Wednesday, March 4, 2020

Can 4Q Reverse Dollar Tree’s Massive Slide?

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What’s happening: Dollar Tree is scheduled to report its fourth-quarter results before the opening bell on Wednesday, March 4.

What happened: The deep discounter has been in deep trouble. The continued downturn in shares has wiped off more than 20% of Dollar Tree’s market value since the previous earnings release. Since late November, when the stock reached its 52-week high of $119.71, the shares have shed almost 32%. This is even before the coronavirus concerns hit investor sentiment.

With Dollar Tree expected to report a meaningful decline in earnings for the fourth quarter, investors wait on tenterhooks for management’s plans for future growth.

  • The consensus revenue estimate stands at $6.39 billion, representing 2.9% year-over-year growth.
  • The estimate for earnings is $1.75 per share, a 9.3% decline from the same quarter in the previous year.

Why it matters: Dollar Tree had been hurt by the US-China trade war. The deep discounter, which imports most of its goods from China, had slashed its sales forecast for the third consecutive quarter and its earnings outlook for the full year. This led to the stock’s massive decline following third-quarter results.

Troubled by the escalating trade tensions between US and China, Dollar Tree booked orders early to avoid tariffs. This would have been a smart move as both countries avoided the hike and the full amount of duties were never imposed.

Given its dependence on China, the coronavirus lockdown has also impacted Dollar Tree. Despite new cases declining in China and people gradually coming back to work, the company might still face inventory shortage. Various retail giants, including Walmart and Dollar General, which are also heavily dependent on China for their products, have also been impacted.

Meanwhile, Family Dollar continues to be a drag on Dollar Tree’s performance. The retailer’s efforts to remodel and renovate its Family Dollar stores led to higher sales in the third quarter. Dollar Tree and Family Dollar had posted same-store sales growth of 2.8% and 2.3%, respectively. However, productivity took a hit due to rising costs.

Investors are now looking forward to a better outlook for 2020, especially after some analysts said that the coronavirus scare may work to Dollar Tree’s benefit. With more customers buying products in bulk to prepare for a coronavirus lockdown, the company’s stores may have seen an increase in traffic and sales.

How shares have performed recently: Despite the 30% decline in Dollar Tree’s shares over the past four months, traders have continued to sell the stock. Dollar Tree’s shares have shed almost 8% over the past five trading days.

What to watch: Dollar Tree is under huge pressure to beat estimates this quarter. Investors also look forward to the company’s plans for future growth and expect management to also provide more details of the coronavirus impact on its business.

The Markets Today

     

Investors will be watching European stocks today, after the US Federal Reserve announced an emergency rate cut on Monday.

Context: European shares closed higher on Tuesday, although most indices were down from their highest levels reached during the trading day. The Fed’s decision to cut rates helped almost all sectors to post gains in the session, while banking stocks bucked the trend.

Details: Markets were widely expecting the US Federal Reserve to lower rates at its March meeting. However, the emergency rate cut came after the G-7 finance ministers and central bank chiefs announced that they will use “all appropriate policy tools” to deal with the coronavirus risks and support the global economy.

Banking shares declined in the previous session following the Fed’s announcement. Shares of ABN Amro, Societe Generale and Deutsche Bank all posted a decline of over 3% each.

The Stoxx Europe 600 climbed 1.4% yesterday, with pharmaceutical and food producers stocks leading the rally. The FTSE 100 rose 0.95%, while the German 30 index spiked 1.08%.

Even as cases outside China have been on the rise, investors took some solace from the continued decline in daily new confirmed coronavirus cases . China confirmed 119 new confirmed cases yesterday, versus 125 on the day before.

In corporate news, Qiagen shares jumped around 17% after Thermo Fisher Scientific announced plans to acquire the German company for $12 billion. Shares of Metro spiked about 19% following a Bloomberg report of Sysco approaching the company for a possible takeover.

On the economic data front, Eurozone inflation shrank in February, meeting market estimates. Consumer prices rose 1.2% in February, versus a 1.4% rise in January.

Why it matters: After a strong performance in Tuesday’s session, all eyes are on the basket of economic data scheduled for release today, including services PMI, composite PMI and retail sales.

What to watch: The Eurozone IHS Markit services PMI is expected to rise to 52.8 in February, from 52.5 in the prior month. Analysts expect composite PMI to rise to 51.6 in February, from a reading of 51.3 in January. Preliminary estimates are pointing towards 0.6% growth in retail sales for January, versus a 1.6% decline in December.

Other Markets: Most European indices closed trading higher on Tuesday, with the FTSE 100, German 30 and French 40 up 0.95%, 1.08%, 0.5% and 1.12%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Germany’s retail sales and services PMI, Spain’s services PMI, Italy’s services PMI and GDP growth rate, France’s services PMI and retail sales, UK’s services PMI, Brazil’s GDP growth rate and services PMI, South Africa’s standard bank PMI, Canada’s productivity and Bank of Canada’s rate decision as well as the US ADP employment change, services PMI, ISM nonmanufacturing PMI and crude oil stocks change.