Jim Cramer Put These 14 Stocks Under the Microscope

8. Dollar Tree, Inc. (NASDAQ:DLTR)

Number of Hedge Fund Holders: 67

Discussing the impact of tariffs on Dollar Tree, Inc. (NASDAQ:DLTR), Cramer stated:

“Discount retailers tend to do better when the consumers’ feeling stretched thin, and you know the consumer’s feeling that way. But Dollar General and Dollar Tree have behaved very differently after reporting earnings over the past couple days… Then today, Dollar Tree reported what I also thought was a pretty good quarter, but its stock got eviscerated, down 8%. What explains the disparity here?… The difference between these two comes down to what they had to say about their ability to control costs and offset the impact of, you bet, go ahead, the president’s tariffs…

Unfortunately, we’re also in the middle of some volatile trade negotiations. President’s tariffs are potentially hurting their ability to keep prices low, and this is why Dollar General soared yesterday and Dollar Tree plummeted today, because Dollar Tree seems to have trouble, let’s say, more trouble with the tariffs… Now, Dollar Tree’s a little different. They also talked about mitigating the damage from the tariffs, but they indicated that they may be having a harder time making that happen.

In their press release, Dollar Tree disclosed that their earnings from continuing operations this quarter could take a 45 to 50% hit, thanks to the tariffs. Although management believes the numbers will re-accelerate later in the year, and they’ll be able to make the numbers in their full-year forecast. But that was dreadful. It was actually shocking.

Now, to be fair, some of that cost pressure has to do with Dollar Tree’s divestment of Family Dollar…. It’s still enough to spook investors, so it didn’t help when, on the conference call, management noted that they absorbed some costs during the brief window when the 145% tariffs on China were in effect. Ouch. This timing issue resulted in $70 million more in cost of goods sold for the second quarter, which they say will be flowing through the system ‘before the full breadth of our mitigation efforts are deployed.’

As a result, we got that concerning note about second quarter profits being ‘meaningfully lower than last year’… While both companies source some of their merchandise from overseas, especially from China, there’s a major difference in how much each company imports directly. See, Dollar General only imports 4% of its goods directly from foreign manufacturers. For Dollar Tree, it’s 40%…

… So let me give you the bottom line: While both these companies might have the word dollar in their names, the subtle differences in their supply chain structure are having a huge impact on their stocks. That’s why Dollar General soared yesterday, and Dollar Tree is now in the [house of pain]. And it’s why you should watch out for the distinction between direct imports and indirect imports in the rest of retail because going forward, it’s really going to matter.”

Dollar Tree (NASDAQ:DLTR) runs discount retail stores that carry a wide variety of products. The selection includes consumables, home essentials, seasonal items, apparel, and electronics.