On Tap: Dollar Tree, Petco and Ulta

Retail earnings previews

Dollar Tree (DLTR) will report second-quarter earnings on Aug. 24 before the opening bell. The results will highlight broader consumer behavior within the retail industry at a time when higher interest rates are crimping spending habits. This comes amid a broader pullback in equities this month.

The national retail dollar store chain is forecasting net sales of $7 to $7.2 billion and earnings per share (EPS) of $0.79 to $0.89 on a diluted basis. Over the past four weeks, analysts have grown slightly more bullish on the expected numbers, with the consensus EPS and revenue figures at $0.87 and $7.21 billion, up about 25 basis points from a month ago—according to Bloomberg data.

While expectations have brightened, an EPS of $0.87 would represent a 45% contraction from a year prior, while revenue of $7.21 billion would represent 6% growth. Same-store sales, a key metric watched by investors, is seen falling by 1.7% from a year ago to 4.82%. An increase in shrink—referring to lost inventory, mostly through theft—is expected to increase significantly, a trend seen among other retailers.

DLTR currently boasts an IV Rank (IVR) of 60.1, suggesting that implied volatility (IV) is elevated compared to the past 52 weeks. That said, those with a bearish or neutral outlook on the earnings report may want to utilize a premium selling strategy such as a short call vertical. Alternatively, those with a bullish view may want to utilize a short put vertical.

Petco earnings outlook

Petco Health and Wellness (WOOF) will also report before the bell on August 24. Analysts, per Bloomberg, expect the company to post second-quarter adjusted EPS of $0.05 on $1.52 billion in revenue. Analysts have grown increasingly bearish on the earnings figures over the past month, with the consensus EPS dropping 14%.

Those numbers would represent a 71% fall in its EPS and growth of only 2.5% in revenue. A drop in discretionary spending will likely play a role in throttling sales performance, while an increase in shrink is also expected, just like with Dollar Tree.

WOOF holds an IVR of 52.8, indicating about average IV in relation to the past 52 weeks. That said, traders may want to be selective in premium selling strategies that target the earnings announcement. Buying a put or call could make sense to those with a directional bias.

Ulta earnings outlook

Ulta Beauty Inc. (ULTA) will round Thursday’s earnings calendar out, with the retailer set to report after the bell on Aug. 24. Analysts, per Bloomberg, expect the company to report second-quarter adjusted EPS of $5.87 on $2.51 billion in revenue.

The expected EPS and revenue figures would represent a 3.11% and 9.3% gain from a year ago. However, the adjusted gross margin is expected to drop to 39.96%, which would be down 1.1% from a year ago. The retailer has faced considerable pressure from retail theft, and investors will be keyed in to see how management’s prevention efforts have gone so far.

Ulta has an IVR of 77.2, suggesting a much higher IV currently than relative to the past 52 weeks. Traders who want to play Ulta earnings may see this high IVR as a benefit when selling calls and puts. An example would be a short put vertical, selling the 427.5 put and buying the 425 put for the August 25 expiration, which yields a max profit of $110 and a max loss of $140 with a 53% probability of profit.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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