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Dollar Tree's (DLTR) Q1 Earnings & Sales Beat Estimates

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Dollar Tree, Inc. (DLTR - Free Report) came out with better-than-expected first-quarter fiscal 2021 results, wherein both top and bottom lines improved year over year. Results gained from robust same-store sales, improved gross margin and lower costs. Also, restructuring actions, improving store maintenance, advanced technologies, testing store formats including H2 and Combo Stores, and portfolio optimization acted as growth drivers.

Management remains optimistic about Dollar Tree Plus!, which has already received positive customer responses. Encouragingly, it expanded the program in a few states such as Colorado, Georgia, Alabama, Louisiana and the Carolinas. Also, the company’s recently launched Combination, or Combo, Store concept has been performing well and contributed to quarterly sales and margins. Apart from these, Dollar Tree introduced its new retail media network, via which brand partners will be able to instantly connect with shoppers. Further, the company is expanding its Crafter’s Square offerings by bringing in essential and seasonal products. Also, it is testing a self-checkout test process in select Dollar Tree stores along with testing fresh produce and frozen meat in a few Family Dollar stores.

Shares of Dollar Tree fell more than 5% before the trading session on May 27. Meanwhile, shares of this Zacks Rank #3 (Hold) company have gained 9.3% in the past three months compared with the industry's 12.2% growth.

Quarter in Detail

Dollar Tree’s earnings surged 53.8% year over year to $1.60 per share and surpassed the Zacks Consensus Estimate of $1.40.

Consolidated net sales rose 3% to $6,476.8 million and exceeded the Zacks Consensus Estimate of $6,403 million. Enterprise same-store sales (comps) grew 0.8% on a constant-currency basis and 0.9% from the impact of foreign currency movements. Comps growth was backed by a 4.7% rise in Dollar Tree, which partly offset the 2.8% decline in Family Dollar stores.

Quarterly gross profit improved 9.4% year over year to $1,964.1 million, while gross margin expanded 180 bps to 30.3%. The expansion was mainly a result of a positive sales mix, lower markdowns and better shrink, which more than offset elevated freight costs. Notably, gross margin expanded 100 bps and 140 bps at Dollar Tree and Family Dollar segments.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, declined 40 bps to 22.3%, driven by reduced COVID-related costs, partly negated by elevated repair and maintenance costs.

Operating income surged 42.1% to $519.9 million, while operating margin expanded 220 bps to 8%. Dollar Tree’s fiscal first-quarter operating income included $7.4 million of additional operating costs related to the coronavirus outbreak. Segment-wise, operating margin expanded 290 bps to 12.1% for Dollar Tree. Moreover, the metric expanded 120 bps to 6.7% at the Family Dollar segment.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $1,473.9 million. Net merchandise inventories increased 12.7% to $3,604.6 million. Moreover, it had net long-term debt (excluding current maturities) of $3,227.8 million and shareholders’ equity of $7,411.3 million as of May 1, 2021.

In first-quarter fiscal 2021, the company bought back 2,150,572 shares worth $250 million. This led to $2.15 billion remaining under its existing authorization.  Going ahead, the company still expects to incur capital expenditures of about $1.2 billion for fiscal 2021.

Store Update

In first-quarter fiscal 2021, Dollar Tree opened 106 stores, expanded or relocated 36 outlets, and shuttered 19 stores. It also completed the renovation of 414 Family Dollar stores to the H2 format. As of May 1, 2021, the company operated 15,772 stores in 48 states and five Canadian provinces.

Dollar Tree retained its plans to open 600 stores in fiscal 2021. Out of these, 400 stores will be Dollar Tree and the rest will be Family Dollar stores, consisting of both H2 and Combination Store formats. Additionally, it expects to complete 1,250 Family Dollar H2 renovations in fiscal 2021.

Dollar Tree, Inc. Price, Consensus and EPS Surprise

Outlook

For fiscal 2021, management envisions adjusted earnings to be $5.80-$6.05 per share with low-single-digit growth in consolidated comparable store net sales. The remaining three quarters of fiscal 2021 are likely to incur freight costs of 70-80 cents, which suggests year-over-year growth.

Stocks in the Retail Space

Dillards (DDS - Free Report) has a Zacks Rank #1 (Strong Buy) and a long-term earnings growth rate of 24.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kohl’s Corporation (KSS - Free Report) has a long-term earnings growth rate of 8% and a Zacks Rank #1.

Tapestry (TPR - Free Report) , with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 10%.

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