Dollar Tree Inc. (DLTR) reported fourth-quarter fiscal 2013 earnings of $1.02 per share, which came below the Zacks Consensus Estimate of $1.05. However, quarterly earnings represented nearly a 1% increase from $1.01 earned in fourth-quarter fiscal 2012. Fourth-quarter results compare against an additional week in the prior-year quarter that contributed 8 cents to earnings per share last year.
Revenue declined by a marginal 0.5% on a year-over-year basis in the quarter to $2,234.9 million and fell short of the Zacks Consensus Estimate of $2,278.0 million. However, comparable store sales (comps) increased 1.2% against a 2.4% increase recorded in the prior-year period, primarily driven by improved traffic.
Despite the lower-than-expected results, shares of Dollar Tree made a nearly 5% jump on the index, closing trade at $55.29 per share.
Quarterly Details
Dollar Tree's quarterly gross profit declined 3.0% year over year to $825.2 million, while gross margin contracted 100 basis points (bps) to 36.9%. On the other hand, selling, general and administrative (SG&A) expenses slid 2.1% to $477.0 million. As a percentage of revenues, it contracted 40 basis points year over year to 21.3%.
Consequently, operating income for the quarter declined 4.2% to $348.2 million. Operating margin came in at 15.6%, down 60 bps from the year-ago period.
Full-Year Synopsis
For fiscal 2013, the company’s earnings came at $2.72 per share, which fell short of the Zacks Consensus Estimate of $2.76 but was higher than $2.68 reported in fiscal 2012. Notably, the company’s fiscal 2012 earnings included a one-time $60 million gain associated with the sale of its ownership interest in Ollie's Holdings Inc. in the third quarter of fiscal 2012 and $125 million additional earnings from the 53rd week in fiscal 2012. Revenue for the year rose approximately 6% to $7,840.3 million. However, the company’s top line missed the Zacks Consensus Estimate of $7,888 million.
Balance Sheet and Capex
Dollar Tree ended fiscal 2014 with cash and cash equivalents of $267.7 million compared with cash balance of $399.9 million at fiscal year-end 2012.
Merchandise inventories were $1,035.3 million compared with $971.7 million as of Feb 2, 2013. During the fiscal year, the company spent $330.1 million on capital expenditure as against $312.2 million spent in the prior year.
Share Repurchase
During fiscal 2013, the company bought back nearly $1.1 billion worth of shares, which included about $1.0 billion from the Accelerated Share Repurchase (ASR) program authorized in Sep 2013. Under the ASR program, the company bought back a total of 15 million shares and expects to complete the program on or before Jun 2014. Additionally, Dollar Tree has authorization worth $1.0 billion remaining under its share buyback program.
Store Update
In the quarter, the company further expanded its store network by opening 51 stores, expanding or relocating 4 stores and shutting down 12 stores. Retail selling square footage grew 6.9% year over year to 43.2 million square feet in the quarter.
During the full year, the company opened about 343 new stores and expanded or relocated 71 existing stores, making for a total of 414 store projects entered in the year. As of Feb 1, 2014, the company operated 4,992 stores in 48 states and 5 Canadian provinces.
Looking Ahead
For the first quarter of fiscal 2014, Dollar Tree expects total sales in the range of $1.98–$2.04 billion on the back of low single-digit comps growth. Further, the company anticipates earnings in the range of 63 – 68 cents per share in the upcoming quarter.
For fiscal 2014, the company anticipates sales to reach the $8.35–$8.58 billion range based on low single-digit positive comps growth. Dollar Tree projects earnings for fiscal 2014 to come in the range of $2.91–$3.13 per share, excluding any impact from share repurchases.
The company expects capital expenditures of nearly $350 million – $360 million for fiscal 2014, slated towards the opening of new stores and remodeling existing stores. Depreciation and amortization expenses are projected to range from $200 million to $210 million for fiscal 2014. Tax rate for the first quarter is estimated at 38.4%, while in fiscal 2014 it is expected to be 38.2%.
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 6.7% year over year in the first quarter of fiscal 2014 and nearly 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 Christopher & Banks Corporation (CBK), Finish Line Inc. (FINL) and Deckers Outdoor Corp. (DECK). Christopher & Banks have a Zacks Rank #1 (Strong Buy), while Finish Line and Deckers carry a Zacks Rank #2 (Buy).
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