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Dollar Tree (DLTR) Q4 Earnings & Sales Beat, High Costs Hurt
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Dollar Tree, Inc. (DLTR - Free Report) reported fourth-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus 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 unfavorable product mix driven by the demand shift toward low-margin consumable goods.
The company remains optimistic about its fiscal 2023 top-line performance. Hence, it has raised the fiscal 2023 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 2023.
Shares of DLTR declined approximately 3% in the pre-market trading session on Mar 1, despite top- and bottom-line growth in the fourth quarter of fiscal 2022. Ongoing cost pressures along with a soft earnings for fiscal 2023 are hurdles on the way.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree’s earnings improved 1.5% year over year to $2.04 per share and beat the Zacks Consensus Estimate by a penny. Bottom-line growth can be attributed to robust top-line growth, as well as improved gross margins.
Consolidated net sales advanced 9% year over year to $7,716.2 million and surpassed the Zacks Consensus Estimate of $7,611 million. Enterprise same-store sales (comps) improved 7.4% year over year. For the Dollar Tree banner, comps were up 8.7%, while the same for the Family Dollar banner improved 5.8%.
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 11.6% year over year to $2,385.5 million, while the gross margin expanded 70 basis points (bps) to 30.9%. Gains from improved initial mark-on and lower freight costs aided the gross margin. This was partly negated by higher markdowns and shrink and unfavorable product mix related to a shift toward lower-margin consumable products. The gross margin expanded 110 bps to 36.7% at the Dollar Tree banner and 20 bps to 23.6% at the Family Dollar segment.
Selling, general and administrative expenses, as a percentage of sales, increased 80 bps to 22.9%. The increase was primarily driven by a $23.9 million non-cash store impairment charge, higher expenditures related to repairs, higher costs for store payroll and maintenance to improve store standards. This was partially offset by comparable store net sales leverage.
While the operating income rose 6.8% to $618.1 million, the operating margin declined 20 bps to 8%. Segment-wise, the operating margin expanded 180 bps to 16.8% for Dollar Tree. Meanwhile, the Family Dollar segment reported an operating income $1.4 million compared with an operating income of $86.8 million in the year-ago quarter.
Balance Sheet
Dollar Tree ended the fiscal fourth quarter with cash and cash equivalents of $642.8 million. As of Jan 28, 2023, net merchandise inventories increased to $5,449.3 million from $4,367.3 million reported in the year-ago period. It had net long-term debt of $3,421.6 million and shareholders’ equity of $8,751.5 million as of Jan 28, 2023.
The company bought back 4,613,696 shares for $647.5 million in fiscal 2022. As of Jan 28, 2023, Dollar Tree had $1.85 billion remaining under its existing authorization.
Store Update
In fourth-quarter fiscal 2022, Dollar Tree opened 123 stores, relocated 38 outlets and shuttered 77 stores. The company completed the renovation of 112 Family Dollar stores. Additionally, it expanded the multi-price plus offerings to another 119 Dollar Tree stores in the quarter. As of Jan 28, 2023, the company operated 16,340 stores in 48 states and five Canada provinces.
Guidance
For fiscal 2023, the company expects consolidated net sales of $29.9-$30.5 billion, which is a year-over-year increase from $26.3 billion reported in fiscal 2022. The company expects gross and operating margins to decline in the first half of fiscal 2023. Management expects earnings per share (EPS) in the range of $6.30 to $6.80 (including the contribution from the 53rd week) for fiscal 2023. The company estimates that diluted EPS will be comprised approximately 40% in the first half and 60% in the second half.
For first quarter fiscal 2023, the company expects consolidated net sales of $7.2-$7.4 billion based on a mid-single-digit comp growth at family Dollar, mid-single-digit increase in same-store sales for the enterprise, a low single-digit comp increase at Dollar Tree and a mid-single-digit comp improvement at Family Dollar. EPS is estimated in the range of $1.46-$1.56 in the fiscal first quarter.
Shares of this Zacks Rank #3 (Hold) company have increased 6.4% in the past six months compared with the industry's growth of 2.2%.
The Zacks Consensus Estimate for Costco’s current financial-year revenues and earnings per share suggests growth of 7.3% and 8.6%, respectively, from the corresponding year-ago reported figures. COST has a trailing four-quarter earnings surprise of 3.7%, on average.
Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. DECK has a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and EPS suggests growth of 12.2% and 13.6%, respectively, from the year-ago corresponding figures. DECK has a trailing four-quarter earnings surprise of 31%, on average.
Kroger, which operates in the thin-margin grocery industry, carries a Zacks Rank of 3 at present. KR’s current financial-year revenues and EPS suggests growth of 7.5% and 12.5%, respectively, from the year-ago corresponding figures.
KR gave an earnings surprise of 7.3% in the last reported quarter. KR has a trailing four-quarter earnings surprise of 13.4%, on average.
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Dollar Tree (DLTR) Q4 Earnings & Sales Beat, High Costs Hurt
Dollar Tree, Inc. (DLTR - Free Report) reported fourth-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus 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 unfavorable product mix driven by the demand shift toward low-margin consumable goods.
The company remains optimistic about its fiscal 2023 top-line performance. Hence, it has raised the fiscal 2023 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 2023.
Shares of DLTR declined approximately 3% in the pre-market trading session on Mar 1, despite top- and bottom-line growth in the fourth quarter of fiscal 2022. Ongoing cost pressures along with a soft earnings for fiscal 2023 are hurdles on the way.
Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote
Quarter in Detail
Dollar Tree’s earnings improved 1.5% year over year to $2.04 per share and beat the Zacks Consensus Estimate by a penny. Bottom-line growth can be attributed to robust top-line growth, as well as improved gross margins.
Consolidated net sales advanced 9% year over year to $7,716.2 million and surpassed the Zacks Consensus Estimate of $7,611 million. Enterprise same-store sales (comps) improved 7.4% year over year. For the Dollar Tree banner, comps were up 8.7%, while the same for the Family Dollar banner improved 5.8%.
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 11.6% year over year to $2,385.5 million, while the gross margin expanded 70 basis points (bps) to 30.9%. Gains from improved initial mark-on and lower freight costs aided the gross margin. This was partly negated by higher markdowns and shrink and unfavorable product mix related to a shift toward lower-margin consumable products. The gross margin expanded 110 bps to 36.7% at the Dollar Tree banner and 20 bps to 23.6% at the Family Dollar segment.
Selling, general and administrative expenses, as a percentage of sales, increased 80 bps to 22.9%. The increase was primarily driven by a $23.9 million non-cash store impairment charge, higher expenditures related to repairs, higher costs for store payroll and maintenance to improve store standards. This was partially offset by comparable store net sales leverage.
While the operating income rose 6.8% to $618.1 million, the operating margin declined 20 bps to 8%. Segment-wise, the operating margin expanded 180 bps to 16.8% for Dollar Tree. Meanwhile, the Family Dollar segment reported an operating income $1.4 million compared with an operating income of $86.8 million in the year-ago quarter.
Balance Sheet
Dollar Tree ended the fiscal fourth quarter with cash and cash equivalents of $642.8 million. As of Jan 28, 2023, net merchandise inventories increased to $5,449.3 million from $4,367.3 million reported in the year-ago period. It had net long-term debt of $3,421.6 million and shareholders’ equity of $8,751.5 million as of Jan 28, 2023.
The company bought back 4,613,696 shares for $647.5 million in fiscal 2022. As of Jan 28, 2023, Dollar Tree had $1.85 billion remaining under its existing authorization.
Store Update
In fourth-quarter fiscal 2022, Dollar Tree opened 123 stores, relocated 38 outlets and shuttered 77 stores. The company completed the renovation of 112 Family Dollar stores. Additionally, it expanded the multi-price plus offerings to another 119 Dollar Tree stores in the quarter. As of Jan 28, 2023, the company operated 16,340 stores in 48 states and five Canada provinces.
Guidance
For fiscal 2023, the company expects consolidated net sales of $29.9-$30.5 billion, which is a year-over-year increase from $26.3 billion reported in fiscal 2022. The company expects gross and operating margins to decline in the first half of fiscal 2023. Management expects earnings per share (EPS) in the range of $6.30 to $6.80 (including the contribution from the 53rd week) for fiscal 2023. The company estimates that diluted EPS will be comprised approximately 40% in the first half and 60% in the second half.
For first quarter fiscal 2023, the company expects consolidated net sales of $7.2-$7.4 billion based on a mid-single-digit comp growth at family Dollar, mid-single-digit increase in same-store sales for the enterprise, a low single-digit comp increase at Dollar Tree and a mid-single-digit comp improvement at Family Dollar. EPS is estimated in the range of $1.46-$1.56 in the fiscal first quarter.
Shares of this Zacks Rank #3 (Hold) company have increased 6.4% in the past six months compared with the industry's growth of 2.2%.
Stocks to Consider
Here we highlighted three better-ranked stocks, namely Costco (COST - Free Report) , Deckers (DECK - Free Report) and Kroger (KR - Free Report) .
Costco sells high volumes of foods and general merchandise. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for Costco’s current financial-year revenues and earnings per share suggests growth of 7.3% and 8.6%, respectively, from the corresponding year-ago reported figures. COST has a trailing four-quarter earnings surprise of 3.7%, on average.
Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. DECK has a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and EPS suggests growth of 12.2% and 13.6%, respectively, from the year-ago corresponding figures. DECK has a trailing four-quarter earnings surprise of 31%, on average.
Kroger, which operates in the thin-margin grocery industry, carries a Zacks Rank of 3 at present. KR’s current financial-year revenues and EPS suggests growth of 7.5% and 12.5%, respectively, from the year-ago corresponding figures.
KR gave an earnings surprise of 7.3% in the last reported quarter. KR has a trailing four-quarter earnings surprise of 13.4%, on average.