Dollar Tree (DLTR) Falls on Q2 Earnings Miss, Revises ’18 View

Dollar Tree Inc. (DLTR) reported lower-than-expected results in second-quarter fiscal 2018. However, both earnings and sales improved year over year. Further, management issued guidance for the third quarter and updated outlook for the fiscal year.

Following soft quarterly results, shares of the company decreased nearly 5.8% in pre-market trading. In the past three months, this Zacks Rank #2 (Buy) stock has gained 14.3% compared with the industry’s 18.3% rally.

Quarter in Detail

Dollar Tree’s quarterly adjusted earnings grew 16.2% to $1.15 per share but missed the Zacks Consensus Estimate by a penny. Also, it came near the top end of the company’s guided range of $1.07-$1.16 per share.

Consolidated net sales were up 4.6% to $5,525.6 million in the quarter. However, the reported figure came below the Zacks Consensus Estimate of $5,537 million.

Further, enterprise same-store sales (comps) grew 1.8% in constant currency, while it rose 1.9% after adjusting the impact from Canadian currency fluctuations. Comps at Dollar Tree were up 3.7% on a constant-currency basis driven by improved average ticket and traffic. Including the Canadian currency fluctuations impact, comps at Dollar Tree rose 3.8%. However, comps at Family Dollar were flat in the quarter.

The company’s quarterly gross profit advanced 2.2% year over year to $1,663.9 million, while the gross margin contracted 70 basis points (bps) to 30.1%. The margin contraction was mainly due to increased domestic freight, shrink and distribution expenses, somewhat compensated with lower merchandise costs.

Selling, general and administrative expenses increased 30 bps to 23.2% of sales owing to increased store payroll expenses, partly offset by lower depreciation and amortization expenses as well as reduced store repairs and maintenance costs, as a percentage of sales.

Further, operating income dipped 8.8% to $382.5 million in the reported quarter. Also, operating margin came in at 6.9%, down 100 bps from the year-ago quarter.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $647.3 million, net merchandise inventories of $3,288.2 million, net long-term debt excluding current maturities of $5,041.8 million and shareholders’ equity of $7,647.5 million.

Store Update

Dollar Tree opened 146 outlets, expanded or relocated 13 outlets and shuttered 26 outlets in the reported quarter.

As of Aug 4, 2018, Dollar Tree operated 15,073 stores in 48 states and five Canadian provinces.

Guidance

Management updated guidance for third-quarter and fiscal 2018. It forecasts consolidated net sales for the third quarter in the band of $5.53-$5.64 billion, with low single-digits comps growth. Earnings are envisioned in the range of $1.11-$1.18 per share.

For fiscal 2018, it projects consolidated net sales in the range of $22.75-$22.97 billion compared with 22.73-$23.05 billion guided earlier. Comps are still anticipated to grow low single-digits along with 3.4% rise in square footage.

Further, management projects incurring a charge of 4 cents per share in the fiscal fourth quarter owing to anti-dumping duty imposed on certain ribbon bought from China. Consequently, earnings per share for the fiscal year are now envisioned in the band of $4.85-$5.05 compared with previous guided range of $4.80-$5.10.

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.19 and for the fiscal year it stands at $5.55.

Want More of Solid Retail Stocks? Check These

Urban Outfitters, Inc. URBN pulled off an average positive earnings surprise of 17.7% in the trailing four quarters. Further, the company has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Five Below, Inc. FIVE has an impressive long-term earnings growth rate of 28% and a Zacks Rank of 2.

The Michaels Companies, Inc. MIK, also a Zacks Rank #2 stock, delivered an average positive earnings surprise of 5.5% in the trailing four quarters.

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