What happened

Shares of Dollar Tree (NASDAQ:DLTR) lost 17.2% in value last month, according to data provided by S&P Global Market Intelligence.

Dollar Tree missed earnings estimates when it reported its third-quarter results in late November. Earnings per share came in at $1.08, which was $0.05 below estimates. But the company's same-store sales growth of 2.4% beat expectations of 1.9%. 

It was the earnings miss and a cautious outlook for the fourth quarter related to tariffs that spooked market participants, sending the share price down for the month.

A discount store aisle displaying pens, markers, and other typical school supplies.

Image source: Getty Images.

So what

New tariffs on goods imported from China are set to take effect on Dec. 15 on a range of consumer items. Despite that uncertainty, there are several reasons to expect Dollar Tree to weather the storm.

The company is seeing significantly improved performance as a result of the "H2" renovations for Family Dollar stores. More than 1,150 stores have been upgraded to the new store format, which is driving comps growth greater than 10% in the first year of the renovation. 

Management also likes the results of its new assortment initiatives, including Snack Zones and Dollar Tree Plus. Through these initiatives, Dollar Tree is offering things like Hallmark cards, arts and crafts supplies, and other "wow" items to win more customers and expand margins. 

Now what

Tariffs will obviously be on investors' minds in the fourth quarter. Dollar Tree expects the new tariffs to affect earnings by $0.06 per share, or $19 million. Overall, the company expects full-year revenue to land in the range of $23.62 billion to $23.74 billion, up about 3.8% over 2018. 

Higher merchandise costs, investments in the supply chain, and costs associated with the H2 renovations have weighed on profit margins this year. Earnings per share are expected to be between $4.66 and $4.76, compared with $5.45 in 2018. 

Investors shouldn't put too much weight on this year's performance. CEO Gary Philbin's comments during the third-quarter conference call suggest that Dollar Tree's earnings will eventually return to growth: "The impact on our gross margin in specific areas is ours to control and do better. We are focused on making improvements across several categories as we finish the year and start 2020."