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Why Is Dollar Tree (DLTR) Up 8.4% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Dollar Tree, Inc. (DLTR - Free Report) . Shares have added about 8.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is DLTR 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 Miss, Guides for '18

Dollar Tree posted fourth-quarter fiscal 2017 results, wherein both earnings and sales missed the Zacks Consensus Estimate. However, results improved year over year. Also, management issued guidance for first-quarter and fiscal 2018.

Quarter in Detail

Dollar Tree’s quarterly adjusted earnings of $1.89 per share missed the Zacks Consensus Estimate by a penny. However, the metric rose substantially by $1.39 in the prior-year quarter. Additionally, it came at the higher end of the company’s guided range. The year-over-year improvement can be attributed to higher sales, the rise in comparable store sales (comps) and higher margins.

On a GAAP basis, earnings per share came in at $4.37 compared with $1.36 in the year-ago quarter.

Consolidated net sales were up 12.9% to $6,360.6 million in the quarter, missing the Zacks Consensus Estimate of $6,401 million.

Comps in the quarter increased 2.4% in constant currency, driven by improved customer count and average ticket. Including the impact of Canadian currency fluctuations, the metric improved 2.5%. While Dollar Tree banner posted comps growth of 3.8% (in constant-currency), comps at the Family Dollar banner rose 1%.

The company’s quarterly gross profit advanced 16.3% year over year to $2,101 million, with the gross margin expanding 90 basis points (bps) to 33%. The margin expansion was backed by reduced merchandise costs, lower markdowns and occupancy expenses as a percentage of sales. The increase was somewhat compensated with higher freight charges.

Adjusted selling, general and administrative expenses dropped 40 bps to 21.3% of sales, thanks to reduced depreciation, lower repair and maintenance costs as a percentage of sales. This was somewhat offset by increased hourly payroll and incentive compensation expenses as well as higher advertising expenses.

Further, operating income rose 30.5% to $765.6 million in the reported quarter. Adjusted operating margin came in at 11.7%.

Balance Sheet

Dollar Tree ended the fiscal year with cash and cash equivalents of $1,097.8 million, net merchandise inventories of $3,169.3 million, net long-term debt excluding current maturities of $4,762.1 million and shareholders’ equity of $7,182.3 million. Further, it redeemed the entire $750 million of its outstanding 2020 Notes on Mar 1.

Store Update

Dollar Tree opened 137 outlets, expanded or relocated eight outlets and shuttered 46 outlets in the reported quarter.

Guidance

Management issued guidance for first-quarter and fiscal 2018. It forecasts consolidated net sales for the first quarter to be $5.53-$5.63 billion, with low single-digit comps growth. Earnings are envisioned to be $1.18-$1.25 per share.

For fiscal 2018, it projects consolidated net sales to be $22.70-$23.12 billion, with low single-digit comps increase and a 3.7% rise in square footage. Additionally, earnings per share for the same period are envisioned to be $5.25-$5.60.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

Dollar Tree, Inc. Price and Consensus

VGM Scores

At this time, DLTR has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, DLTR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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