Send me real-time posts from this site at my email
Zacks

Dollar Tree (DLTR) Earnings & Sales Beat Estimates in Q1

Dollar Tree, Inc. DLTR has reported first-quarter fiscal 2020 results, wherein earnings and sales surpassed the Zacks Consensus Estimate. Although earnings declined year over year, the company displayed strength in its operations amid the coronavirus crisis. Its top line benefited from the continuity of its store operations as well as an extraordinary spike in demand for certain products witnessed in March.

Moreover, the company stated that it is witnessing strong momentum in its business in the early fiscal second quarter, following the volatility in the first quarter. The Family Dollar stores are witnessing improvements in discretionary categories. Meanwhile, the Dollar Tree stores are seeing a rebound in its discretionary categories like crafts, graduation, stationery, Mother’s Day seasonal and balloons.

However, the company has refrained from updating its outlook for fiscal 2020, given expectations of continued volatility and uncertainty as the coronavirus situation evolves.

Driven by the robust first-quarter fiscal 2020 performance and favorable initial trends in the second quarter, the company’s shares rose nearly 7% in the pre-market session. Further, shares of this Zacks Rank #4 (Sell) company have gained 3.5% in the past three months against the industry's 2% decline.

 



 

Quarter in Detail

Dollar Tree’s earnings declined 8.8% year over year to $1.04 per share but surpassed the Zacks Consensus Estimate of 85 cents.

Consolidated net sales rose 8.2% to $6,286.8 million and surpassed the Zacks Consensus Estimate of $6,184.2 million. Enterprise same-store sales (comps) grew 7%. Comps growth was backed by a 15.5% improvement in Family Dollar stores, offset by a 0.9% decline in Dollar Tree. Comps for the Dollar Tree segment were largely impacted by soft Easter holiday sales, with lower sales of seasonal and discretionary products. Categories like party, candy and Easter were the most impacted, which hurt enterprise comps by 490 basis points (bps).

Dollar Tree, Inc. Price, Consensus and EPS Surprise

 

Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote

Quarterly gross profit improved 3.9% year over year to $1,794.9 million, while gross margin contracted 120 bps to 28.5%. The margin contraction mainly resulted from adverse merchandise mix, incremental tariffs of $23 million, Easter merchandise-related markdowns and increased payroll costs at distribution centers. These gains were partly offset by occupancy costs leverage, driven by robust comps.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, contracted 40 bps to 22.7% due to leverage on operating and corporate expenses, occupancy costs, and advertising. These were partly negated by increased payroll expenses for premium wage payments to frontline associates and field management staff bonuses.

Operating income declined 5.1% to $365.9 million, while operating margin contracted 80 bps. The company’s fiscal first-quarter operating income included $73.2 million (23 cents per share) of additional operating costs related to the coronavirus outbreak. These comprised premium wages to hourly store and distribution store associates as well as supplies for sanitization and safety. Segment-wise, the company incurred additional costs of $42.2 million at Dollar Tree, $30.4 million at Family Dollar, and $0.6 million for Corporate and Support.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $1,755.1 million, comprising $750 million drawn on its revolving credit facility. Moreover, it had net merchandise inventories of $3,198.5 million, net long-term debt (excluding current maturities) of $3,223.3 million and shareholders’ equity of $6,520.6 million as of May 2, 2020.

On its March business update, the company suspended its share-repurchase plan, citing unprecedented effects of the COVID-19 crisis. Currently, it has nearly $800 million remaining under its share-buyback plan.

Store Update

In first-quarter fiscal 2020, Dollar Tree opened 99 stores, expanded or relocated 21 outlets, and shuttered 14 stores. It also completed the renovation of 220 Family Dollar stores to the H2 format. As of May 2, 2020, the company operated 15,370 stores in 48 states and five Canadian provinces.

Backed by the uncertainties related to the coronavirus pandemic, the company earlier suspended its Family Dollar H2 renovations and Dollar Tree Snack Zone installation initiatives to minimize travel and protect employees. It is now in the process of resuming the initiatives in select, low-risk markets. Consequently, the company now expects to complete 750 Family Dollar H2 renovations in fiscal 2020 compared with its initial guidance of 1,250 renovations. Its annual target for Dollar Snack Zone installations remained unchanged, although the timing of the completion is likely to shift according to the suspension.

Moreover, the company now plans to open 500 stores in fiscal 2020, including 325 Dollar Tree and 175 Family Dollar outlets. It had originally planned 550 store openings for fiscal 2020, comprising 350 Dollar Tree and 175 Family Dollar. However, the timing of the store openings is likely to be deferred.

Some Better-Ranked Stocks in the Retail Space

Dollar General Corporation DG, with a Zacks Rank #2 (Buy), has a long-term expected earnings growth rate of 12.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Kroger Co. KR has an impressive long-term expected earnings growth rate of 4.9%. It carries a Zacks Rank #2 at present.

Office Depot, Inc. ODP currently has a long-term expected earnings growth rate of 6.8% and a Zacks Rank #2.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Dollar Tree, Inc. (DLTR): Free Stock Analysis Report
 
Dollar General Corporation (DG): Free Stock Analysis Report
 
Office Depot, Inc. (ODP): Free Stock Analysis Report
 
The Kroger Co. (KR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue