.45 to $2.53 per share, respectively. Analysts polled by Thomson Reuters of $1.14 per share for the fourth quarter and $2.52 per share for the year.
That statement by the company implies a slight earnings miss, and an earnings miss in this climate usually results in the offender’s stock getting clobbered. As the stock was near its 52-week high, investors evidently felt there was no time like the present to take some profits.
With 3,591 stores in all 48 contiguous states and growing, President and CEO Bob Sasser said “Dollar Tree continues to be right for the times.” “The expanded assortment of high-value basic consumable merchandise makes our stores more relevant and continues to drive sales.” He added that comparable-store sales grew despite a number of challenges during the quarter, including a calendar shift in November and a succession of winter storms across the country from December through January.
Despite the bad weather customers were taking advantage of the company’s great values on Christmas seasonal merchandise and basic consumable products.
Assuming earnings of $2.50 per share, at the current quote DLTR shares trade for 14 times current earnings. In a normal market there would be nothing out of line about that, but this isn’t a normal market. As we’ve seen with Dollar Tree, shares that are priced for perfection can see devastating one-day drops.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
