Dollar Tree Beats on Q1 Earnings, Shares Up - Analyst Blog

Dollar Tree Inc. DLTR reported first-quarter fiscal 2014 earnings of 67 cents per share, in line with the Zacks Consensus Estimate and marking a 13.6% increase from 59 cents per share earned in first-quarter fiscal 2013.

Revenues increased 7.2% on a year-over-year basis in the quarter to $2,000.3 million but fell marginally short of the Zacks Consensus Estimate of $2,014 million. The improvement from last year was driven by robust sales in both consumables and discretionary products with the seasonal and discretionary categories displaying a slightly higher growth rate.

Product categories that excelled in the quarter included candy, check-out products, stationery and seasonal merchandise for Valentines and Easter.

Comparable store sales (comps) increased 2% primarily driven by improved traffic, coupled with a marginal rise in average ticket. Including the currency fluctuations in Canada, comps registered a growth of 1.9% in the quarter.

Shares of Dollar Tree rose nearly 6.62% on the index, closing trade at $53.31 per share, following the company's robust earnings results.

Quarterly Details

Dollar Tree's quarterly gross profit rose 6.2% year over year to $696.6 million, while gross margin contracted 40 basis points (bps) to 34.8%. On the other hand, selling, general and administrative (SG&A) expenses increased 5.8% to $464.7 million. As a percentage of revenues, it contracted 40 bps year over year to 23.2%.

Consequently, operating income for the quarter escalated 7.1% to $231.9 million. Operating margin came in at 11.6%, flat compared with the year-ago period.

Balance Sheet and Capex

Dollar Tree ended the quarter with cash and cash equivalents of $387.1 million compared with cash balance of $383.3 million at end of first quarter fiscal 2013.

Merchandise inventories were $1,042.9 million compared with $1,009.5 million as of May 4, 2013. During the quarter, the company spent $71.9 million on capital expenditure as against $103.2 million spent in the prior year.

Share Repurchase

During the first quarter, the company received nearly 1.9 million shares under its $1 billion Accelerated Share Repurchase ASR program, entered in Sep 2013. Further, in the second quarter the company has so far received 1.2 million shares, marking the completion of the ASR program. In total, the company has bought back about 18.1 million shares under this program. Looking forward, the company has $1 billion remaining under its share repurchase program.

Store Update

In the quarter, the company further expanded its store network by opening 94 stores, expanding or relocating 28 stores and shutting down 6 stores. Retail selling square footage grew 6.8% year over year to 44 million in the quarter.

Looking Ahead

For the second quarter of fiscal 2014, Dollar Tree expects total sales to be in the range of $1.97–$2.02 billion on the back of low single-digit comps growth. Further, the company anticipates earnings in the range of 58–64 cents per share in the upcoming quarter.

For fiscal 2014, the company anticipates sales to reach $8.37–$8.54 billion range based on low single-digit comps growth. Dollar Tree projects earnings for fiscal 2014 to come in the range of $2.94–$3.12 per share, excluding any impact from share repurchases.

The company expects capital expenditures of nearly $350–$360 million for fiscal 2014, towards opening of new stores and remodeling of existing stores. Depreciation and amortization expenses are projected to range from $200 million to $210 million for fiscal 2014. Tax rate for the second quarter is estimated at 38.4%, while in fiscal 2014 it is expected to be 38.3%.

In fiscal 2014, the company plans to open nearly 375 new stores and relocate 75 stores for a total 450 projects across the U.S. and Canada. Square footage is expected to augment 7% year over year in fiscal 2014.

Dollar Tree is considered among the best-positioned dollar store concepts, especially with its evolving multi-price point chain. We believe that the company is doing a commendable job internally in managing controllable inputs, including reducing stem miles, while increasing back-haul opportunities at the same time.

Dollar Tree currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail space include Foot Locker Inc. FL, American Apparel Inc. APP and Zumiez Inc. ZUMZ. All these stocks carry a Zacks Rank #2 (Buy).