Dollar Tree Inc. (NASDAQ: DLTR), which has been struggling financially for years, is gaining ground this morning. It confirmed the sale of its “Family Dollar”, a division that had long been a drag on its finances.
Investors are more interested in the Family Dollar news than the discount retailer’s report today.
Karen Short, Melius’ head of consumer research, said that the investment was exactly what investors could have hoped for.
Dollar Tree’s stock is currently down around 10% from its high for the year.
Financially, DLTR was burdened by Family Dollar
Dollar Tree can use this capital to pursue future growth.
Unloading Family Dollar stores could result in a positive revision to earnings, as the stores were not profitable.
According to Karen Short, DLTR is pleased with the Family Dollar sale because “they feared they would have to close their stores or pay someone to take them.”
Dollar Tree would have been faced with a significant financial burden. Note that FD weakness already has slashed DLTR’s shares in half over the last 12 months.
Dollar Tree’s balance sheets and ROIC will improve
Short referred to the $1.0 billion Dollar Tree deal with the two asset management firms announced today as a “miracle”, in her interview on CNBC Wednesday.
She added that investors are happy about the news, as getting rid of Family Dollar improves both the balance sheet and return on investment capital (ROIC), which is tied to DLTR.
Dollar Tree has always had a high ROIC and a steady performance in terms of operating margins. It’s a win-win situation.
The Melius expert is also confident that Dollar Tree customers are doing well, despite recent fears of a possible recession.
Should you buy Dollar Tree Stock Today?
Dollar Tree may benefit if there is a recession in the US, as consumers tend to be more price-sensitive during difficult times.
The chain of discount retailers guided for up $19.1 billion sales in the full year from its continuing operations on Tuesday. In fiscal 2025, adjusted earnings per share are expected to fall between $5 and $6.
In a press statement today, Mike Creedon said, “With the sale set to close later in the year, we will be able fully devote ourselves to Dollar Tree’s long-term success, profitability, and returns on capital.”
Wall Street sees DLTR stock rising to an average of $80, which indicates a potential gain of 15% over current levels.
This post explains why Dollar Tree investors should cheer on the Family Dollar sale first appeared on ICD
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