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Why Is Dollar Tree (DLTR) Up 2.9% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Dollar Tree, Inc. (DLTR - Free Report) . Shares have added about 2.9% 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.

Recent Earnings

Dollar Tree Inc. posted first-quarter fiscal 2018 results, wherein both earnings and sales lagged the Zacks Consensus Estimate but improved year over year. Further, management updated guidance for second-quarter and fiscal 2018.

Quarter in Detail

Dollar Tree’s quarterly adjusted earnings of $1.19 per share missed the Zacks Consensus Estimate of $1.23. However, the metric rose 21.4% from the prior-year quarter. Also, earnings came within the company’s guided range of $1.18-$1.25 per share.

On a GAAP basis, earnings per share came in at 67 cents, down from 85 cents in the year-ago quarter.

Consolidated net sales were up 5% to $5,553.7 million in the quarter but came below the Zacks Consensus Estimate of $5,571 million.

Further, enterprise same-store sales (comps) grew 1.4%. Comps at Dollar Tree rose 4% on a constant currency basis, driven by improved average ticket and traffic. Including the Canadian currency fluctuations impact, comps at Dollar Tree grew 4.1%. However, comps at Family Dollar dipped 1.1%.

The company’s quarterly gross profit advanced 4.5% year over year to $1,699.6 million, while gross margin contracted 20 basis points (bps) to 30.6%. The margin contraction was mainly due to increased shrink, distribution and occupancy expenses, somewhat compensated by lower markdowns and merchandise costs.

Selling, general and administrative expenses increased 20 bps to 22.7% of sales, owing to increased store payroll expenses, partly mitigated by lower depreciation and amortization expenses as a percentage of sales.

Further, operating income dipped 0.5% to $437.6 million in the reported quarter. Also, operating margin came in at 7.9%, down 40 bps from the year-ago quarter.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $475.2 million, net merchandise inventories of $3,248.2 million, net long-term debt excluding current maturities of $5,040.1 million and shareholders’ equity of $7,355.7 million. Capital expenditures incurred during the quarter were $180.9 million. Management expects consolidated capital expenditures to range $875-$890 million for fiscal 2018.

Store Update

Dollar Tree opened 130 outlets, expanded or relocated 26 outlets and shuttered 5 outlets in the reported quarter. The company completed another 215 Family Dollar store renovations thereby bringing the total to 592. During the quarter, the company added the Snack Zone to 214 Dollar Tree stores and plans to launch this into 750 Dollar Tree stores in fiscal 2018.

Guidance

Management updated guidance for second-quarter and fiscal 2018. It forecasts consolidated net sales for the second quarter in the band of $5.47-$5.57 billion, with low-single-digits comps growth. Earnings are envisioned in the range of $1.07-$1.16 per share.

For fiscal 2018, the company projects consolidated net sales in the range of $22.73-$23.05 billion versus $22.70-$23.12 billion guided earlier. The company expects low-single-digit comps increase and a 3.7% rise in square footage. Further, earnings per share for the full fiscal are envisioned in the $4.80-$5.10 range versus $5.25-$5.60 guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to six lower.

Dollar Tree, Inc. Price and Consensus

VGM Scores

At this time, DLTR has a great 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 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, 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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