TLDR
- Jefferies raised Dollar Tree’s rating from Underperform to Hold based on strengthening traffic patterns
- Second quarter foot traffic reached +1.4%, a significant improvement from Q1’s -0.8%, with July jumping to +4.5%
- Jefferies increased Q2 comparable sales forecast to 3.4% and earnings per share estimate to $1.15
- Wells Fargo boosted price target from $145 to $155 while maintaining Overweight rating
- 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 an upgrade from Jefferies, which elevated the discount retailer from Underperform to Hold.
The rating adjustment came after analysts under Corey Tarlowe’s leadership highlighted strengthening foot traffic metrics and concluded that the stock now presents minimal downside exposure in the near term.
According to Jefferies, Dollar Tree’s operations have reverted to a “simple and straightforward” model. The firm’s earlier downgrade had raised red flags about the multi-price strategy rollout, intensifying competition, and ticket-based growth that was compressing traffic and profit margins.
DLTR was changing hands at approximately $130.48 ahead of the market open, gaining $0.94 for the session.
While those previous headwinds have largely materialized, Jefferies noted that the narrative is now evolving. Comparable store sales are demonstrating strength and customer traffic metrics are showing positive momentum.
The second quarter’s rolling foot traffic registered at +1.4%, representing a substantial improvement from the -0.8% recorded in the first quarter. July’s standalone figure reached +4.5%, a data point that warrants close attention.
Traffic Growth Reaches Nine-Quarter Peak
According to Jefferies, the Q2 traffic expansion marked the most robust performance over the past nine consecutive quarters. The firm utilized Placer’s rolling three-month visitation data as the foundation for its projections.
Their analytical framework suggests approximately 0.8% in traffic-driven comparable sales, combined with an estimated ticket comp of roughly 2.6%, totaling a 3.4% overall comp forecast. This projection exceeds Wall Street’s consensus of 3.1% and positions near the upper bound of management’s 2.5% to 3.5% guidance range.
Jefferies additionally raised its second quarter earnings per share projection to $1.15 from $1.00, surpassing the Street consensus estimate of $1.12.
Certain challenges persist. Company leadership still faces the task of upgrading all 9,000 locations to meet the corporation’s “G.O.L.D. Standard” for signage clarity 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 selected merchandise. However, this initiative could potentially drive increased customer traffic in the immediate term.
Regarding competitive dynamics, Target has recently captured greater overall retail market share. Nevertheless, Jefferies indicated it does not anticipate Dollar Tree surrendering additional ground in the near term as pricing strategies gain traction and traffic recovery continues.
Wells Fargo Increases Price Objective to $155
In a separate move, Wells Fargo elevated its price objective on DLTR from $145 to $155 while retaining an Overweight rating.
Wells projects second quarter earnings per share of $1.15 on comparable store sales growth of 3.3%, and suggests potential upside to these forecasts.
The firm anticipates that Dollar Tree will increase its full-year outlook, supported by more favorable traffic comparisons, reduced tariff rates in the latter half of the year, and an accelerated stock buyback initiative.
Wells Fargo noted that tariff refunds create an investment opportunity that could provide additional support for business momentum through the second half.
Dollar Tree is set to announce second quarter financial results on September 3.
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