Zacks_Analysts' Blog : Dollar Tree Tops, Outlook Firm - Analyst Blog

Dollar Tree, Inc. (DLLR)  posted strong fiscal 2011 first-quarter earnings of 82 cents a share, up 34.4% from the year-ago earnings of 61 cents a share and ahead of the Zacks Consensus Estimate of 75 cents a share.

Quarterly Details

Dollar Tree’s total revenue grew 14.3% in the quarter to $1,545.9 million from $1,352.6 million in the prior-year quarter. Same-store sales for the period increased 7.1%. Total revenue beat the Zacks Consensus Estimate of $1,510.0 million.

The company’s quarterly gross profit increased 20.1% year over year to $540.8 million, while gross margin expanded 170 basis points to 35.0%. 

Selling and administrative (S&A) expenses for the quarter grew 9.1% to $379.1 million from $347.6 million in the year-earlier period. However, as a percentage of net sales, S&A expenses decreased 120 basis points to 24.5%. Consequently, operating income for the quarter grew 57.6% to $161.7 million. Adjusted operating margin came in at 10.5%, up 100 basis points from the year-ago period.

Merchandise inventories were up 8.9% year over year to $771.2 million. Dollar Tree ended the year with cash and cash equivalents of $371.3 million compared with a cash balance of $338.6 million in the year-ago period. Long-term obligations for the quarter came in at $250.0 million.

During the quarter, the company spent $58.3 million on capital expenditure and repurchased 1.7 million shares for $88.6 million. Currently, the company has $257.4 million worth of shares remaining on its share repurchase authorization.

In the quarter, the company opened 83 stores, relocated 41 stores and shut down operations of 7 stores.

Outlook

Dollar Tree expects total sales in the range of $1.51 billion to $1.55 billion on the back of same-store sales increase in the low-to-mid, single-digit range in the second quarter of fiscal 2011. The company expects to earn in the range of 68 cents to 75 cents a share in the ensuing quarter.

For fiscal 2011, the company expects fiscal 2011 sales to be in the range of $6.50 billion to $6.63 billion with same-store sales coming in the low-to-mid single digits. The company sees earnings in the range of $3.69 to $3.85 per share for fiscal 2011.

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 (DG) and Family Dollar Stores Inc. (FDO).

We maintain our long-term “Neutral" recommendation on Dollar Tree. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no directional pressure on the stock over the near term.