Dollar Tree (DLTR) Stock Jumps On Q3 Earnings Beat, View Up

Dollar Tree Inc. (NASDAQ:DLTR) posted third-quarter fiscal 2017 results, wherein both the earnings and sales topped estimates and improved year over year. Further, management raised outlook for fiscal 2017 and provided a solid view for the fiscal fourth quarter.

The company’s shares are up about 2.4% in the pre-market trading session following the better-than-expected results. Moreover, this Zacks Rank #2 (Buy) company has improved 29.5% in the last three months, outperforming the industry’s growth of 8.7%.

Quarter in Detail

The company’s quarterly adjusted earnings of $1.01 per share jumped 40.3% year over year, and surpassed the Zacks Consensus Estimate of 90 cents. Moreover, earnings exceeded the higher end of company’s guidance range of 83-90 cents per share.

Consolidated net sales advanced 6.3% to $5,316.6 million in the quarter, beating the Zacks Consensus Estimate of $5,282 million.

Comparable store sales (comps) for the quarter increased 3.2% in constant-currency, driven by improved customer count and average ticket. Including the impact of Canadian currency fluctuations, comps improved 3.3%. While Dollar Tree banner posted comps growth of 5% (in constant-currency), comps at the Family Dollar banner climbed 1.5%.

The company’s quarterly gross profit advanced 9.6% year over year to $1,666 million, with the gross margin expanding 90 basis points (bps) to 31.3%. The margin enhancement came on the back of reduced merchandise costs, lower markdowns and occupancy expenses, as a percentage of sales.

Selling, general and administrative expenses dropped 30 bps to 23.3% of sales, thanks to reduced depreciation, healthcare costs and store operating costs due to lower utility costs, as a percentage of sales. This was somewhat offset by increased hourly payroll and incentive compensation expenses as well as higher operating and corporate expenses.

Balance Sheet

Dollar Tree ended the quarter with cash and cash equivalents of $400.1 million, net merchandise inventories of $3,397.8 million, net long-term debt of $5,557 million and shareholders’ equity of $6,116.5 million.

Store Update

Dollar Tree opened 169 outlets, expanded or relocated 23 outlets, and shuttered six outlets during the quarter.

Looking Ahead

Robust fiscal third-quarter results and progress on Family Dollar integration encouraged management to raise guidance for fiscal 2017. Further, the company provided a solid outlook for the fiscal fourth quarter.

Management now forecasts net sales for fiscal 2017 (which will contain an additional week) in the band of $22.20-$22.31 billion, compared with the old projection of $22.07-$22.28 billion. The guidance stems from square footage growth estimate of 3.7% and comps improvement expected in low-single digits.

Earnings per share for fiscal 2017 are now expected to be in the range of $4.64-$4.73, which includes a receivable impairment charge of 14 cents spent in the first half of fiscal 2017. Earlier, management projected earnings in a band of $4.44-$4.60 per share for fiscal 2017. The company anticipates the additional 53rd week to increase sales by $400-$430 million and earnings by 19-22 cents per share.

For the fiscal fourth quarter, consolidated sales are projected in the range of $6.32-$6.43 billion, driven by comps growth in a low-single digit rise range for the combined entity. Earnings are anticipated in the range of $1.80-$1.89 per share.

Want More of Retail? Here are 3 Picks You Can’t Miss

Other top-ranked stocks in the retail sector include Ross Stores Inc. (NASDAQ:ROST) , Dollar General Corp. (NYSE:DG) and American Eagle Outfitters Inc. (NYSE:AEO) . All the three stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ross Stores has a long-term growth rate of 10% and posted positive earnings surprise of nearly 5.5% in the trailing four quarters.

Dollar General delivered a positive earnings surprise of 1.8% in the trailing four quarters and has a long-term growth rate of 11.3%.

American Eagle delivered a positive earnings surprise of nearly 3.9% in the trailing four quarters and has a long-term growth rate of 8.7%.

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