Dollar Tree Sees 5% Increase After Strong Q3 Earnings and Sales Performance

Dollar Tree, Inc. (DLTR) has recently published its fiscal third-quarter results for 2024, showing impressive earnings and sales that exceeded expectations. The company reported adjusted earnings per share (EPS) of $1.12, reflecting a 15.5% increase from the previous year, surpassing the Zacks Consensus Estimate of $1.07.

Consolidated net sales rose by 3.5% year over year to reach $7.56 billion, also beating the Zacks Consensus Estimate of $7.45 billion. The company's same-store sales (comps) grew by 1.8% year over year, driven by a 1.6% increase in customer traffic and a 0.2% rise in the average transaction amount.

Following the positive performance in the third quarter, Dollar Tree's shares climbed 5.1% in pre-market trading. The stock has seen a 5.9% gain over the past three months, slightly underperforming the industry average of 6% growth.

Highlights of Dollar Tree's Quarter: Performance Metrics

The Dollar Tree segment witnessed a 1.5% rise in customer traffic and a 0.3% increase in ticket size, contributing to a 1.8% improvement in comps. Meanwhile, the Family Dollar segment saw a 1.8% rise in traffic but no change in average ticket size, leading to a 1.9% increase in comps.

Expected enterprise comps growth for the fiscal third quarter was projected at 2.4%, with the Dollar Tree segment estimated at 2.7% and Family Dollar at 1.9%.

Gross profit rose by 7.6% to $2.34 billion year over year, while the gross margin improved by 120 basis points to 30.9%. This increase in margin was mainly due to lower freight costs and better shrink management, although some of this gain was offset by rising distribution costs. The Dollar Tree segment's gross margin increased by 60 basis points to 35.4%, and Family Dollar's gross margin grew by 130 basis points to 24.9%.

Adjusted selling, general and administrative expenses accounted for 26.5% of total revenues, marking an increase of 80 basis points compared to 25.7% in the previous year. This rise was largely attributed to higher depreciation expenses from store investment, temporary labor to support the multi-price rollout, increased utility costs, and reduced leverage from comparative sales increases.

Adjusted operating income climbed by 13.8% to reach $343.2 million, with the operating margin improving by 40 basis points to 4.5%.

Financial Standing of Dollar Tree

At the end of the fiscal third quarter, Dollar Tree held cash and cash equivalents totaling $697.6 million. As of November 2, 2024, net merchandise inventories increased by 0.4% year over year, amounting to $5.54 billion. The company carried a net long-term debt, excluding current portions, of $2.43 billion, and shareholders’ equity stood at $7.64 billion around the same date.

Store Growth and Strategy

In the fiscal third quarter, Dollar Tree opened 255 new stores, re-bannered four, and closed 49 outlets. This expansion included 249 Dollar Tree locations and six Family Dollar outlets, while closures comprised eight Dollar Tree and 41 Family Dollar stores. The closures aligned with the company's previous announcement of a comprehensive review of its store portfolio. As of November 2, 2024, Dollar Tree operated a total of 16,590 stores across 48 states and five Canadian provinces.

The company announced a thorough review of the Family Dollar portfolio, identifying stores not meeting its vision for potential closure or re-bannering. During this review, nearly 970 underperforming Family Dollar stores were identified, with plans to close approximately 600 stores in the first half of fiscal 2024 and 370 stores at the end of each location’s lease term. As of the latest update, the company had closed 670 stores as part of its portfolio optimization strategy and expects to shutter an additional 25 stores before the end of fiscal 2024.

Future Outlook for Dollar Tree

In light of the strong performance in the third quarter, Dollar Tree updated its guidance for fiscal 2024. Consolidated net sales are now anticipated to fall between $30.7 billion and $30.9 billion, an increase from the previous estimate of $30.6 billion to $30.9 billion. Comps growth is projected to remain in the low single digits across both Dollar Tree and Family Dollar segments. Adjusted EPS expectations have been narrowed to a range of $5.31 to $5.51, compared to the prior range of $5.20 to $5.60.

For the fourth quarter of fiscal 2023, management projects consolidated net sales of $8.1 billion to $8.3 billion, again anticipating low single-digit comps growth for both segments. Adjusted EPS is expected to be in the range of $2.10 to $2.30.

Investment Highlights

For investors considering options in the retail sector, notable mentions include stocks like The Gap Inc., Abercrombie & Fitch, and Deckers Outdoor, which offer potentially strong growth opportunities.

The Gap is recognized for its wide range of clothing and accessories and currently holds a Zacks Rank #1 (Strong Buy). The company forecasts a 0.8% increase in sales and an impressive 39.9% EPS growth compared to last year.

Abercrombie specializes in premium casual apparel and also boasts a Zacks Rank #1. The company anticipates a 14.9% sales increase and a 67.5% surge in EPS compared to previous year figures.

Deckers is known for its innovative footwear and accessories, and it similarly holds a Zacks Rank #1, predicting a 13.6% rise in sales and a 12.6% rise in EPS compared to last year.

Earnings, Sales, Performance, Growth, Stocks