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Dollar Tree Inc. (DLTR - Analyst Report) reported second-quarter fiscal 2013 earnings of 56 cents per share, a penny below the Zacks Consensus Estimate. However, it increased 9.8% year over year.

The company posted revenue growth of 8.8% on a year-over-year basis in the quarter to $1,854.9 million but fell short of the Zacks Consensus Estimate of $1,859.0 million. During the quarter, sales benefited from a 3.7% increase in comparable store sales (comps) over the prior-year period comps rise of 4.5%.

Quarterly Details

Dollar Tree's quarterly gross profit climbed nearly 8.2% year over year to $648.7 million, while gross margin contracted 20 basis points (bps) to 35.0%. On the other hand, selling, general and administrative (SG&A) expenses crept up 7.8% to $447.4 million. However, as a percentage of revenues, it contracted 30 bps to 24.1%.

Consequently, operating income for the quarter rose 9.2% to $201.3 million. Operating margin came in at 10.9%, up 10 bps from the year-ago period.

Balance Sheet

Dollar Tree ended second-quarter fiscal 2013 with cash and cash equivalents of $413.7 million compared with cash balance of $379.8 million at the end of second-quarter fiscal 2012.

Merchandise inventories were $1,018.3 million compared with $891.7 million as of Jul 28, 2012. During six months ended Aug 3, 2013, the company spent $199.6 million on capital expenditure as against $140.1 million recorded in the six months ended Jul 28, 2012.

Share Repurchase

During the quarter, the company bought back 0.9 million shares worth about $43.7million. At quarter-end, Dollar Tree had shares worth $747.7 million remaining under its share buyback program.

Store Update

In the quarter, the company further expanded its store network by opening 81 stores, expanding or relocating 32 stores and shutting down 2 stores. This brings the company’s total store count to 4,842 in 48 states and 5 Canadian provinces as of Aug 3, 2013.

Retail selling square footage grew 7.0% year over year to 41.9 million square feet.

Looking Ahead

For the third quarter of fiscal 2013, Dollar Tree expects total sales in the range of $1.87–$1.92 billion on the back of low to mid single-digit comps growth while the company expects square footage growth of 7.2%. Further, the company anticipates earnings in the range of 54–59 cents per share in the upcoming quarter. Tax rate for the third quarter is expected to be 37.0%.

For fiscal 2013, the company anticipates sales to reach the $7.85–$7.97 billion range based on low single-digit positive comps while the company expects square footage growth of 7.3%. Dollar Tree projects earnings in the range of $2.65–$2.77 per share for fiscal 2013, excluding any impact from share repurchases.

For 2013, the company expects capital expenditures to be in the range of $320 million to $330 million. Depreciation and amortization expenses are projected to range from $190 million to $195 million for the full year. Tax rate for full year is expected to be 37.7%.

The company remains on track to open 340 new stores, relocate 75 stores and expand nearly 415 projects in the U.S. and Canada for fiscal 2013.

Dollar Tree is considered as one of the best-positioned dollar store concepts, especially with its evolving multi-price point chain. We believe that the company is doing a commendable job internally in managing controllable inputs, including reducing stem miles, while increasing back-haul opportunities at the same time.

Dollar Tree currently carries a Zacks Rank #3 (Hold). Stocks that are performing well in the retail space include The Gap, Inc. (GPS - Analyst Report), L Brands, Inc. and DSW Inc. (DSW - Snapshot Report). All of them have a Zacks Rank #2 (Buy).

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