Dollar Tree Inc. DLTR broke its negative surprise trend in third-quarter fiscal 2016 as its earnings topped estimates and improved year over year. Shares of the company jumped about 7.8% in the pre-market trading session following the announcement.
The company’s quarterly adjusted earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 79 cents and registered 65.3% year-over-year growth. Further, earnings were toward the higher end of the company’s guidance range of 76–82 cents.
On a reported basis, the company posted earnings of 72 cents per share compared with 35 cents per share recorded in the year-ago quarter.
Consolidated net sales rose 1.1% on a year-over-year basis to $5,001.6 million in the quarter, driven by sales contribution from 325 Family Dollar stores that were divested after third-quarter fiscal 2015 along with robust sales from new Dollar Tree stores and a rise in comparable store sales (comps). However, the top-line fell short of the company’s guidance range of $5.02–$5.10 billion and lagged the Zacks Consensus Estimate of $5,062 million.
Comps for the quarter grew 1.7%, on a constant-currency basis, backed by improved customer count and average ticket. Barring the impact of Canadian currency adjustments, comps rose 1.8%.
The company’s quarterly gross profit increased 8.6% year over year to $1,520.5 million, boosted by improved gross profit at both Family Dollar and Dollar Tree segments. Gross margin expanded 210 basis points (bps) to 30.4% due to reduced merchandise and freight expenses.
Adjusted selling, general and administrative expenses remained flat at 23.6% of sales, primarily benefiting from lower store hourly payroll, partly offset by a lower professional fees and lower depreciation expense.
Dollar Tree ended the quarter with cash and cash equivalents of $733.8 million, net merchandise inventories of $3,273.9 million, net long-term debt of $6,938 million and shareholders’ equity of $5,047.7 million.
Dollar Tree opened 153 outlets, expanded or relocated 39 outlets, and shuttered 10 outlets during the quarter. Moreover, during the quarter, the company launched 42 old Family Dollar outlets as Dollar Tree outlets as part of its re-banner efforts.
Following the fiscal third-quarter results, Dollar Tree provided net sales and earnings guidance for the third quarter. Further, the company lowered its fiscal 2016 sales forecast, while narrowing its earnings guidance range.
Management now projects net sales for fiscal 2016 in the band of $20.67–$20.77 billion compared with $20.69–$20.87 billion expected earlier. The guidance stems from comps growth in the low single-digit range and 3.9% increase in square footage. Earnings per share are envisioned in the $3.67–$3.76 range for fiscal 2016 compared with $3.67–$3.82 anticipated earlier. The previous guidance did not include the 9 cents per share related to debt refinancing expenses recorded in the fiscal third quarter.
For the fiscal fourth quarter, sales are projected in the range of $5.59–$5.69 billion, driven by comps growth in the low single-digit range for both Family Dollar and Dollar Tree segments. Earnings are now anticipated in the range of $1.24–$1.33 per share, reflecting an upside from the previous forecast of $1.21–$1.30 per share for the fourth quarter.
Dollar Tree currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the discount-retail industry include Burlington Stores Inc. BURL and Target Corp. TGT, each carrying a Zacks Rank #2 (Buy). Another well-ranked stock in the broader retail sector is Zumiez Inc. ZUMZ, which also carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Burlington Stores has gained nearly 72.9% year to date. Moreover, it has a long-term earnings growth rate of 18.4%.
Target, with a long-term earnings growth rate of 8.3%, has increased nearly 5.4% year to date.
Zumiez has jumped 61.7% year to date. The stock has a long-term earnings growth rate of 15%.
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