Will Comps Growth Aid Dollar Tree's (DLTR) Q3 Earnings?

Dollar Tree, Inc. (NASDAQ:DLTR) is slated to release third-quarter fiscal 2017 results on Nov 21. The question lingering in investors’ minds is whether this discount store retailer will be able to post a positive earnings surprise in the quarter to be reported.

Dollar Tree delivered an earnings surprise of 13.8% in the last reported quarter. Further, the company outperformed the Zacks Consensus Estimate by an average of nearly 5% in the trailing four quarters. So let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 90 cents compared with 81 cents reported in the year-ago period. We note that the Zacks Consensus estimate has witnessed an uptrend in the last 30 days. Further, analysts polled by Zacks expect revenues of roughly $5.28 billion, up 5.6% from the year-ago quarter.

Moreover, Dollar Tree’s shares have surged 25.2% in the last three months, outperforming the industry’s 8.6% growth.

Factors at Play

Dollar Tree has been gaining from the integration of Family Dollar, which is contributing significantly to the company’s results. In second-quarter fiscal 2017, the company achieved comps growth for the 38th straight time. Also, both top and bottom lines grew year over year and topped estimates. Apart from solid performance at stores, growth of the company’s online business, Dollar Tree Direct, also fueled results. Reduced merchandise and freight costs, alongside lower markdowns, also boosted margins.

Based on the recent quarter results and expected benefits from the Family Dollar integration, management remains confident of the second half. Consequently, it provided a favorable outlook for the fiscal third quarter and raised its fiscal 2017 view.

The company anticipates comps growth in a low single-digit range for the third quarter and fiscal 2017, thus reflecting further growth potential. Further, the company projects fiscal third quarter sales of $5.20-$5.29 billion and earnings per share in the range of 83-90 cents per share.

For fiscal 2017, management now forecasts net sales (which will contain an additional week) in the band of $22.07-$22.28 billion compared with the prior projection of $21.95-$22.25 billion. Earnings per share for fiscal 2017 are now expected to be in the range of $4.44-$4.60, which includes a receivable impairment charge of 14 cents spent in the first half of fiscal 2017. Earlier, management projected earnings in the band of $4.17-$4.43 per share for fiscal 2017.

Much of the optimism on the stock is attributed to the remarkable comps growth in recent quarters, backed by the company’s competitive pricing and strategic store expansion plans, including remodeling and relocations. While a challenging retail landscape and reduction in SNAP benefits could act as deterrents, we believe the company’s growth efforts are likely to keep it going.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Dollar Tree is likely to beat earnings estimates this quarter. This is because a stock needs to have both 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.

Dollar Tree currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00%. The combination of Dollar Tree’s Zacks Rank #2 and ESP of 0.00% makes surprise prediction difficult.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

American Eagle Outfitters Inc. (NYSE:AEO) has an Earnings ESP of +1.72% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. (NASDAQ:ZUMZ) has an Earnings ESP of +0.69% and a Zacks Rank #2.

Signet Jewelers Limited (NYSE:SIG) has an Earnings ESP of +27.52% and a Zacks Rank #3.

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