Dollars Falling Like Autumn Leaves (DLTR)

Like the leaves falling from the trees in autumn, the retail store Dollar Tree (NASDAQ: DLTR) has investors raking for some good news. The last two days have seen an avalanche of disconcerting news about the discount retailer. Yesterday, the shares of Dollar Tree dropped more than 10% after the company warned that its sales for the third quarter would come in at the low end of expectations. The consensus view held by research analysts who follow the company projected sales of $1.75 billion, and Dollar Tree is now saying the number is likely to fall closer to $1.71 billion. The company said several factors accounted for the weaker-than-expected sales, which included an increasing sourness in consumer sentiment toward the state of the economy, higher fuel prices, and a shift in the reporting data for Halloween.

The sales warning from Dollar Tree prompted the analysts covering retail stocks at Piper Jaffray and Jefferies to downgrade the shares. Piper Jaffray lowered its rating on Dollar Tree from “overweight” to “neutral” with a new price target of $46.00 from $56.00. Jefferies reduced its rating on the stock from “buy” to “hold” with a price target of $41.00.

Twenty-five research analysts cover the stock with an average recommendation of “overweight” on the stock. The consensus view places a price target of $54.33 for share prices. For the quarter ending this month, analysts expect earnings of $0.51 per share.

After the steep decline in share prices yesterday, investors had hoped this morning would bring better news. Instead, they were greeted with more of the same. At the opening bell this morning, sellers started the day where they left off the afternoon before. Share prices gapped down $1.11 to $42.17. The high trade for the day came shortly after the opening when the stock traded for $42.20 and then it was all downhill from there. As the lunch hour approached on the east coast, the stock slid to an intraday low of $40.84. Share prices traded sideways for the remainder of the day with the stock ending the day with a loss of 5%. Dollar Tree shares closed the day down $2.17 to finish the week at $41.11. Traders exchanged Dollar Tree shares faster than shoppers returning items the day after Christmas. When the closing bell sounded, volume on the day registered 11.2 million shares compared to an average session where 3 million shares exchange hands.

Since the end of last month, Dollar Tree shares have fallen roughly 18%. From last November through the end of June, the stock steadily climbed for a gain of 55%. The 52-week range for the stock is $36.04 to $56.81. The last two days have seen some of the heaviest volume of the year. Traders and investors will have the weekend to wonder if more sales warnings are to come in the future or if today marks the bottom of bad news.

Dollar Tree is a discount retailer offering merchandise for a fixed price of one dollar. The company operates over 4300 stores under different names that include Dollar Tree, Dollar Giant, and Dollar Bills. Stores are located in 48 states and the District of Columbia plus Canada.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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