Why Dollar Tree Stock Tumbled This Week

Shares of Dollar Tree (NASDAQ: DLTR) were getting hammered this week as the discount retailer posted disappointing results in its second-quarter earnings report. It followed in the footsteps of Dollar General , its larger rival, which also badly missed the mark in its earnings report, a sign that low-income consumers are cutting back on spending.

As a result, Dollar Tree stock was trading down 19.8% for the week on the news as of 3:08 p.m. ET on Thursday, according to data from S&P Global Market Intelligence .

Dollar Tree needs more dollars

The discount chain, which also owns Family Dollar, said on Wednesday that comparable sales in the second quarter rose 0.7%, and overall revenue was up by the same percentage to $7.38 billion, which missed estimates at $7.49 billion.

Dollar Tree did post an 80-basis-point increase in gross margin to 30% due to lower freight costs. However, selling, general, and administrative expenses rose from 25.3% to 27.3%, due in part to additional legal expenses, which weighed on the bottom line.

Adjusted operating income fell 24% to $218.1 million, and adjusted earnings per share slipped from $0.91 to $0.67, well below the consensus at $1.04.

CEO Rick Dreiling said the company was experiencing "immense pressures from a challenging macro environment," but added that initiatives like its expanded multi-price offering are paying off.

Can Dollar Tree bounce back?

Investors were also displeased with Dollar Tree's guidance, as the company forecast its full-year revenue range to $30.6 billion-$30.9 billion, down from a prior range of $31 billion-$32 billion and below estimates at $31.2 billion.

It also lowered its adjusted EPS forecast from $6.50-$7.00 to $5.20-$5.60, though that was partly due to a general liability charge related to customer accidents and the increasing costs to deal with them.

That should only have a one-time impact on the business, but it's clear that weak demand is also pressuring Dollar Tree.

With interest rates expected to come down later in the month, Dollar Tree could get a reprieve, but it's clear why investors are disappointed in the latest update.

Before you buy stock in Dollar Tree, consider this: