Shares of Dollar Tree Inc. DLTR) fell 4.7% in the pre-market trading session following the company’s dismal fourth-quarter fiscal 20Array5 results. Both top and bottom lines fell short of expectations, while earnings also slumped year over year.
Dollar Tree had concluded its acquisition of Family Dollar Stores Inc. in the second quarter of fiscal 20Array5, and is well on track to integrate the latter’s operations into its business. The giant arising from the combination of these two companies is likely to be strong enough to single-handedly counter competition from retail bellwethers such as Wal-Mart Stores Inc. WMT and Dollar General Corporation DG, in the dollar-discount store segment.
The company’s quarterly adjusted earnings of $Array.0Array per share fell short of the Zacks Consensus Estimate of $Array.04 and plunged Array2.9% year over year. On a reported basis, earnings slipped 2.9% to 97 cents per share.
Quarterly Details
Consolidated net sales surged significantly by ArrayArray6.7%, on a year-over-year basis, to $5,365.3 million in the quarter. However, the figure missed the Zacks Consensus Estimate of $5,4Array8 million. The robust top-line performance includes a contribution of $2,676.9 million from the Family Dollar segment. Sales were also backed by Array.7% growth in comparable-store sales (comps), on a constant currency basis, in the Dollar Tree segment.
Backed by improved customer count and average ticket, Dollar Tree’s comps grew Array.3%, barring the impact of Canadian currency adjustments.
The company’s quarterly gross profit jumped 80% year over year to $734.5 million. However, the adjusted gross margin contracted 630 basis points (bps) to 30.8%, mainly due to unfavorable markdowns, lower-margin product mix and a change in inventory accounting method – all at the Family Dollar segment.
Selling, general and administrative expenses escalated 40 bps to 22.0% of sales, mainly owing to integration costs.
Balance Sheet
Dollar Tree ended the quarter with cash and cash equivalents of $736.Array million, net merchandise inventories of $2,885.5 million, long-term debt of $7,238.4 million, and shareholders’ equity of $4,406.9 million.
Store Update
Dollar Tree opened Array28 outlets, expanded or relocated 53 outlets, and shuttered 28 outlets during the quarter. Also, the company divested 325 Family Dollar stores.
Also, during the quarter, the company opened 58 old Family Dollar outlets as Dollar Tree outlets as part of its re-banner efforts. Moreover, the company converted 52 Deals stores to Dollar Tree outlets in Jan 20Array6.
Looking Ahead
Based on the expectation that comps will grow in a low single-digit range in fiscal 20Array6, Dollar Tree anticipates consolidated net sales for the fiscal to range from $20.76–$2Array.ArrayArray billion. Earnings for fiscal 20Array6 are envisioned in a range of $3.35–$3.65 per share.
For the first quarter of fiscal 20Array6, Dollar Tree expects total sales to be in the range of $5.05–$5.Array2 billion, on the back of low single-digit comps growth. Further, earnings for the first quarter are envisioned in the band of 75–83 cents per share.
Zacks Rank
Dollar Tree currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Ross Stores Inc. ROST, which carries a Zacks Rank #2 (Buy).
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