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Dollar Tree (DLTR) Q4 Earnings Beat Estimates, Sales Lag

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Dollar Tree, Inc. (DLTR - Free Report) has posted mixed fourth-quarter fiscal 2021 results, wherein earnings beat the Zacks Consensus Estimate, while sales lagged the same. Meanwhile, sales improved year over year but earnings declined.

Higher-than-expected freight costs in the reported quarter primarily hurt bottom-line growth and the gross margin. Compelling results from the H2, Dollar Tree Plus and the new Combo Stores, which are part of the company’s key initiatives, drove the fourth-quarter fiscal 2021 results.

Shares of DLTR declined more than 3% on Mar 2 due to the sales miss. However, shares of the Zacks Rank #2 (Buy) company have gained 2% in the past three months against the industry's decline of 6.6%.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

Quarter in Detail

Dollar Tree’s earnings declined 5.6% year over year to $2.01 per share but surpassed the Zacks Consensus Estimate of $1.79. The year-over-year decrease can be attributed to dismal margins and rising SG&A costs.

Consolidated net sales rose 4.6% year over year to $7,044.7 million but fell short of the Zacks Consensus Estimate of $7,127 million. Enterprise same-store sales (comps) improved 2.5% year over year. For the Dollar Tree banner, comps were up 3.1%, while comps for the Family Dollar banner rose 1.7% year over year.

Gross profit declined 0.7% year over year to $2,137.1 million, while the gross margin contracted 160 bps to 30.2%. The decline in the gross margin can be attributed to elevated freight costs and recall-related markdowns, partly negated by continued improvement in shrink, positive product mix and lower distribution costs. The gross margin contracted 50 bps to 35.6% at the Dollar Tree banner and 320 bps to 23.4% at the Family Dollar segment.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, expanded 40 bps to 22.1% due to elevated store payroll, card transaction fees, legal fees, and costs related to conversions at all Dollar Tree stores in the United States.

While the operating income declined 15.1% to $578.8 million, the operating margin contracted 190 bps to 8.2%, driven by a soft gross margin. Segment-wise, the operating margin contracted 100 bps to 15% for Dollar Tree and 330 bps to 2.7% at the Family Dollar segment.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $984.9 million. Net merchandise inventories increased 27.4% to $4,367.3 million. It had net long-term debt (excluding current maturities) of $3,417 million and shareholders’ equity of $7,718.5 million as of Jan 29, 2022.

In fiscal 2021, the company repurchased 9,156,898 shares for $950 million. As of Jan 29, 2022, Dollar Tree had $2.5 billion remaining under its existing authorization. For fiscal 2021, it expects to incur a capital expenditure of $1,021.2 million.

Dollar Tree, Inc. Price, Consensus and EPS Surprise

 

Dollar Tree, Inc. Price, Consensus and EPS Surprise

Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote

Store Update

In fourth-quarter fiscal 2021, Dollar Tree opened 174 stores, expanded or relocated 24 outlets, and shuttered 65 stores. The company completed the renovation of 23 Family Dollar stores to the H2 or Combo Store formats. As of Jan 29, 2022, the company operated 16,077 stores in 48 states and five Canada provinces.

Key Real Estate Initiatives Update

Dollar Tree is delivering compelling results for its key initiatives, which include the expansion of its $3 and $5 plus assortment in Dollar Tree stores, as well as Combo Stores. It also remains on track with H2 Renovations at Family Dollar stores.

In fiscal 2022, the company expects to complete 800 Family Dollar H2 Renovations as part of the Key Real Estate Initiative. Out Of this, 190 will be Dollar Tree stores and 400 Family Dollar stores. Within the Family Dollar stores, 350 stores will be in the Combo Store format. Also, management intends to expand the $3 and $5 Plus assortments to more than 1,500 Dollar Tree stores.

The company revealed plans to launch a $1.25 price point initiative for the majority of Dollar Tree’s assortment in a bid to expand its offerings, and launch products and sizes. The move will enable Dollar Tree to reintroduce some customer favorites and traffic-driving products, which were discontinued earlier due to the $1 pricing constraint. The transition was implemented to all Dollar Tree stores by the end of February 2022, more than two months ahead of time.

Outlook

For first-quarter fiscal 2022, Dollar Tree expects consolidated net sales of $6.63-$6.78 billion, with enterprise same-store sales growth in the low-single digits. It anticipates earnings of $1.95-$2.10 per share.

For fiscal 2022, the company expects net sales of $27.22-$27.85 billion and same-store sales growth in the low to mid-single digits. Management envisions earnings of $7.60-$8.00 per share.

Stocks to Consider

Here are three better-ranked stocks to consider — DICK'S Sporting Goods (DKS - Free Report) , Boot Barn Holdings (BOOT - Free Report) and Wolverine World Wide (WWW - Free Report) .

Boot Barn Holdings, the leading lifestyle retailer of western and work-related footwear, apparel and accessories, currently flaunts a Zacks Rank #1(Strong Buy). In the last reported quarter, the company posted adjusted earnings of $2.23 per share. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial-year sales and EPS suggests growth of 62.6% and 220.8%, respectively, from the year-ago period. BOOT has an expected EPS growth rate of 20% for three-five years.

Wolverine World Wide is one of the leading marketers and licensors of a branded casual, active lifestyle, work, outdoor sport, athletic, children's, and uniform footwear and apparel. It currently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 18.3%, on average.

The Zacks Consensus Estimate for Wolverine World Wide’s current financial-year sales and EPS suggests growth of 34.4% and 125.8%, respectively, from the year-ago period. WWW has an expected EPS growth rate of 10% for three-five years.

DICK'S Sporting Goods, a sporting goods retailer, presently sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 104.2%, on average.

The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial-year sales and EPS suggests growth of 27.8% and 151.6%, respectively, from the year-ago period. DKS has an expected EPS growth rate of 11.7% for three-five years.