Extending yesterday’s gains, shares of discount retailer Dollar
Tree (DLTR 86.91, +3.59) add
4.3% on Thursday after the release of the company’s third quarter results this
Dollar Tree, which bought Family Dollar back in the summer of 2014, has seen sales stagnate in recent years, particularly at the FD brand, as consumers have begun to favor online shopping and more upscale retailers like Target (TGT 70.35, -1.53, -2.1%) and others. Dollar Tree has attempted to combat this shift by renovating locations and opening new stores in attractive regions.
It appears that the company still hasn’t figured out the magic formula, though, as enterprise same-store sales growth of 1.0% came in under market expectations for the third quarter as weakness at Family Dollar (same-store sales -0.4%) overshadowed gains at the namesake Dollar Tree (+2.3%).
What’s more, rising freight and labor costs hit the company’s profit. Gross margins fell 110 basis points to 30.2%, primarily driven by the aforementioned higher domestic freight, shrink, markdowns, distribution, and occupancy costs, though partially offset by lower merchandise costs. In addition, gross profit for the quarter includes $6.1 mln of expense for hurricane-related losses.
Dollar Tree’s net income compared to the prior year's third quarter increased $41.9 mln to $281.8 mln, and diluted earnings per share increased 16.8% to $1.18.
Net sales were up 4.2% to $5.54 bln on 127 new opened stores, 14 expanded or relocated stores, and 18 closed stores. Additionally, the company opened 30 Dollar Tree stores that were re-bannered from Family Dollar. Furthermore, retail selling square footage at quarter end was about 119.5 mln square feet.
Looking forward, Dollar Tree plans to accelerate its store optimization program and currently expects to renovate a minimum of 1,000 Family Dollar stores in fiscal 2019. The company also plans to open 350 new Dollar Tree and 200 new Family Dollar stores in fiscal 2019 as well as re-bannering an additional 200 Family Dollar stores to Dollar Tree stores.
Following the third quarter print, Dollar Tree management has decided to cut its outlook for full year 2018 net sales to a range of $22.72-22.83 bln from the previous expectation of $22.75-22.97 bln. This estimate is based on a low single-digit increase in same-store sales and 3.2% square footage growth (down from previous guidance of 3.4%). Further, Dollar Tree now anticipates that net income for the full year 2018 will be between $4.86-4.95 compared to the company’s previously expected range of $4.85-5.05. As such, Dollar Tree estimates consolidated net sales for Q4 between $6.10-6.21 bln, based on a low single-digit increase in same-store sales for the combined enterprise, on EPS in the range of $1.86-1.95.
Discount retailer peer Dollar General (DG 111.42, +1.06, +1.0%) is slated to report on the morning of Tuesday, December 4.
- OUR VIEW
- LEARNING CENTER