From a single variety store that was opened 60 years ago in Norfolk, Virginia, Dollar Tree (DLTR) has grown into a chain of more than 15,600 retail discount stores in 48 states and five Canadian provinces, notes Hilary Kramer, editor of Value Authority — and a participant in The MoneyShow Orlando Conference on June 10-12. Learn more here.
The company’s operations are conducted in two reporting business segments: Dollar Tree and Family Dollar. The Dollar Tree segment is an operator of discount variety stores that offer merchandise at the fixed price of $1.
The Family Dollar segment was acquired through the company’s 2015 acquisition of Family Dollar Stores for $9 billion. This segment operates a chain of general merchandise retail discount stores that provide consumers with a selection of competitively priced merchandise in convenient neighborhood stores.
While the pandemic helped the company over the past year, as its stores were allowed to stay open as essential businesses, Family Dollar sales were also rejuvenated by two new store formats.
One of these formats, called a combination store, as it combines the best of Dollar Tree and Family Dollar in one location, saw comparable store sales increase 20% in the latest year. The other format, called H2, features more freezers and coolers and a wider selection of products.
The company reported good first-quarter results yesterday, with earnings per share (EPS) of $1.60 versus $1.04 in the prior year. This was $0.20 above expectations.
Sales were up 3.0% and 0.8% on a same-store sale basis. These were all good results, especially when considering the fact that a tough comparison of a 15.5% increase in same-store sales last year was aided by the stores remaining open as an essential service during the height of the COVID-19 crisis.
Despite the good results, the stock dropped over 7% yesterday as the company lowered EPS guidance for the current fiscal year to the range of $5.80 to $6.05, compared to analysts’ estimates of $6.20.
The shortfall is largely attributable to an increase in freight costs of $0.70 to $0.80 a share from the prior year, as strong demand for shipping has led to temporary tightness in certain markets. However, the company does not believe that this is a structural issue, and the excess costs will decline over time.
While I am disappointed in the stock’s reaction to earnings, the company is doing well with the things it can control. Margins at its Family Dollar units are improving, Dollar Tree store sales are strong and the rollout of combination stores in small markets is keeping pace. Dollar Tree remains a buy below $110. My target is still $125.
