How Dollar Tree Earnings Underwhelmed Investors

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Dollar Tree Inc. (NASDAQ: DLTR) released its fiscal second-quarter earnings report before the markets opened on Thursday. Just a year ago, this company completed the Family Dollar acquisition, and now it is looking for the numbers to add up, but this was not the case this quarter.

The company said that it had $0.72 in earnings per share (EPS) on $5.00 billion in revenue, compared to the consensus estimates from Thomson Reuters that called for $0.73 in EPS on revenue on $5.09 billion. In the same period of last year, Dollar Tree posted EPS of $0.25 and revenue of $3.01 billion.

The $2 billion increase in revenue was the result of an incremental $1.8 billion in net sales from Family Dollar stores, sales from new Dollar Tree stores and a 1.2% same-store sales increase on a constant currency basis. Same-store sales increased 2.7%, on a constant currency basis, in the prior-year period. Adjusted for the impact of Canadian currency fluctuations, the same-store sales increase was 1.1% for the second quarter.

In terms of the outlook for the fiscal third quarter, the company expects to have EPS in the range of $0.76 to $0.82 and net sales in the range of $5.02 billion to $5.10 billion, based on a low single-digit increase in same-store sales. The consensus estimates are $0.76 in EPS on $5.13 billion in revenue.

On the books, Dollar Tree’s cash, equivalents, and short-term investments totaled $1.10 billion at the end of the quarter, versus $740 million at the end of the previous fiscal year.

Bob Sasser, CEO of Dollar Tree, commented on earnings:

I am very pleased with the Company’s overall performance in our second quarter. Through what continues to be a challenging retail sales environment, we delivered gross margin improvement and managed expenses effectively to deliver earnings at the top end of our guidance range. In our Dollar Tree segment, we improved our operating margin and delivered our 34th consecutive quarter of positive same-store sales.

Shares of Dollar Tree were trading down about 7% at $88.41 on Thursday, with a consensus analyst price target of $97.96 and a 52-week trading range of $60.31 to $99.93.