It has been about a month since the last earnings report for Dollar Tree (DLTR Quick QuoteDLTR - Free Report) . Shares have added about 9.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Dollar Tree due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Dollar Tree Q4 Earnings Beat Estimates, Sales Lag

Dollar Tree 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.

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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 23.14% due to these changes.

VGM Scores

Currently, Dollar Tree has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Dollar Tree has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.