Dollar Tree Inc.
) reported robust results for the third quarter of fiscal 2012.
The company's quarterly earnings of 51 cents per share came in
ahead of the Zacks Consensus Estimate of 49 cents.
Moreover, it outperformed the year-ago earnings of 44 cents
per share, registering an upside of 15.9% year over year. The
solid results came on the back of higher sales and improved
Dollar Tree's total revenue grew 7.8% in the quarter to $1.721
billion from $1.597 billion in the prior-year quarter. Higher
sales were primarily driven by new store additions and an
improvement of 1.6% in comparable store sales (comps) over the
prior-year period comps of 4.8%. However, total revenue was
slightly below the Zacks Consensus Estimate of $1.727
The company's quarterly gross profit climbed nearly 7% year
over year to $599.6 million. However, gross margin contracted 20
basis points (bps) to 34.9% primarily due to increased input
Operating income for the quarter bolstered 11.7% to $184.2
million. Operating margin came in at 10.7%, up 40 bps from the
year-ago period, primarily benefiting from a contraction in
selling, general and administrative expenses as a percentage of
Dollar Tree ended the third quarter with cash and cash
equivalents of $222.4 million compared with cash balance of
$280.2 million at the end of the prior-year quarter. The company
had an outstanding long-term obligation of $250 million as of
October 27, 2012.
Merchandise inventories were up 12.7% year over year to $1.133
billion, which reflects the company's preparation for holiday
season sales. During the first nine months of fiscal 2012, the
company spent $236.7 million on capital expenditure.
During the quarter, the company bought back 3.3 million shares
for about $148.9 million. At the quarter end, Dollar Tree had
shares worth $965 million remaining under its share buyback
In the quarter, the company further expanded its stores
network by opening about 111 stores, shutting down 4 stores and
relocated 16 stores. This brings the company's total store count
to 4,630 in 48 states and 5 Canadian Provinces.
For the fourth quarter of fiscal 2012, Dollar Tree expects
total sales in the range of $2.20 billion to $2.26 billion on the
back of flat to low-single-digit same-store sales growth.
Further, the company anticipates earnings in the range of 97
cents - $1.02 a share in the upcoming quarter.
For fiscal 2012, the company anticipates sales to reach the
$7.35 billion - $7.41 billion range. It projects earnings in the
range of $2.45 - $2.54 per share for fiscal 2012, excluding a
gain of 16 cents from the sale of Ollie's.
Dollar Tree is considered as one of 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 by managing controllable inputs, including reducing
stem miles, while increasing back-haul opportunities.
The company continues to generate robust same-store sales
growth, indicating its focus on low-priced wants and needs
commodities. The rise in comparable sales is attributable to
augmented traffic, reflecting continued top-line growth.
Additionally, the company's strong free cash flow generation
signals an enhanced share buyback program, as the company, apart
from stores growth, uses majority of the free cash flow to
However, we remain slightly cautious on the stock due to
sluggish economic recovery and high unemployment and household
debt level, which may restrain consumers from spending more.
Therefore, we are maintaining a long-term 'Neutral'
recommendation on the stock. Moreover, Dollar Tree has a Zacks #3
Rank, implying a short-term Hold rating on the stock.
Dollar Tree operates as a discount retailer of general
merchandise in the southern, southwestern, midwestern, and
eastern United States. The company is in direct competition with
Dollar General Corporation
Family Dollar Stores Inc.
DOLLAR GENERAL (DG): Free Stock Analysis
DOLLAR TREE INC (DLTR): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
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