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Dollar Tree (DLTR) Q3 Earnings & Sales Beat, High Costs Hurt
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Dollar Tree, Inc. (DLTR - Free Report) has reported third-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus Estimate and our estimate. The top and bottom lines also improved year over year. The results have benefited from the continued demand for the company’s products, offset by inflationary pressures and an unfavorable product mix due to the demand shift toward low-margin consumable goods.
The company remains optimistic about its fiscal 2022 top-line performance. Hence, it has raised the fiscal 2022 sales view. Despite the strong sales trends across both banners, the company expects the increased demand for consumables and inflationary costs to affect margins and the bottom line in the near term. Consequently, it has provided a bleak earnings view for fiscal 2022.
Shares of DLTR declined 1.9% in the pre-market trading session on Nov 22 despite top and bottom-line growth in the third quarter of fiscal 2022. The company likely witnessed soft performance due to ongoing cost pressures and a soft earnings view for fiscal 2022. Shares of this Zacks Rank #3 (Hold) company have rallied 17.6% year to date against the industry's decline of 7.8%.
Image Source: Zacks Investment Research
Quarter in Detail
Dollar Tree’s earnings improved 25% year over year to $1.20 per share and beat the Zacks Consensus Estimate of $1.17 and our estimate of $1.14. Bottom-line growth can be attributed to robust top-line growth, as well as improved margins.
Consolidated net sales advanced 8.1% year over year to $6,939.9 million and surpassed the Zacks Consensus Estimate of $6,839 million ad our estimate of $6,833.7 million. Enterprise same-store sales (comps) improved 6.5% year over year. For the Dollar Tree banner, comps were up 8.6%, while the same for the Family Dollar banner improved 4.1%. After adjusting for the impacts of currency fluctuations, comps for the Dollar Tree banner rose 8.5%.
Comps at Dollar Tree benefited from a double-digit increase in average ticket, partly negated by a decline in traffic. Comps at Family Dollar were aided by increases in both ticket and traffic.
The gross profit increased 17.5% year over year to $2,071.5 million, while the gross margin expanded 240 bps to 29.9%. Gains from improved initial mark-on, and leverage on distribution and occupancy costs aided the gross margin. This was partly negated by higher markdowns and shrink, inflationary cost pressures, and unfavorable product mix related to a shift toward lower-margin consumable products. The gross margin expanded 520 bps to 35.4% at the Dollar Tree banner and contracted 100 bps to 23.4% at the Family Dollar segment.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 170 bps to 24.4%. The increase resulted from elevated professional fees, increased store payroll and stock compensation expenses, and inflationary pressures across many expense categories like utilities and higher repairs and maintenance costs.
While the operating income rose 22.8% to $381.3 million, the operating margin expanded 70 bps to 5.5%, driven by robust gross margin expansion and sales growth. Segment-wise, the operating margin expanded 480 bps to 13.3% for Dollar Tree. Meanwhile, the Family Dollar segment reported an operating loss of $18.4 million compared with an operating income of $88.6 million in the year-ago quarter.
Balance Sheet
Dollar Tree ended the fiscal third quarter with cash and cash equivalents of $439 million. Net merchandise inventories increased 31.1% year over year to $5,657.7 million. It had net long-term debt (excluding current maturities) of $3,420.4 million and shareholders’ equity of $8,275.3 million as of Oct 29, 2022.
The company bought back 2,859,200 shares for $397.5 million in third-quarter fiscal 2022, reflecting an average price of $139.04 per share. As of Oct 29, 2022, Dollar Tree had $1.85 billion remaining under its existing authorization.
The company anticipates spending $1.2 billion toward capital expenditure in fiscal 2022.
Store Update
In third-quarter fiscal 2022, Dollar Tree opened 102 stores, expanded or relocated 20 outlets, and shuttered 41 stores. The company completed the renovation of 309 Family Dollar stores to the H2 or Combo Store formats. Additionally, it expanded the multi-price plus offerings to another 199 Dollar Tree stores in the quarter. As of Oct 29, 2022, the company operated 16,293 stores in 48 states and five Canada provinces.
Guidance
Dollar Tree has raised its sales view for fiscal 2022 as its efforts to evolve the assortment to drive consumables’ performance at Dollar Tree and the initiatives to improve the value proposition at Family Dollar remain on track.
The company expects consolidated net sales of $28.14-$28.28 billion compared with the $27.85-$28.10 billion mentioned earlier. It anticipates enterprise comps growth in the mid-single digits for fiscal 2022, including a high-single-digit increase in the Dollar Tree segment and low-single-digit growth in the Family Dollar segment. It expects selling square footage to increase 2.8% compared with 3.5% growth mentioned earlier.
The company expects depreciation to be $770 million for fiscal 2022. Interest expenses are anticipated to be $127 million, while the effective tax rate is likely to be 23.7%.
Management envisions earnings in the lower half of the previously mentioned $7.10-$7.40 per share. The company has noted that sales trends are strong across both banners. However, the increased demand for consumables is likely to affect margins in the near term. This, along with the ongoing inflationary cost pressures, has resulted in a soft earnings view for fiscal 2022.
For fourth-quarter fiscal 2022, Dollar Tree expects consolidated net sales of $7.54-$7.68 billion, with enterprise same-store sales growth of mid to the high-single digits. This will comprise a mid-to-high single-digit increase in the Dollar Tree segment and low-to-mid single-digit growth in the Family Dollar segment.
The company expects net interest expenses of $30 million for the fiscal fourth quarter, with an effective tax rate of 24.3%.
Stocks to Consider
We highlight some better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Ross Stores Inc. (ROST - Free Report) and Dollar General (DG - Free Report) .
Tecnoglass is engaged in the manufacturing and selling of architectural glass and windows, and aluminum products for the residential and commercial construction industries. TGLS presently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 26.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’s current-year sales and EPS suggests growth of 40.5% and 76.4%, respectively, from the year-ago period’s reported numbers. Shares of TGLS have rallied 9.6% year to date.
Ross Stores, an off-price retailer of apparel and home accessories in the United States, currently carries a Zacks Rank #2 (Buy). ROST has an expected EPS growth rate of 10.5% for three-five years. Shares of ROST have declined 1.7% year to date.
The Zacks Consensus Estimate for Ross Stores’ current-year sales and earnings per share (EPS) suggests declines of 3.9% and 14.5%, respectively, from the year-ago period’s reported figures. ROST has a trailing four-quarter earnings surprise of 10.5%, on average.
Dollar General, one of the largest discount retailers in the United States, has a Zacks Rank of 2 at present. DG has a trailing four-quarter earnings surprise of 2.2%, on average. The stock has gained 9.3% year to date.
The Zacks Consensus Estimate for Dollar General’s current-year sales and EPS suggests growth of 10.8% and 13.8%, respectively, from the year-ago period’s reported numbers. DG has an expected EPS growth rate of 11.1% for three-five years.
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Dollar Tree (DLTR) Q3 Earnings & Sales Beat, High Costs Hurt
Dollar Tree, Inc. (DLTR - Free Report) has reported third-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus Estimate and our estimate. The top and bottom lines also improved year over year. The results have benefited from the continued demand for the company’s products, offset by inflationary pressures and an unfavorable product mix due to the demand shift toward low-margin consumable goods.
The company remains optimistic about its fiscal 2022 top-line performance. Hence, it has raised the fiscal 2022 sales view. Despite the strong sales trends across both banners, the company expects the increased demand for consumables and inflationary costs to affect margins and the bottom line in the near term. Consequently, it has provided a bleak earnings view for fiscal 2022.
Shares of DLTR declined 1.9% in the pre-market trading session on Nov 22 despite top and bottom-line growth in the third quarter of fiscal 2022. The company likely witnessed soft performance due to ongoing cost pressures and a soft earnings view for fiscal 2022. Shares of this Zacks Rank #3 (Hold) company have rallied 17.6% year to date against the industry's decline of 7.8%.
Image Source: Zacks Investment Research
Quarter in Detail
Dollar Tree’s earnings improved 25% year over year to $1.20 per share and beat the Zacks Consensus Estimate of $1.17 and our estimate of $1.14. Bottom-line growth can be attributed to robust top-line growth, as well as improved margins.
Consolidated net sales advanced 8.1% year over year to $6,939.9 million and surpassed the Zacks Consensus Estimate of $6,839 million ad our estimate of $6,833.7 million. Enterprise same-store sales (comps) improved 6.5% year over year. For the Dollar Tree banner, comps were up 8.6%, while the same for the Family Dollar banner improved 4.1%. After adjusting for the impacts of currency fluctuations, comps for the Dollar Tree banner rose 8.5%.
Comps at Dollar Tree benefited from a double-digit increase in average ticket, partly negated by a decline in traffic. Comps at Family Dollar were aided by increases in both ticket and traffic.
The gross profit increased 17.5% year over year to $2,071.5 million, while the gross margin expanded 240 bps to 29.9%. Gains from improved initial mark-on, and leverage on distribution and occupancy costs aided the gross margin. This was partly negated by higher markdowns and shrink, inflationary cost pressures, and unfavorable product mix related to a shift toward lower-margin consumable products. The gross margin expanded 520 bps to 35.4% at the Dollar Tree banner and contracted 100 bps to 23.4% at the Family Dollar segment.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 170 bps to 24.4%. The increase resulted from elevated professional fees, increased store payroll and stock compensation expenses, and inflationary pressures across many expense categories like utilities and higher repairs and maintenance costs.
While the operating income rose 22.8% to $381.3 million, the operating margin expanded 70 bps to 5.5%, driven by robust gross margin expansion and sales growth. Segment-wise, the operating margin expanded 480 bps to 13.3% for Dollar Tree. Meanwhile, the Family Dollar segment reported an operating loss of $18.4 million compared with an operating income of $88.6 million in the year-ago quarter.
Balance Sheet
Dollar Tree ended the fiscal third quarter with cash and cash equivalents of $439 million. Net merchandise inventories increased 31.1% year over year to $5,657.7 million. It had net long-term debt (excluding current maturities) of $3,420.4 million and shareholders’ equity of $8,275.3 million as of Oct 29, 2022.
The company bought back 2,859,200 shares for $397.5 million in third-quarter fiscal 2022, reflecting an average price of $139.04 per share. As of Oct 29, 2022, Dollar Tree had $1.85 billion remaining under its existing authorization.
The company anticipates spending $1.2 billion toward capital expenditure in fiscal 2022.
Store Update
In third-quarter fiscal 2022, Dollar Tree opened 102 stores, expanded or relocated 20 outlets, and shuttered 41 stores. The company completed the renovation of 309 Family Dollar stores to the H2 or Combo Store formats. Additionally, it expanded the multi-price plus offerings to another 199 Dollar Tree stores in the quarter. As of Oct 29, 2022, the company operated 16,293 stores in 48 states and five Canada provinces.
Guidance
Dollar Tree has raised its sales view for fiscal 2022 as its efforts to evolve the assortment to drive consumables’ performance at Dollar Tree and the initiatives to improve the value proposition at Family Dollar remain on track.
The company expects consolidated net sales of $28.14-$28.28 billion compared with the $27.85-$28.10 billion mentioned earlier. It anticipates enterprise comps growth in the mid-single digits for fiscal 2022, including a high-single-digit increase in the Dollar Tree segment and low-single-digit growth in the Family Dollar segment. It expects selling square footage to increase 2.8% compared with 3.5% growth mentioned earlier.
The company expects depreciation to be $770 million for fiscal 2022. Interest expenses are anticipated to be $127 million, while the effective tax rate is likely to be 23.7%.
Management envisions earnings in the lower half of the previously mentioned $7.10-$7.40 per share. The company has noted that sales trends are strong across both banners. However, the increased demand for consumables is likely to affect margins in the near term. This, along with the ongoing inflationary cost pressures, has resulted in a soft earnings view for fiscal 2022.
For fourth-quarter fiscal 2022, Dollar Tree expects consolidated net sales of $7.54-$7.68 billion, with enterprise same-store sales growth of mid to the high-single digits. This will comprise a mid-to-high single-digit increase in the Dollar Tree segment and low-to-mid single-digit growth in the Family Dollar segment.
The company expects net interest expenses of $30 million for the fiscal fourth quarter, with an effective tax rate of 24.3%.
Stocks to Consider
We highlight some better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Ross Stores Inc. (ROST - Free Report) and Dollar General (DG - Free Report) .
Tecnoglass is engaged in the manufacturing and selling of architectural glass and windows, and aluminum products for the residential and commercial construction industries. TGLS presently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 26.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’s current-year sales and EPS suggests growth of 40.5% and 76.4%, respectively, from the year-ago period’s reported numbers. Shares of TGLS have rallied 9.6% year to date.
Ross Stores, an off-price retailer of apparel and home accessories in the United States, currently carries a Zacks Rank #2 (Buy). ROST has an expected EPS growth rate of 10.5% for three-five years. Shares of ROST have declined 1.7% year to date.
The Zacks Consensus Estimate for Ross Stores’ current-year sales and earnings per share (EPS) suggests declines of 3.9% and 14.5%, respectively, from the year-ago period’s reported figures. ROST has a trailing four-quarter earnings surprise of 10.5%, on average.
Dollar General, one of the largest discount retailers in the United States, has a Zacks Rank of 2 at present. DG has a trailing four-quarter earnings surprise of 2.2%, on average. The stock has gained 9.3% year to date.
The Zacks Consensus Estimate for Dollar General’s current-year sales and EPS suggests growth of 10.8% and 13.8%, respectively, from the year-ago period’s reported numbers. DG has an expected EPS growth rate of 11.1% for three-five years.