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Dollar Tree’s stock down despite upbeat Q2

 

Friday, August 26, 2022

The news shaping the markets today

Russia’s president Vladimir Putin ordered a 10% increase of troops, with the country also looking to modernise its army. The growing geopolitical tensions sent the safe-haven US dollar index slightly higher this morning.


Thailand’s car sales jumped 22.1% year-over-year to 64,033 units in July, following a 4.58% increase a month ago. Despite the country recording the seventh straight month of growth in car sales, the THB/USD forex pair remained under pressure.


Argentina’s consumer confidence indicator improved to 37 in August, from a 13-month low of 34.7 in the prior month. However, the ARS/USD pair remained almost flat in forex trading this morning.


Canada’s manufacturing sales declined 0.9% in July, compared to a 0.8% contraction in the previous month. This being the third consecutive month of declines in manufacturing sales exerting pressure on the CAD/USD forex pair.


Hong Kong’s trade deficit shrank to HK$27.6 billion in July, from HK$35 billion in the year-ago period. Although exports fell 8.9% year-over-year to HK$379.6 billion, the HKD/USD pair remained broadly flat in forex trading this morning.

 

What’s happening: Shares of Dollar Tree tumbled on Thursday, despite the company reporting better-than-expected earnings for its second quarter.

What happened: Investors grew concerned about Dollar Tree’s sales in the quarter and management’s reduction of guidance for the full year.

The discount store also announced a major leadership change and investments in a pricing-related initiative.

How were the results: The Chesapeake, Virginia-based company reported growth in revenues for the second quarter, but the figure was marginally below market views.

  • Sales grew 6.7% year-over-year to $6.77 billion, slightly missing the consensus estimate of $6.79 billion.
  • Earnings surged 30% to $1.60 per share, surpassing market expectations of $1.58 per share.

Why it matters: With inflation spiking to multi-decade highs in the US and customers spending selectively, retailers have reported a mixed performance for the latest quarter. Walmart reported upbeat results last week, while Target’s results were concerning.

Shoppers reducing their discretionary spending has forced retailers in the US to provide higher discounts to clear excess inventories.

Dollar Tree’s same-store sales climbed 7.5%, with Family Dollar’s figure gaining 2.0% in the second quarter. The company’s operating margins widened by 120 basis points to 7.5% and operating income surged 25.7% to $505.4 million.

The company announced plans to make investments to offer more competitive pricing at Family Dollar. “We expect the combination of this pricing investment at Family Dollar and the shoppers’ heightened focus on needs-based consumable products will pressure gross margins in the back half of the year,” CEO Mike Witynski said during the earnings call.

Management reduced the earnings guidance for fiscal 2022 to $7.10-$7.40 per share, from the earlier forecast of $7.80-$8.20 per share. The sales projection was revised to $27.85-$28.10 billion, versus the earlier outlook of $27.76-$28.14 billion.

Dollar Tree guided to Q3 sales of $6.75-$6.87 billion, broadly in-line with the consensus estimate, and earnings of $1.05-$1.20 per share, significantly lower than expectations of $1.81 per share.

Dollar Tree appointed former Walmart executive Jeffrey A. Davis as its new CFO, replacing Kevin Wampler, who will remain an advisor until April 2023.

How shares responded: Dollar Tree’s shares declined 10.2% to close at $149.01 on Thursday, following the release of quarterly results. The stock has lost around 6% over the past month.

What to watch: Investors will closely monitor inflation levels in the US and the ramp up of the new CFO.

The markets today

US stocks will be in focus today ahead of Powell’s speech at Jackson Hole economic symposium

Context: US stocks rose on Thursday, with investors waiting for more insight into rate hikes by the central bank from the Fed’s annual Jackson Hole symposium.

Details: The Dow Jones index and S&P 500 had recorded gains on Wednesday, snapping a three-session losing streak. Equities extended gains on Thursday, with traders focussing on the Jackson Hole symposium.

Markets also cheered upbeat economic reports on Thursday, with weekly jobless claims falling by 2,000 to 243,000 in the latest week, compared to market expectations of 253,000.

The American economy contracted at an annualised rate of 0.6% in Q2, but the decline was lower than the initial estimate of 0.9%.

Investor sentiment was also supported by several earnings reports. Snowflake reported stronger-than-expected quarterly revenues, which sent shares higher by around 23% on Thursday. Nvidia Corporation’s stock gained around 4% due to optimism around the company’s outlook.

However, shares of Tesla declined around 0.4%, following the 3-for-1 stock split.

The Dow Jones index gained 322.58 points to close at 33,291.78, while the S&P 500 added 1.41% to reach 4,199.12. The Nasdaq 100 rose 1.75% to settle at 13,143.58.

What to watch: Traders will keep an eye on Fed chief Jerome Powell’s speech at the Jackson Hole Economic Symposium, scheduled for later today.

The release of economic data on personal income, spending and PCE price index will also remain in focus today. Personal spending in the US, which surged 1.1% in June, is expected to increase just 0.2% in July. Analysts expect personal income to rise by 0.5% in July. The personal consumption expenditure price index is projected to decline 0.1% in July, following a 1% increase in June.

Other Markets: European trading indices closed mostly higher on Thursday, with the FTSE 100, DAX 40 and STOXX Europe 600 up by 0.11%, 0.39% and 0.30%, respectively, and the CAC 40 lower by 0.08%.

Support & resistances for today

Technical Levels News Sentiment
GBP/USD – 1.1822 and 1.1826 Positive
GBP/JPY – 161.61 and 161.75 Positive
Dow Jones – 33188.72 and 33358.79 Negative
DAX 40 – 13236.06 and 13302.45 Negative
Gold – 1766.16 and 1769.36 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9974, -0.02%) Dow ($33,268, -0.02%) Brent ($99.30, 0.9%)
GBP/USD (1.1830, -0.04%) S&P500 ($4,199, -0.05%) WTI ($93.37, 0.9%)
USD/JPY (136.70, 0.14%) Nasdaq ($13,147, -0.07%) Gold ($1,767, -0.2%)

What else to watch today

Germany’s GfK consumer climate indicator, France’s consumer confidence, Eurozone’s loans to households, loans to non-financial corporations and money supply M3, Italy’s consumer confidence and manufacturing confidence, Mexico’s balance of trade, India’s foreign exchange reserves, value of loans and value of deposits, Brazil’s producer price inflation, current account, foreign direct investment, nonfarm payrolls and federal tax revenue, US goods trade balance, wholesale inventories, University of Michigan consumer sentiment and Baker Hughes crude oil rigs, as well as Canada’s government budget value.


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