Dollar Tree Q3 Earnings Beat Estimates, Issues Q4 & FY12 Guidance (DLTR)

The share price of discount store Dollar Tree (NASDAQ: DLTR) gained more than 5% yesterday following the report of fiscal 2012 third-quarter earnings and net sales that beat and were in line with the estimates, respectively. The company also issued fiscal 2012 fourth-quarter and full year guidance in line with the estimates.

The Virginia-based Dollar Tree offers merchandise at the fixed price of $1.00. The company’s stores provide consumable merchandise, health and beauty care products, household consumables, toys, durable housewares, gifts and greeting cards. Dollar Tree operates stores under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant and Dollar Bills. The company reported the fiscal 2012 third-quarter results before market opened on Thursday.

The net sales for the fiscal 2012 third quarter increased to $1.72 billion from $1.60 billion in the similar period last year. The net sales estimate of analysts was $1.73 billion for the third-quarter of fiscal 2012.

The net income for the reported quarter increased to $155.4 million, or $0.68 per share from $104.5 million, or $0.43 per share in the prior-year’s similar quarter.

Excluding the one-time gains from the sale of ownership interest in Ollie’s Holdings, the earnings per share was $0.51. The earnings estimate of analysts was $0.49 per share for the third-quarter of fiscal 2012.

Comparable store sales increased 1.6% for the third quarter of 2012. During the third quarter, Dollar Tree opened 111 stores, expanded or relocated 16 stores, and closed 4 stores.

Commenting on the results, President and CEO, Bob Sasser said, “Sales increased in both basic and variety categories. Comp store sales were positive every month and we saw sequential improvement from August through October. Operating margin increased significantly and the Company delivered record third quarter earnings per share. For millions of shoppers across North America, Dollar Tree is an important destination for extreme-value merchandise and a great shopping experience. Our stores are ready and in-stock with our best values ever for the Holiday shopping season.”

The stock of Dollar Tree started the year 2012 at $41.00 and continued to climb up the stock chart slowly but steadily. JP Morgan initiated Dollar Tree with an “overweight” rating and a target price of $100 per share on February 9. This was followed by the report of fiscal 2011 fourth-quarter earnings that beat estimates and 24% growth over the previous year’s corresponding quarter. These notable events sent the share price of Dollar Tree to $47.00 in March 2012. A Forbes report indicating the success of Dollar Tree over bigger rivals gave another push for the share price to reach $50.00 in the last week of April. Matching the Forbes report, on May 2, investors.com published a fundamental analysis of Dollar Tree’s splendid performance in the past 16 sequential quarters. Two weeks later, the company reported fiscal 2012 first-quarter results that not only beat estimates, but also set a record of five sequential quarters of double-digit growth. Riding on the results, the share price registered a new 52-week high of $56.82 on June 19. Even though Dollar Tree recorded growth in revenue and earnings along with an appreciable return on equity, the overstretched valuations relative to book value and cash flow initiated a correction that resulted in a decline in the share price to $50.00 in the last week of July 2012. Dollar Tree slid further to $46.07 on September 12 after reporting a slightly lower than expected same store sales for the second quarter of fiscal 2012 and issued conservative third-quarter guidance. Piper Jaffray downgraded the stock to “neutral” from “overweight” on October 12. This negative event compounded with persisting weakness led the fall to around $38.00 at the end of October.

Yesterday, the share price opened at $38.90, up 3% from the Wednesday’s close of $37.76. Within short span of time, the stock gained another 1%. However, the momentum failed to sustain, thereby resulting in a drop in the share price to around $38.50. After consolidating at that level until noon, the share price went past the previous high of the day to reach $40.00 in the final two hours of the trading session.

For the fiscal 2012 fourth quarter, Dollar Tree anticipates revenue in the range of $2.20 billion to $2.26 billion, based on flat-to-low single digit comparable store sales increase. The revenue estimate of analysts is $2.24 billion for the fourth quarter of fiscal 2012.

The company forecasts earnings per share in the range of $0.97 to $1.02 for the fourth quarter of fiscal 2012. The earnings estimate of analysts is $0.98 per share for the fiscal 2012 fourth quarter.

For the full year 2012, Dollar Tree expects sales of between $7.35 billion and $7.41 billion. The revenue estimate of analysts is $7.39 billion for the fiscal 2012.

The earnings per share expectation for the fiscal 2012 is in the range of $2.65 to $2.70, including $0.16 per share from the sale of Ollie’s in the third quarter of fiscal 2012. The earnings estimate of analysts is $2.81 for the full year 2012. Dollar Tree also noted that impact of 53rd week in fiscal 2012 is included in the fiscal 2012 guidance.

Dollar Tree ended yesterday’s trading session at $39.70 per share, up $1.94 or 5.1% on a volume of 10.3 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.