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Dollar Tree Outperforms Estimates

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Dollar Tree Inc. (DLTR - Free Report) reported robust results for the fourth quarter and fiscal 2012. The company’s quarterly earnings of $1.01 per share came in ahead of the Zacks Consensus Estimate of 99 cents.

Moreover, it outperformed the year-ago earnings of 80 cents per share, registering an upside of 26.3% year over year. The solid results came on the back of higher sales and improved margins, which benefited from increased average basket size and the inclusion of an additional week in fiscal 2012.

In fiscal 2012, earnings per share of $2.51 rose 24.9% year over year, while it was in line with the Zacks Consensus Estimate. Earnings for the year exclude a one-time gain of 17 cents related to the sale of its ownership interest in Ollie's Holdings Inc.

This Zacks Rank #3 (Hold) stock, which directly competes with Dollar General Corporation (DG - Free Report) and Family Dollar Stores Inc. , posted revenue growth of 15.4% in the quarter to $2,245.8 million from $1,945.6 million in the prior-year quarter and surpassed the Zacks Consensus Estimate of $2,233 million. Higher sales were primarily driven by the inclusion of an additional week and an improvement of 2.4% in comparable store sales (comps) over the prior-year period comps of 7.3%.

Total revenue in fiscal 2012 rose 11.5% year over year to $7,394.5 million, while it outdid the Zacks Consensus Estimate of $7,379 million. Full year comps rose 3.4% versus an increase of 6.0% registered in fiscal 2011.

Quarterly Details

Dollar Tree's quarterly gross profit climbed nearly 15.8% year over year to $850.8 million, while gross margin expanded 10 basis points to 37.9%. On the other hand, selling, general and administrative expenses escalated 12.7% to $487.3 million. However, as a percentage of revenue, it contracted 50 basis points to 21.7%.

Consequently, operating income for the quarter bolstered 20.4% to $363.5 million. Operating margin came in at 16.2%, up 70 bps from the year-ago period, primarily benefiting from the increase in gross margin and the contraction in selling, general and administrative expenses as a percentage of sales.

Balance Sheet

Dollar Tree ended fiscal 2012 with cash and cash equivalents of $399.9 million compared with cash balance of $288.3 million at the end of fiscal 2011. The company had an outstanding long-term obligation of $257.0 million as of Feb 2, 2013.

Merchandise inventories were up 12.0% year over year to $971.7 million. During fiscal 2012, the company spent $312.2 million on capital expenditure.

Share Repurchase

During the quarter, the company bought back 2.7 million shares worth about $104.9 million, bringing the full year share repurchases to 7.7 million shares for a total of $340.2 million. At year-end, Dollar Tree had shares worth $860 million remaining under its share buyback program.

Store Update

In the fourth quarter, the company further expanded its store network by opening 47 stores, expanding or relocating 6 stores and shutting down 6 stores. This brings the company’s total store count to 4,671 in 48 states and 5 Canadian Provinces.

Looking Ahead

For the first quarter of fiscal 2013, Dollar Tree expects total sales in the range of $1.84 billion – $1.89 billion on the back of low single-digit positive comparable-store sales growth as well as 6.8% square footage growth. Further, the company anticipates earnings in the range of 53 cents – 58 cents a share in the upcoming quarter.

For fiscal 2013, the company anticipates sales to reach the $7.79 billion – $7.97 billion range. Comps for the year are estimated to be in the low single-digit percentage range, while the company expects square footage growth of 7.3%. It projects earnings in the range of $2.54 – $2.74 per share for fiscal 2013, excluding any impact from share repurchases.

Dollar Tree is considered one of the best-positioned dollar store concepts, especially with its evolving multi-price point chain. We believe that the company is doing a commendable job internally by managing controllable inputs, including reducing stem miles, while increasing back-haul opportunities.

Another discount retailer exhibiting an impressive performance of late is The TJX Companies Inc. (TJX - Free Report) , which carries a Zacks Rank #2 (Buy).

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