(DLTR) Dollar Tree’s Earnings Beat – Revenue Misses

Dollar Tree Inc. (DLTR) reported robust results for the first quarter of fiscal 2013. The company’s quarterly earnings of 59 cents per share came in ahead of the Zacks Consensus Estimate of 57 cents. Moreover, it outperformed the year-ago earnings of 50 cents per share, registering a year-over-year upside of 18%. The solid results came on the back of higher sales and improved margins.

The company posted revenue growth of 8.3% in the quarter to $1,865.8 million from $1,723.6 million in the prior-year quarter but fell short the Zacks Consensus Estimate of $1,875 million. During the quarter, sales benefited from a 2.1% increase in comparable store sales (comps) over the prior-year period comps of 5.6%.

Quarterly Details

Dollar Tree’s quarterly gross profit climbed nearly 8.8% year over year to $656.0 million, while gross margin expanded 20 basis points to 35.2%. On the other hand, selling, general and administrative expenses escalated 6.0% to $439.4 million. However, as a percentage of revenue, it contracted 50 basis points to 23.6%.

Consequently, operating income for the quarter bolstered 15.2% to $216.6 million. Operating margin came in at 11.6%, up 90 bps from the year-ago period, primarily benefiting from the increase in gross margin and the contraction in selling, general and administrative expenses as a percentage of sales.

Balance Sheet

Dollar Tree ended first-quarter fiscal 2013 with cash and cash equivalents of $383.3 million compared with cash balance of $382.3 million at the end of first-quarter fiscal 2012. The company had an outstanding long-term obligation of $257.0 million as of May 4, 2013.

Merchandise inventories were up 15.4% year over year to $1,009.5 million. During the first quarter, the company spent $103.2 million on capital expenditure.

Share Repurchase

During the quarter, the company bought back 1.5 million shares worth about $68.4 million. At quarter-end, Dollar Tree had shares worth $791.3 million remaining under its share buyback program.

Store Update

In the first quarter, the company further expanded its store network by opening 94 stores, expanding or relocating 16 stores and shutting down 2 stores. This brings the company’s total store count to 4,763 in 48 states and 5 Canadian Provinces as of May 4, 2013.

Looking Ahead

For the second quarter of fiscal 2013, Dollar Tree expects total sales in the range of $1.81 billion – $1.86 billion on the back of low single-digit positive comparable-store sales growth. Further, the company anticipates earnings in the range of 52 cents – 57 cents a share in the upcoming quarter.

For fiscal 2013, the company anticipates sales to reach the $7.81 billion – $7.97 billion range. Comps for the year are estimated to be in the low single-digit percentage range, while the company expects square footage growth of 7.3%. It projects earnings in the range of $2.61 – $2.77 per share for fiscal 2013, excluding any impact from share repurchases.

Dollar Tree is considered one of the best-positioned dollar store concepts, especially with its evolving multi-price point chain. We believe that the company is doing a commendable job internally by managing controllable inputs, including reducing stem miles, while increasing back-haul opportunities.

Dollar Tree currently holds a Zacks Rank #3 (Hold). Stocks that are performing well among retail-wholesale sector include Dillard’s Inc. (DDS), Big 5 Sporting Goods Corp. (BGFV) and Conns Inc. (CONN), all of which carry a Zacks Rank #1 (Strong Buy).

BIG 5 SPORTING (BGFV): Free Stock Analysis Report

CONNS INC (CONN): Free Stock Analysis Report

DILLARDS INC-A (DDS): Free Stock Analysis Report

DOLLAR TREE INC (DLTR): Free Stock Analysis Report

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