Dollar Tree Q3 Profit Down 19%, Results Miss View; Outlook Disappoints

DollarTree DLTR 112113

Discount stores operator Dollar Tree, Inc. (DLTR) on Thursday reported a 19 percent decline in profit for the third quarter as higher revenues and improved margins were more than offset by a one-time gain in the year-ago period. Both revenue and adjusted earnings per share missed analysts' estimates. Looking ahead, the company forecast results for the fourth quarter below Street expectations.

For fiscal 2013, the company raised its earnings forecast and tightened its sales outlook, but these are also below analysts' estimates. Shares of the company are down almost 6 percent in pre-market trades.

Dollar Tree, which sells everything for $1 or less, said comparable-store sales for the third quarter increased 3.1 percent.

Bob Sasser, chief executive officer of Dollar Tree said, "During a very cautious consumer environment, comparable-store sales increased as the result of growth in both consumer basics and growth in seasonal and variety merchandise, with our higher margin variety categories growing at a faster pace. Our comparable-store sales increase was driven principally by increased customer traffic, as new customers are finding Dollar Tree to be part of their solution to balance their household budgets."

Gross margin for the quarter rose 10 basis points from the prior-year quarter to 35 percent. Operating margin also improved 10 basis points from the year-ago period to 10.8 percent.

Dollar Tree's third-quarter net income was $125.4 million or $0.58 per share, down from $155.4 million or $0.68 per share in the prior-year quarter. The prior-year quarter's results included a one-time gain of $0.17 per diluted share relating to the company's sale of its ownership interest in Ollie's Holdings, Inc.

Excluding the gain, earnings per share for the latest quarter were $0.58, compared to $0.51 in the same period last year. On average, 25 analysts polled by Thomson Reuters expected earnings per share of $0.60 for the quarter. Analysts' estimates typically exclude one-time items.

Consolidated net sales for the quarter rose 10 percent to $1.88 billion from $1.72 billion in the year-ago period. Analysts had a consensus revenue estimate of $1.91 billion for the quarter.

During the third quarter, Dollar Tree opened 117 stores, closed 6 stores, and expanded or relocated 19 stores. Retail selling square footage increased 7 percent to 42.9 million square feet.

Looking ahead to the fourth quarter, Dollar Tree forecasts earnings per share in a range of $1.01 to $1.07, on sales of $2.25 billion to $2.31 billion, based on a range of low-single digit positive comparable-store sales. Analysts expect earnings of $1.10 per share for the quarter on revenues of $2.32 billion.

For fiscal 2013, Dollar Tree now forecasts earnings per share of $2.72 to $2.78, on sales in a range of $7.86 billion to $7.92 billion. Due to the ongoing $1 billion accelerated share repurchase program or ASR, these estimates assume no additional share repurchase activity in fiscal 2013.

Earlier, the company forecast full-year earnings per share of $2.65 to $2.77, on sales in a range of $7.85 billion to $7.97 billion that is based on a range of low-single digit positive comparable store sales.

Analysts expect the company to earn $2.82 per share for the year on revenues of $7.95 billion.

DLTR closed Wednesday's trading at $58.92. In Thursday's pre-market trades, the stock is down $3.42 or 5.80 percent to $55.50.

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