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Dollar Tree (DLTR) Falls on Q4 Earnings Miss, Guides for ’18

Zacks

Dollar Tree Inc. DLTR posted fourth-quarter fiscal 2017 results, wherein both earnings and sales missed the Zacks Consensus Estimate. However, results improved year over year. Also, management issued guidance for first-quarter and fiscal 2018.

Following the quarterly results, shares of the company declined 13.4% in pre-market trading. However, the stock has gained 26% in the past six months compared with the industry’s growth of 23.2%.



Quarter in Detail

Dollar Tree’s quarterly adjusted earnings of $1.89 per share missed the Zacks Consensus Estimate by a penny. However, the metric rose substantially by $1.39 in the prior-year quarter. Additionally, it came at the higher end of the company’s guided range. The year-over-year improvement can be attributed to higher sales, rise in comparable store sales (comps) and higher margins.

On a GAAP basis, earnings per share came in at $4.37 compared with $1.36 in the year-ago quarter.

Consolidated net sales were up 12.9% to $6,360.6 million in the quarter, missing the Zacks Consensus Estimate of $6,401 million.

Comps in the quarter increased 2.4% in constant currency, driven by improved customer count and average ticket. Including the impact of Canadian currency fluctuations, the metric improved 2.5%. While Dollar Tree banner posted comps growth of 3.8% (in constant-currency), comps at the Family Dollar banner rose 1%.

The company’s quarterly gross profit advanced 16.3% year over year to $2,101 million, with the gross margin expanding 90 basis points (bps) to 33%. The margin expansion was backed by reduced merchandise costs, lower markdowns and occupancy expenses, as a percentage of sales. The increase was somewhat compensated with higher freight charges.

Adjusted selling, general and administrative expenses dropped 40 bps to 21.3% of sales, thanks to reduced depreciation, lower repair and maintenance costs, as a percentage of sales. This was somewhat offset by increased hourly payroll and incentive compensation expenses as well as higher advertising expenses.

Further, operating income rose 30.5% to $765.6 million in the reported quarter. Adjusted operating margin came in at 11.7%.

Balance Sheet

Dollar Tree ended the fiscal year with cash and cash equivalents of $1,097.8 million, net merchandise inventories of $3,169.3 million, net long-term debt excluding current maturities of $4,762.1 million and shareholders’ equity of $7,182.3 million. Further, it redeemed the entire $750 million of its outstanding 2020 Notes on Mar 1.

Store Update

Dollar Tree, which carries a Zacks Rank #2 (Buy) opened 137 outlets, expanded or relocated eight outlets and shuttered 46 outlets in the reported quarter.

Guidance

Management issued guidance for first-quarter and fiscal 2018. It forecasts consolidated net sales for the first quarter in the band of $5.53-$5.63 billion, with low single-digits comps growth. Earnings are envisioned in the range of $1.18-$1.25 per share.

For fiscal 2018, it projects consolidated net sales in the range of $22.70-$23.12 billion, with low single-digit comps increase and a 3.7% rise in square footage. Additionally, earnings per share for the same time period are envisioned in the $5.25-$5.60 range.

The Zacks Consensus Estimate for first-quarter and fiscal 2018 earnings is pegged at $1.32 and $5.85, respectively.

Want More of Retail? Here Are Three Picks You Can’t Miss

Big Lots, Inc. BIG with a long-term earnings growth rate of 13.5% has delivered an average positive earnings surprise of 11.1% in the trailing four quarters. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores, Inc. BURL, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 18.6%.

Ross Stores, Inc. ROST has a long-term earnings growth rate of 10% and a Zacks Rank #2.

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