Key Takeaways
- Jefferies moved Dollar Tree from Underperform to Hold based on stronger traffic performance
- Second quarter foot traffic reached +1.4%, a notable improvement from Q1’s -0.8%, with July soaring to +4.5%
- Jefferies increased Q2 comparable sales forecast to 3.4% and earnings per share projection to $1.15
- Wells Fargo boosted its price objective to $155 from $145 while maintaining an Overweight stance
- DLTR shares advanced approximately 1% during premarket hours after the rating change
Shares of Dollar Tree moved higher by roughly 1% in Tuesday’s premarket session following a ratings upgrade from Jefferies, which elevated the discount retail chain from Underperform to Hold.
The revised rating reflects analyst Corey Tarlowe’s team identifying enhanced foot traffic metrics and determining that downside risks for the stock appear contained in the immediate term.
According to Jefferies, Dollar Tree’s operations have reverted to a “simple and straightforward” model. The firm’s earlier downgrade had highlighted worries regarding multi-price strategy implementation, intensifying competition, and transaction-driven expansion pressuring customer visits and profit margins.
DLTR was changing hands near $130.48 ahead of the opening bell, representing a gain of $0.94.
While many of those earlier concerns have materialized, Jefferies notes the narrative is evolving. Comparable store sales are showing strength while traffic metrics are trending positively.
The second quarter’s rolling foot traffic registered +1.4%, representing a substantial improvement from the first quarter’s -0.8% reading. July’s performance was particularly notable at +4.5%, signaling accelerating momentum.
Customer Visits Reach Nine-Quarter Peak
According to Jefferies, the second quarter delivered the most robust traffic expansion observed over the past nine consecutive quarters. The firm utilized Placer’s three-month rolling visit metrics to formulate its projections.
Their analytical framework suggests approximately 0.8% in traffic-based comparable sales, coupled with an estimated 2.6% ticket comp, yielding a combined 3.4% total comparable sales forecast. This projection exceeds Wall Street’s consensus of 3.1% and approaches the upper boundary of management’s guided range of 2.5% to 3.5%.
Jefferies also elevated its second quarter earnings per share projection to $1.15 from $1.00, slightly surpassing the Street’s consensus estimate of $1.12.
Certain challenges persist. Management continues working to upgrade all 9,000 locations to meet the company’s “G.O.L.D. Standard” requirements for signage and pricing transparency. This represents a substantial operational undertaking.
Jefferies also identified a possible modest ticket headwind in the third quarter related to a 40th-anniversary promotional campaign featuring $1 pricing on certain merchandise. However, this initiative could generate incremental store traffic in the near term.
Regarding competitive dynamics, Target has been capturing increased overall retail market share recently. Nevertheless, Jefferies anticipates Dollar Tree will maintain its market position near-term as pricing strategies gain traction and customer traffic continues its recovery trajectory.
Wells Fargo Increases Target Price to $155
In a separate move, Wells Fargo elevated its price objective on DLTR to $155 from $145 while reaffirming an Overweight rating.
Wells Fargo forecasts second quarter earnings per share of $1.15 on comparable store sales growth of 3.3%, noting that results exceeding these projections are feasible.
The firm anticipates Dollar Tree will increase its full-year outlook, supported by easier traffic comparisons, reduced tariff exposure in the latter half of the year, and an expedited share buyback initiative.
Wells Fargo emphasized that tariff rebates create an investment opportunity that could provide additional tailwinds entering the second half of the year.
Dollar Tree is slated to announce second quarter financial results on September 3.
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