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Factors Likely to Shape Dollar Tree's (DLTR) Earnings in Q1

Zacks Equity Research

Dollar Tree, Inc. DLTR is slated to release first-quarter fiscal 2019 results on May 30, before market open.

In the preceding two quarters, the company’s earnings have outpaced the Zacks Consensus Estimate. However, it reported an average earnings miss of 0.3% in the trailing four quarters.

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

How Are Estimates Faring?

The Zacks Consensus Estimate for first-quarter earnings is pegged at $1.14, indicating a 4.2% decline from the figure reported in the year-ago quarter. Notably, the consensus mark remained stable over the past 30 days. For quarterly sales, the consensus estimate stands at $5.8 billion, implying 4.4% growth from the prior-year quarter number.

Dollar Tree, Inc. Price and EPS Surprise

Dollar Tree, Inc. Price and EPS Surprise

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

 

Factors at Play

Dollar Tree has been witnessing higher cost pressures due to increased domestic freight and distribution costs as well as investment in store wages. Consequently, the company is witnessing margin contraction, evident from its soft margin trend. In the last reported quarter, Dollar Tree posted fourth straight quarter of strained margin. Furthermore, operating income is expected to be lower in the first half of fiscal 2019 on account of higher costs related to certain initiatives. This, in turn, might hurt the company’s profitability in the to-be-reported quarter.

On fourth-quarter fiscal 2018 conference call, management issued bleak earnings guidance for first-quarter fiscal 2019, citing a potential increase in tariffs by 25% in March 2019. Earnings are envisioned to be $1.05-$1.15 per share. Moreover, it forecasts consolidated net sales of $5.74-$5.85 billion for the fiscal first quarter, with low-single-digit comparable store sales (comps) growth.

Nevertheless, Dollar Tree is showcasing remarkable comps growth, mainly due to competitive pricing and its strategic store expansion plans including remodeling and relocations. In addition, the company’s restructuring and expansion initiatives such as steady store openings and improvement of distribution centers are likely to drive revenues in the quarter to be reported. Also, its store optimization program with plans to install adult beverages and expand freezers is likely to boost traffic and sales.

Meanwhile, 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 46.7% of Dollar Tree’s consolidated sales in the last reported quarter. All these initiatives are likely to prove conducive to the company in the to-be-reported quarter.

A Look at the Zacks Model

Our proven model does not conclusively show that Dollar Tree is likely to beat earnings estimates in first-quarter fiscal 2019. 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.

Although Dollar Tree has a Zacks Rank #3, its Earnings ESP of -0.44% 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 has an Earnings ESP of +1.57% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Co. ANF has an Earnings ESP of +0.26% and a Zacks Rank #2.

Costco Wholesale Corporation COST has an Earnings ESP of +2.10% and a Zacks Rank #3.

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