Chesapeake, Virginia based discount variety store Dollar Tree Inc. (DLTR) recently entered into an agreement with JPMorgan Chase Bank, National Association to repurchase its common shares under a variable maturity accelerated share repurchase program.
As per the deal, the company will repurchase $200 million of its common shares under its ongoing $500 million share repurchase program announced on June 21, 2010. After acquiring shares from JPMorgan, the company will have $49.2 million worth of shares remaining under its share buyback program.
The accelerated share repurchase program is a specific method used by corporations to buy back their outstanding shares. The shares purchased under this program are usually completed by an investment banker. The investment banker generally borrows the shares from its clients or share lenders and sells them to the company. After that, investment banker returns shares to the clients or share lenders through purchases in the open market, which may take a day to several months. This system allows companies to transfer their risk of stock buyback to the investment bank in return for a premium.
Dollar Tree is committed to creating value for its shareholders by returning capital in the form of dividends and share repurchase programs. To improve shareholders' wealth, the company will repurchase shares from time to time depending on the market conditions. At the end of second quarter of fiscal 2011, the company has cash and investments of $545 million.
Second-Quarter 2011 Earnings Update
Prior to this, Dollar Tree posted strong fiscal 2011 second-quarter earnings of 77 cents a share, up 26.2% from year-ago earnings of 61 cents and ahead of the Zacks Consensus Estimate of 75 cents a share.
Dollar Tree's total revenue grew 11.9% in the quarter to $1,542.4 million from $1,377.9 million in the prior-year quarter. Same-store sales for the period increased 4.7%. However, total revenue fell short of the Zacks Consensus Estimate of $1,547.0 million.
Management Guidance
Bolstered by better-than-expected second-quarter 2011 results, Dollar Tree has raised its sales expectations for fiscal 2011 to the range of $6.53 billion to $6.62 billion, up from $6.50 billion to $6.63 billion forecasted earlier.
Accordingly, the company sees earnings in the range of $3.82 to $3.95 per share for fiscal 2011 compared with its earlier range of $3.69 to $3.85.
Dollar Tree operates as a discount retailer of general merchandise in the southern, southwestern, mid western and eastern United States. Currently, the company operates 4,242 stores in 48 states and 4 Canadian Provinces. The company is in direct competition with Dollar General Corporation (DG) and Family Dollar Stores Inc. (FDO).
Currently, Dollar Tree has a Zacks #3 Rank, implying a short-term Hold rating on the stock. The company retains a long-term Neutral recommendation.
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