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Dollar Tree (DLTR) Up on Q1 Earnings & Sales Beat, Upbeat View

·6 min read

Dollar Tree, Inc. DLTR reported solid first-quarter fiscal 2022 results, wherein sales and earnings beat the Zacks Consensus Estimate and improved year over year. The results benefited from the completion of the $1.25 multi-price point initiative at the Dollar Tree stores. Results also gained from robust margins despite the continued increase in freight costs and SG&A expenses.

Shares of DLTR rallied 16% in the pre-market trading session on May 26, driven by the better-than-expected top and bottom lines in the first quarter of fiscal 2022 and an upbeat fiscal 2022 view. Shares of this Zacks Rank #4 (Sell) company have lost 6% in the past three months compared with the industry's decline of 14.9%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Quarter in Detail

Dollar Tree’s earnings improved 48.1% year over year to $2.37 per share and beat the Zacks Consensus Estimate of $1.99. This marked record first-quarter earnings for the company. The bottom-line growth can be attributed to the completion of the conversion of the Dollar Tree banner’s $1.25 price point initiative, which aided both the top line and margins.

Consolidated net sales advanced 6.5% year over year to $6,900.1 million and surpassed the Zacks Consensus Estimate of $6,742 million. Enterprise same-store sales (comps) improved 4.4% year over year. For the Dollar Tree banner, comps were up 11.2%, while comps for the Family Dollar banner dipped 2.8%. The decline in Family Dollar comps resulted from the absence of significant government stimulus in the prior-year quarter. Family Dollar comps were also affected by the temporary closure of nearly 400 stores due to a product recall, which hurt comps by 200 basis points (bps).

Gross profit increased 19.2% year over year to $2,340.5 million, while the gross margin expanded 360 bps to 33.9%. Gains from improved initial mark-on, favorable product mix at Dollar Tree banner, and distribution and occupancy cost leverage mainly boosted gross margin. This was partly negated by higher freight expenses, unfavorable product mix at Family Dollar, markdowns and shrink. The gross margin expanded 690 bps to 40.6% at the Dollar Tree banner and contracted 100 bps to 25.8% at the Family Dollar segment.

Dollar Tree, Inc. Price, Consensus and EPS Surprise

Dollar Tree, Inc. Price, Consensus and EPS Surprise
Dollar Tree, Inc. Price, Consensus and EPS Surprise

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

Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 100 bps to 23.3% due to elevated store payroll, the West Memphis distribution center-related issue, and the reconstitution of the board of directors.

While the operating income rose 40.7% to $731.5 million, the operating margin expanded 260 bps to 10.6%, driven by robust gross margin and sales growth. Segment-wise, the operating margin expanded 810 bps to 20.2% for Dollar Tree and contracted 380 bps to 2.9% for the Family Dollar segment.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $1,218.5 million. Net merchandise inventories increased 33.2% year over year to $4,801.1 million. It had net long-term debt (excluding current maturities) of $3,418.1 million and shareholders’ equity of $8,241.5 million as of Apr 30, 2022.

As of Apr 30, 2022, Dollar Tree had $2.5 billion remaining under its existing authorization.

Store Update

In first-quarter fiscal 2022, Dollar Tree opened 112 stores, expanded or relocated 33 outlets, and shuttered 30 stores. The company completed the renovation of 118 Family Dollar stores to the H2 or Combo Store formats. Additionally, it expanded the multi-price plus offerings to another 790 Dollar Tree stores in the quarter. As of Apr 30, 2022, the company operated 16,162 stores in 48 states and five Canada provinces.

Guidance

Following the robust first-quarter fiscal 2022 performance, Dollar Tree raised its guidance for fiscal 2022. The company now expects consolidated net sales of $27.76-$28.14 billion, compared with $27.22-$27.85 billion mentioned earlier. The company anticipates enterprise comps growth of mid-single-digit for fiscal 2022, including a high single-digit increase in the Dollar Tree segment and almost flat comps in the Family Dollar segment. Management envisions earnings of $7.80-$8.20 per share, compared with the prior view of $7.60-$8.00 per share. It expects selling square footage to increase 3.9%.

The earnings view now includes additional costs of 43 cents per share. These costs include asset impairment and product recall costs of 13 cents per share incurred in the fiscal first quarter, related to its West Memphis distribution center. It also includes an estimated 22 cents per share for lost sales, freight merchandise disposal, payroll and legal costs in response to the West Memphis distribution center matter, which is likely to be incurred in second-quarter fiscal 2022. Also, the company expects to record 8 cents per share in stock compensation expense for fiscal 2022, related to an option grant.

For second-quarter fiscal 2022, Dollar Tree expects consolidated net sales of $6.65-$6.78 billion, with enterprise same-store sales growth in the low-to-mid single digits. It anticipates earnings of $1.45-$1.55 per share, including an estimated 24 cents per share impact from the West Memphis distribution center matter and stock compensation expense.

Stocks to Consider

We highlight three better-ranked stocks in the Retail - Wholesale sector, namely Boot Barn BOOT, Designer Brands DBI and Fastenal FAST.

Boot Barn, a lifestyle retailer of western and work-related footwear, apparel and accessories, currently carries a Zacks Rank #2 (Buy). BOOT has an expected EPS growth rate of 20% for three-five years. Shares of BOOT have declined 15.1% in the past three months.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Boot Barn’s current-year sales and earnings per share (EPS) suggests growth of 17% and 4.4%, respectively, from the year-ago period’s reported figures. BOOT has a trailing four-quarter earnings surprise of 25.2%, on average.

Designer Brands, which designs, manufactures, and retails footwear and accessories in North America, has a Zacks Rank of 2 at present. DBI has a trailing four-quarter earnings surprise of 112.8%, on average. The stock has rallied 14% in the past three months.

The Zacks Consensus Estimate for Designer Brands’ current-year sales and EPS suggests growth of 6.5% and 8.8%, respectively, from the year-ago period’s reported numbers.

Fastenal, a national wholesale distributor of industrial and construction supplies, presently carries a Zacks Rank #2. FAST has a trailing four-quarter earnings surprise of 5%, on average. Shares of the company have gained 0.4% in the past three months.

The Zacks Consensus Estimate for Fastenal’s current-year sales and EPS suggests growth of 15.4% and 17.5 respectively, from the year-ago period’s reported numbers. FAST has an expected EPS growth rate of 9% for three-five years.


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