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Dollar Tree (DLTR) Q3 Earnings Beat, Stock Drops on View Cut


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Dollar Tree Inc. DLTR has reported a mixed third-quarter fiscal 2018, wherein earnings topped estimates while sales lagged. Both earnings and sales improved year over year. However, the company continued to witness cost pressures arising from higher domestic freight and investment in store wages, which impacted margins.

Furthermore, the company lowered its sales guidance for fiscal 2018 and slightly tweaked earnings forecasts, which seem to have hurt investor sentiment.

Consequently, shares of Dollar Tree decreased nearly 4.8% in pre-market trading . Nonetheless, this Zacks Rank #3 (Hold) stock has gained 4.4% in the past three months, outperforming the industry 's 9% decline.



Quarter in Detail

Dollar Tree's adjusted earnings grew 16.8% to $1.18 per share and surpassed the Zacks Consensus Estimate of $1.14. Bottom-line results were at the higher end of the company's guidance of $1.11-$1.18 per share. Results gained from an increase in the top line despite cost pressures related to higher domestic freight and investment in store wages, which hurt margins.

Dollar Tree, Inc. Price, Consensus and EPS Surprise

Dollar Tree, Inc. Price, Consensus and EPS Surprise | Dollar Tree, Inc. Quote

Consolidated net sales improved 4.2% to $5,538.6 million but missed the Zacks Consensus Estimate of $5,550 million.

Enterprise same-store sales (comps) grew 1%, which marked the 43rd straight quarter of comps growth for the company. Comps were aided by increases in both transactions and average ticket, alongside strength in the Dollar Tree and Family Dollar banners.

Comps for Dollar Tree rose 2.3% on a constant-currency basis while it improved 2.2%, after adjusting the impact from Canadian currency fluctuations. However, comps at Family Dollar dipped 0.4%. Notably, the newly renovated Family Dollar stores are delivering strong performances.

Quarterly gross profit inched up 0.4% year over year to $1,671.9 million, including $6.1 million of expenses for hurricane-related losses. Meanwhile, gross margin contracted 110 basis points (bps) to 30.2%. The margin contraction was mainly due to increased domestic freight, shrink, markdowns and distribution and occupancy expenses, somewhat compensated with lower merchandise costs.

Selling, general and administrative expenses declined 10 bps to 23.2% of sales, owing to lower operating and corporate expenses as well as reduced depreciation costs. This was partly negated by an increase in hourly store payroll expenses.

Operating income dipped 8.8% to $387.8 million while operating margin contracted 100 bps to 7%. The decline was mostly attributed to contraction in the gross margin.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $708.3 million, net merchandise inventories of $3,715.6 million, net long-term debt excluding current maturities of $5,043.8 million and shareholders' equity of $7,943.1 million.

Store Update

In third-quarter fiscal 2018, Dollar Tree opened 127 stores, expanded or relocated 14 outlets and shuttered 18 stores. Moreover, the company re-bannered 30 Family Dollar stores to the Dollar Tree brand. As of Nov 3, 2018, Dollar Tree operated 15,187 stores in 48 states and five Canadian provinces.

As part of the integration of Family Dollar, the company has so far opened 830 new Family Dollar stores, renovated 865 Family Dollar outlets while it closed 195 Family Dollar stores. Additionally, it re-bannered 354 Family Dollar stores as Dollar Tree.

The company plans to accelerate the store optimization program in fiscal 2019, targeting to renovate at least 1,000 Family Dollar stores. Additionally, it plans to open 350 new Dollar Tree and 200 new Family Dollar stores in fiscal 2019 while re-bannering another 200 Family Dollar stores to Dollar Tree stores.

Guidance

Management issued guidance for fourth-quarter fiscal 2018. Additionally, it lowered its sales view for fiscal 2018 and adjusted its earnings guidance range.

The company forecasts consolidated net sales of $6.10-$6.21 billion for the fiscal fourth quarter, with low-single-digit comps growth. Earnings are envisioned to be $1.86-$1.95 per share.

For fiscal 2018, it now projects consolidated net sales of $22.72-$22.83 billion compared with $22.75-$22.97 billion guided earlier. Comps are still anticipated to grow in low-single digit along with 3.2% rise in square footage.

The company now estimates earnings per share of $4.86-$4.95 for the fiscal year compared with $4.85-$5.05 expected earlier. Earnings expectations for the fourth quarter and fiscal 2018 exclude any charges and expenses related to the effects of store optimization.

Want More of Solid Retail Stocks? Check These

Canada Goose Holdings Inc. GOOS has an impressive long-term earnings growth rate of 31.3% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Fossil Group, Inc. FOSL , also a Zacks Rank #1 stock, delivered an average positive earnings surprise of 119.5% in the trailing four quarters.

Burlington Stores, Inc. BURL pulled off an average positive earnings surprise of 11.4% in the trailing four quarters. Further, the company has a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: FOSL , GOOS , BURL , DLTR



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