Bull And Bear Cases For Dollar Tree Ahead Of Q3 Earnings

Dollar Tree, Inc. (NASDAQ: DLTR) is scheduled to report its Q3 results on November 22. Synergies related to Family Dollar Stores, Inc. (NYSE: FDO) could “help offset industry-related pressures,” Barclays’ Karen Short said in a report.

Short maintained an Equal Weight rating on the company, with a price target of $84.

Dollar Tree’s shares have lost 16 percent since the company reported its Q2 results on August 25, versus a 2 percent gain in the S&P 500 over the same period. Shares have been under pressure due to investor concerns related to the company as well as the broader dollar store space, Short mentioned.

Tailwinds And Headwinds

Short enumerated the following tailwinds for Dollar Tree:

• Easier comps at company stores, given the “cannibalization impact” of numerous Family Dollar conversions last year.
• An additional first of the month in Q3 of 2016 versus the year-ago quarter.
• Two additional days between Thanksgiving and Christmas.
• Interest expense savings from debt refinancing and repayment.

The analyst mentioned the following headwinds:

• A tougher competitive landscape.
• Halloween shifting into Q4, versus Q3 in 2015.
• Difficult Family Dollar sales comps, given the boost from the "Red Tag" clearance event in 2015.
• Change in the FLSA [Fair Labor Standards Act] to overtime regulations, which would begin exerting earnings pressure in Q4.