Dollar Tree Inc. (DLTR) reported fourth quarter earnings of $1.29 per share, beating the Zacks Consensus Estimate of $1.27 per share and the prior-year figure of $1.01 per share. The quarter was aided by robust sales from increased traffic.
For fiscal 2010, the company reported earnings per share of $3.23 compared with $2.37 per share in the year-ago quarter. Earnings also steered past the Zacks Consensus Estimate of $3.21 per share.
The company reported consolidated net sales of $1.73 billion in the fourth quarter, a 10.7% increase from the $1.56 billion last year. Comparable store sales increased 3.9% against a 6.6% increase in the year-ago period. Southwest and the Southeast were the top performing regions in the recent quarter. Traffic remained favorable owing to the company’s excellent values, balanced merchandise assortment and convenient shopping experience.
Operating income in the quarter was $258.7 million, up from $218.4 million in the prior- year period. Correspondingly, the operating margin expanded 100 basis points to 15%, reflecting a combined effort of a 50 basis point increase in gross margin and a 50 basis point reduction in SG&A expenses.
Financials
Cash and investments at the end of the quarter were $486.0 million, while long-term debt (excluding the current portions) stood at $250.0 million.
In the quarter, Dollar Tree bought back 2.3 million shares for $123.9 million. For the full year, the company has bought back 9.3 million shares for $414.7 million. The company has $345.9 million remaining on its share repurchase program.
Stores
During the fourth quarter of 2010, Dollar Tree opened 19 stores, acquired 86 stores in Canada, and closed 13 stores. Retail selling square footage increased 8.8% year over year to 35.1 million square feet. As of January 29, 2011, the company operated 4,101 stores in 48 states, and 4 Canadian Provinces
Guidance
For the first quarter of 2011, Dollar Tree expects sales in the range of $1.48 billion to $1.52 billion on account of low -to- mid single-digit comparable store sales. Earnings per share are projected in the range of 71 cents to 77 cents.
For the full year 2011, the company guides sales estimates in the range of $6.43 billion to $6.60 billion on the back of low -to- mid single-digit comparable store sales growth. Earnings are expected between $3.55 and $3.76 per share.
Our Recommendation
We remain optimistic on the company’s strategy of building larger stores that can accommodate more consumables/basic merchandise. Dollar Tree stands to benefit from technology investments, innovative marketing and merchandising initiatives, strong inventory management and a healthy financial position.
However, decelerating trends in consumer behavior, strong competition from peers like Family Dollar Stores (FDO), 99¢ Only Stores (NDN) and Dollar General Corp. (DG) and the absence of any significant upside potential keep us a little cautious about the stock over the long term.
Dollar Tree currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term recommendation on the stock is ‘Neutral’.
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