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Dollar Tree Earnings Miss Estimates

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Dollar Tree Inc. (DLTR - Free Report) reported third-quarter fiscal 2013 earnings of 58 cents per share, which came below the Zacks Consensus Estimate of 60 cents. However, it increased 13.7% year over year from 51 cents earned in third-quarter 2012.

The company posted revenue growth of 9.5% on a year-over-year basis in the quarter to $1,884.7 million but fell short of the Zacks Consensus Estimate of $1,906.0 million. During the quarter, sales benefited from a 3.1% increase in comparable store sales (comps) over the prior-year period.

Quarterly Details

Dollar Tree's quarterly gross profit climbed nearly 10.1% year over year to $659.9 million, while gross margin improved 10 basis points (bps) to 35.0%. On the other hand, selling, general and administrative (SG&A) expenses crept up 9.7% to $455.6 million. However, as a percentage of revenues, it remained flat at 24.2%.

Consequently, operating income for the quarter rose 10.9% to $204.3 million. Operating margin came in at 10.8%, up 10 bps from the year-ago period.

Balance Sheet and Capex

Dollar Tree ended third-quarter fiscal 2013 with cash and cash equivalents of $147.1 million compared with cash balance of $399.9 million at the end of third-quarter fiscal 2012.

Merchandise inventories were $1,237.4 million compared with $971.7 million as of Feb 2, 2012. During the quarter, the company spent $84.5 million on capital expenditure as against $96.6 million spent in the prior-year quarter.

Share Repurchase

During the quarter, the company authorized an Accelerated Share Repurchase program worth $1.0 billion, which is expected to be completed on or before Jun 2014. Per the program, the company bought back 15 million shares in the third quarter. Additionally, Dollar Tree has authorization worth $1.0 billion remaining under its share buyback program.

Store Update

In the quarter, the company further expanded its store network by opening 117 stores, expanding or relocating 19 stores and shutting down 6 stores. This brings the company’s total store count to 4,953 in 48 states and 5 Canadian provinces as of Nov 2, 2013.

Retail selling square footage grew 7.0% year over year to 42.9 million square feet.

Looking Ahead

For the fourth quarter of fiscal 2013, Dollar Tree expects total sales in the range of $2.25–$2.31 billion on the back of low single-digit comps growth while the company expects square footage growth of 7.0%. Further, the company anticipates earnings in the range of $1.01–$1.07 per share in the upcoming quarter, representing an increase of 8.6% – 17.2% from the year-ago quarter. Tax rate for the fourth quarter and full year is expected to be 37.7%.

For fiscal 2013, the company anticipates sales to reach the $7.86–$7.92 billion range based on low single-digit positive comps while the company expects square footage growth of 7.0%. Dollar Tree projects earnings for fiscal 2013 to increase 11.5% – 13.9% year over year, coming in the range of $2.72–$2.78 per share, excluding any impact from share repurchases.

The company expects capital expenditures of nearly $340 million for fiscal 2013. Depreciation and amortization expenses are projected to range from $190 million to $192 million for the full year.

The company remains on track to open 340 new stores, relocate 75 stores and expand nearly 413 projects in the U.S. and Canada for fiscal 2013.

Dollar Tree is considered among 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). Better-ranked stocks in the retail space include CST Brands Inc. , Big Lots Inc. (BIG - Free Report) and PriceSmart Inc. (PSMT - Free Report) . Of these, CST Brands has a Zacks Rank #1 (Strong Buy), while Big Lots and PriceSmart carry a Zacks Rank #2 (Buy).

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