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Why Dollar Tree Stock Fell Today

What happened

Shares of Dollar Tree (NASDAQ: DLTR) finished lower today after the discount retailer, which also owns Family Dollar, issued a COVID-19 update and suspended its guidance due to uncertainty around the coronavirus. The stock finished the session down 8%.

Image source: Getty Images.

So what

The company said that both the Dollar Tree and Family Dollar stores had seen a material increase in sales during March, especially for products like cleaning supplies, paper goods, food, and over-the-counter medicine. Thus far, the company has limited store hours, closing locations at 8 p.m. to allow more time for cleaning and restocking shelves. It also said it would hire 25,000 more employees to meet additional demand, and it's rewarding employees with a special bonus, as are other retailers.

For the quarter that started in the beginning of February, same-store sales at Dollar Tree and Family Dollar were up 7.1% and 14.4%, respectively, though trends have weakened over the last week as it laps the normally busy Easter season.

Finally, the company said that it would suspend its guidance for the first quarter and the full year due to the volatile economic environment around the pandemic. It noted that gross margin would be lower than normal due to a mix shift to products like food. And it said that some costs would rise, including for higher pay and benefits and increased supply-chain needs.

Now what

Management added that the company's balance sheet was strong with $1.9 billion in cash and equivalents and has $500 million remaining on a line of credit, which should be a sufficient cushion for the current volatility.

Dollar Tree is clearly in a better position than a lot of retailers, especially those focused more on discretionary products like apparel, but investors may have expected its performance to be improving. The update, on the other hand, casts doubt on that, and could signal that profits are being compressed.

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