Goldman Highlights Margin Inflection At Dollar Tree, Reiterates Buy

Dollar Tree, Inc. DLTR reported a beat quarter for 1Q, with the adjusted EPS beating the estimate and the consensus.

Goldman Sachs’ Stephen Grambling reiterated a Buy rating on the company, with a price target of $107.

Beat Quarter

Dollar Tree reported its adjusted EPS for the quarter at $0.98, ahead of the estimate and the consensus, with same store sales also beating the estimate.

Same store sales at Family Dollar were positive for 1Q, with the company’s total sales in-line with expectations.

“Gross margin beat our estimate by 71bp driven primarily by a better Family Dollar margin, offset by a slightly softer Dollar Tree gross margin,” Grambling mentioned. EBIT margins for each segment beat expectations.

SG&A came in in-line, with the deleverage at Family Dollar offsetting the higher leverage at Dollar Tree.

Guidance Raised

Dollar Tree raised its FY16 EPS guidance from $3.35-$3.65 to $3.58-$3.80, while reiterating its synergy target of over $300 million by FY18.

“Management expects to maintain a relatively flattish merchandise margin and focus on driving sales growth,” Grambling pointed out.

Estimates Revised

“Our estimates move up as we flow through the 1Q beat and embed better gross margin expansion at Family Dollar, ramping synergies and lower interest expense, partially offset by integration costs near term and a headwind from the new overtime law beginning in 4Q16,” the Goldman Sachs report said.

The FY16 EPS estimate has been raised to $4.05, to reflect increased confidence in Dollar Tree being able to almost double its EPS by FY18.