Zacks_Analysts' Blog : Dollar Tree Posts Strong 3Q - Analyst Blog

Dollar Tree Inc. (DLTR) posted strong fiscal 2011 third-quarter earnings of 87 cents a share, up 19.2% from the year-ago earnings of 73 cents a share, surpassing its earnings guidance range of 77 cents to 83 cents. Moreover, quarterly earnings also beat the Zacks Consensus Estimate of 83 cents a share. Higher sales of Halloween goods and early snowstorm at some parts of the country benefited Dollar Tree to post robust quarterly results.

Quarterly Details

Dollar Tree's total revenue grew 11.9% in the quarter to $1,596.6 million from $1,426.6 million in the prior-year quarter, beating the Zacks Consensus Estimate of $1,579.0 million. The company’s revenue came in between the earlier guidance range of $1,560.0 million to $1,600.0 million. Higher sales of basic and discretionary products and Halloween sales drove the company’s overall sales growth. Same-store sales for the period increased 4.8%.

The company's quarterly gross profit climbed 10.8% year over year to $560.6 million, whereas gross margin contracted 40 basis points to 35.1%.

Selling and administrative (S&A) expenses for the quarter grew 8.4% to $395.7 million from $365.1 million in the year-earlier period. However, as a percentage of net sales, S&A expenses contracted 80 basis points to 25.2% primarily due to increased productivity and lower incentive compensation. Consequently, operating income for the quarter grew 17.0% to $164.9 million. Operating margin came in at 10.3%, up 40 basis points from the year-ago period.

Dollar Tree ended the quarter with cash and cash equivalents of $280.2 million compared with a cash balance of $309.5 million in the year-ago period. Long-term obligations for the quarter came in at $250.0 million. Merchandise inventories were up 7.5% year over year to $1,005.4 million.

During the quarter, the company repurchased 3.3 million shares for $249.1 million. Currently, Dollar Tree has shares worth $1,500.0 million remaining under its share buyback program, recently announced by the company’s board of directors. Year-to-date, the company spent $121.3 million on capital expenditure.

In the quarter, the company opened 98 stores, relocated 24 stores and shut down operations of 5 stores. Currently, the company operates 4,335 stores in 48 states and 5 Canadian Provinces.

Outlook

Dollar Tree expects total sales in the range of $1.89 billion to $1.94 billion on the back of low to mid single-digit same-store sales growth in the fourth quarter of fiscal 2011. The company expects to earn in the range of $1.50 to $1.57 a share in the ensuing quarter.

For fiscal 2011, the company expects sales to be in the range of $6.57 billion to $6.62 billion, up from $6.53 billion to $6.62 billion projected earlier. The company sees earnings in the range of $3.94 to $4.01 per share for fiscal 2011 compared with its earlier range of $3.82 to $3.95.

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).

Currently, Dollar Tree has a Zacks #2 Rank, implying a short-term ‘Buy’ rating on the stock. Besides, the company retains a long-term ‘Neutral’ recommendation.