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Factors Likely to Shape Dollar Tree's (DLTR) Earnings in Q3

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Dollar Tree, Inc. (DLTR - Free Report) is slated to release third-quarter fiscal 2018 results on Nov 29, before market open.

Notably, the company’s top and bottom lines missed estimates in the preceding three quarters. However, it delivered an average four-quarter positive earnings surprise of 1.9%.

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.15, reflecting a 13.9% growth year over year. Estimates have remained stable over the past 30 days. Management envisions earnings per share in the band of $1.11-$1.18 for the impending quarter.

Let’s see how things are shaping up prior to the earnings announcement.

Factors at Play

Dollar Tree’s restructuring and expansion initiatives, including store expansion efforts and improving productivity are commendable. Also, the company leverages an extensive network of stores to effectively penetrate targeted markets, resulting in higher sales and market share.

Its consistent focus on the expansion of its distribution centers to deliver chic customer experiences is an added positive. In July 2018, the company opened its 15,000th store and 23rd distribution center in Warrensburg, MO.

Additionally, Dollar Tree is on track with the integration of Family Dollar, which is significantly contributing to the company’s results. Notably, sales from the Family Dollar banner constituted  nearly 50% of the company’s consolidated sales in the last reported quarter.

Following this transaction, Dollar Tree has become a mega U.S. discount retailer that can counter competition single-handedly from retail bellwethers in the dollar-discount store segment. The combined chain is positioned to reach out to more value-seeking consumers through a network spanning across vast geographies.

Also, the company’s consumables and discretionary categories along with the everyday low-price model are expected to boost traffic. Meanwhile, Dollar Tree’s comparable store sales (comps) have been benefiting from competitive pricing and its strategic store expansion plans, including remodeling and relocations.

Improved customer count and average ticket also provided a boost to the comps growth. The metric is projected to grow in low-singledigits during third-quarter fiscal 2018.

For quarterly sales, the Zacks Consensus Estimate stands at $5,554 million, mirroring a 4.5% improvement year over year. Management forecasts consolidated net sales for the third quarter in the $5.53-$5.64 billion band.

However, higher freight and distribution expenses along with deleverage in SG&A rate due to increased store payroll expenses are denting the company’s margins. Furthermore, higher costs associated with the integration and re-banner process might negatively impact the company’s quarterly results.

Management expects increased store payroll, higher wages and escalating domestic freight costs to persist throughout fiscal 2018. Higher costs remain a threat to the company’s margins and overall profitability for the impending quarter.

Zacks Model

Our proven model does not conclusively show that Dollar Tree is likely to beat earnings estimates in third-quarter fiscal 2018. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dollar Tree has a Zacks Rank #3 but an Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +4.89% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK'S Sporting Goods, Inc. (DKS - Free Report) has an Earnings ESP of +7.35% and a Zacks Rank #2.

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +2.95% and a Zacks Rank #2.

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