Dollar Tree Profits Rise 16%

Wednesday saw Dollar Tree's

fourth-quarter earnings go up 16 percent when the budget retailer reported its numbers. Analysts were not getting too excited though, as the outlook for the current quarter was short of expectations. Stores like Dollar Tree, Dollar General

and Family Dollar

have been doing well of late, with cash-strapped consumers looking for bargaisn as they search for ways to reduce the general cost of living. The stores are looking to expand in smart directions too, with DLTR developing a retail format called Deal$, which features low-priced (though not necessarily $1) goods. It has also expanded its frozen and refrigerated food selection. Dollar Tree CEO Bob Sasser said in an earnings conference call that total sales increased 12.8% to $1.95 billion. “Earnings for the fourth quarter were $1.60 per diluted share. This represents a 24% increase over last year's $1.29 per share. Operating margin for the fourth-quarter 2011 was 15.5%, an increase of 50 basis points over the fourth quarter of last year, and net income rose 15.6% to $187.9 million. For the full-year fiscal 2011, store sales increased 6%.That is on top of a 6.3% comp store sales increase last year, and net sales were $6.63 billion, an increase of 12.7% over fiscal 2010. Earnings for the full year were $4.03 per diluted share, an increase of 24.8% compared with $3.23 per share last year.” For 1Q12, Dollar Tree forecast per-share earnings of 91 cents to 97 cents on revenue of $1.65 billion to $1.69 billion. The analyst consensus was around the 98 cents and $1.7 billion mark. For the current fiscal year, DLTR forecast per-share earnings of $4.65 to $4.90 on revenue of $7.25 billion to $7.42 billion. Sasser said that the success of Dollar Tree is based on its focus on the customer. He said that the Dollar Tree merchandising model is flexible, and they use this strategy of ever-changing assortments to the company's advantage. “To the customer, this means there is always something new at Dollar Tree. As customers strive to balance their budgets, they can find the high-value basics they need while enjoying the thrill of the hunt on every visit.” In its Wednesday research report, Deutsche Bank said that the one blemish in the print is the co's 1Q EPS view of $0.91-$0.97 (Street at $0.98), but we note that over the past 8 quarters DLTR has exceeded the high-end of its guidance by $0.05 on average, ranging from $0.02-$0.11, or a variance of 6.3% on average. “All told, with multiple upgrades in recent weeks - expectations were very high and we think the stock could sell-off a bit at the open, but we'd see any material weakness as an especially attractive opportunity to buy the stock. Stay Buy - PT moves up to $94 from $89.” Goldman Sachs, meanwhile, said that with DLTR share's trading at an all-time peak relative multiple to the S&P 500, it believes investors have come to expect consistent beat-and-raises. “Guidance was characteristically conservative as +LSD-MSD comps are below 4Q's run-rate. The buyback adjusted guidance of $0.95-$0.99 places consensus slightly above the midpoint, which implies healthy EPS growth of +17.4%.” Jefferies commented on inventory growth, stating that it “was 8.0% on a sales gain of 12.8%. Payables to inventory was 33.1% vs. 32.5% a year ago. Cash flow from operations was up to $687 million vs. $519 million LY, reflecting strong net income growth and good working capital management. FCF was $436 million vs. $340 million a year ago.”