Dollar Tree Inc.
) came up with mixed results for second-quarter fiscal 2014,
wherein its top and bottom lines registered a significant
year-over-year growth but its earnings per share fell short of the
Zacks Consensus Estimate.
The discount variety store operator's adjusted earnings of 61
cents per share for the quarter were 8.9% higher than the year-ago
comparable quarter's earnings of 56 cents. However, adjusted
earnings were below the Zacks Consensus Estimate of 65 cents per
Adjusted earnings for the reported quarter include a charge of 2
cents per share related to costs associated with the pending
acquisition of Family Dollar Stores Inc. (
). Including the same, Dollar Tree's earnings came in at 59 cents
per share, up 5.4% year over year.
Dollar Tree, Inc - Earnings Surprise |
Revenues increased 9.5% on a year over year basis in the quarter
to $2,031.1 million and came ahead of the Zacks Consensus Estimate
of $2,011 million. The improvement was driven by robust sales in
both consumables and discretionary products.
Product categories that excelled in the quarter included pet
supplies, hardware, household products, food, electronics and
Comparable store sales (comps) increased 4.5% on a constant
currency basis primarily driven by improved traffic, coupled with a
rise in average ticket. Including the currency translation impact
comps for the quarter registered growth of 4.4% in the quarter.
Dollar Tree's quarterly gross profit rose approximately 7% year
over year to $694.1 million, while gross margin contracted 80 basis
points (bps) to 34.2%. The year-over-year decline in gross margin
was mainly due to a 30 bps reduction in merchandise margin, 40 bps
rise in freight cost and the balance due to increased investments
in higher-value products.
Adjusted selling, general and administrative (SG&A) expenses
increased 7.6% to $481.6 million. However, as a percentage of
revenues, it contracted 40 bps year over year to 23.7%.
Adjusted operating income for the quarter escalated 5.6% to
$212.5 million. However, as a percentage of sales, it contracted 40
bps to 10.5% primarily due to reduced gross margin, partially
offset by lower SG&A expenses as a percentage of revenue.
Balance Sheet and Capex
Dollar Tree ended the quarter with cash and cash equivalents of
$467.7 million compared with cash balance of $413.7 million at the
end of second-quarter fiscal 2013.
Merchandise inventories were $1,084 million compared with
$1,018.3 million as of Aug 3, 2013. During the first half of fiscal
2014, the company spent $160.2 million on capital expenditure as
against $199.6 million spent in the prior-year period.
In Sep 2013, the company had announced a $2 billion share
repurchase program. Out of the $2 billion, the company planned to
repurchase $1 billion worth of stocks through accelerated share
repurchase (ASR) program.
In the second quarter, the company received 1.2 million shares,
marking the completion of the ASR program. In total, the company
has bought back about 18.1 million shares under this program.
Looking forward, the company has now $1 billion remaining under its
normal share repurchase program.
In the quarter, the company further expanded its store network
by opening 90 stores, expanding or relocating 20 stores, while it
shut down 4 stores. Retail selling square footage grew 6.8% year
over year to 44.8 million in the quarter.
Update on Family Dollar Acquisition
Dollar Tree on Jul 28 announced that it has strategically agreed
to acquire Family Dollar in a cash and stock transaction valued at
approximately $9.2 billion. The acquisition, which is expected to
conclude by early 2015, will enhance the buying power of the pair,
providing better negotiating terms against suppliers. The combined
company will be able to offer broader and multiple assortments at
more compelling prices. Moreover, the transaction will help in
achieving operational and distribution efficiencies as well as cost
However, on Aug 18, Dollar General Corporation (
) made a higher bid of $9.7 billion to acquire Family Dollar. But
Dollar General's bid was rejected on the ground of antitrust
Looking at the second-quarter results and the pending
acquisition of Family Dollar, Dollar Tree has adjusted its sales
and earnings per share guidance for fiscal 2014, while keeping
other projections unchanged.
The company raised and narrowed its sales outlook for fiscal
2014. Dollar Tree now anticipates sales for the fiscal to come in
the range of $8.44-$8.55 billion as compared with the earlier
anticipation of $8.37-$8.54 billion range. Moreover, comps are
expected to grow in the band of low- to low-mid-single digit versus
low single-digit comps growth anticipated previously.
The company has lowered the upper-end of its earnings per share
guidance range for the fiscal. Dollar Tree now anticipates earnings
to come in between $2.94-$3.06 per share against the earlier
projected range of $2.94-$3.12.
Further, the company kept its other forecasts for the fiscal
unchanged. It still expects capital expenditures of nearly
$350-$360 million for fiscal 2014, toward opening of new stores and
remodeling of existing stores. Depreciation and amortization
expenses are projected to range from $200 million to $210 million
for fiscal 2014. Tax rate for fiscal 2014 it is expected to be
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 7% year over year in
Apart from updating fiscal 2014 outlook, the company initiated
guidance for the third quarter. For the third quarter, Dollar Tree
expects total sales to be in the range of $2.02-$2.07 billion on
the back of low- to mid-single digit comps growth. Further, the
company anticipates earnings in the range of 61-66 cents per share,
excluding acquisition related expenses in the upcoming quarter.
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, while increasing back-haul
opportunities at the same time.
Dollar Tree currently carries a Zacks Rank #3 (Hold). A
better-ranked stock in the discount retail space is Burlington
Stores, Inc. (
) carrying a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
DOLLAR TREE INC (DLTR): Free Stock Analysis
DOLLAR GENERAL (DG): Free Stock Analysis Report
BURLINGTON STRS (BURL): Free Stock Analysis
To read this article on Zacks.com click here.