Shares of Dollar Tree (NASDAQ: DLTR) were moving higher today after the discount chain posted solid third-quarter sales growth, beat earnings estimates, and said it would renovate at least 1,000 Family Dollar stores. As a result, the stock was up 6.5% as of 3:18 p.m. EST.
Overall same-store sales rose just 1% across the company, increasing 2.3% at Dollar Tree-branded stores but falling 0.4% at Family Dollar, as the company has struggled to turn around that banner after acquiring it in 2015. Nonetheless, revenue rose 4.2%, to $5.54 billion, as the Dollar Tree opened hundreds of new stores over the last year, continuing its aggressive expansion. That figure was just shy of estimates at $5.55 billion.
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Gross margin fell 110 basis points to 30.2% due to rising freight, occupancy, and distribution costs, as well as markdowns. That led to operating income falling 9%, to $387.8 million. However, earnings per share jumped from $1.01 to $1.18, which beat expectations of $1.14. This beat was due to a lower tax rate thanks to the the tax reform law.
As part of an initiative to boost sales at Family Dollar, management said it would accelerate its store-optimization program and renovate a minimum of 1,000 Family Dollar stores next year, which investors seemed to applaud. CEO Gary Philbin said, "Through the hard work we have done over the past three and a half years, we have put in place the foundational elements that we need to be successful over the long term."
Dollar Tree also lowered its full-year guidance, making the stock's rise all the more surprising. Management is now calling for revenue of $22.72 billion-$22.83 billion, down from $22.75 billion-$22.97 billion, and same-store sales growth in the low single digits. The company also cut full-year earnings-per-share guidance from $4.85-$5.05 to $4.86-$4.95.
This was not a great report for the retailer by any means, but investors seem optimistic about Family Dollar, especially since the stock has lost 18% this year -- even after today's gains. That news was enough to make up for some of this year's losses.
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