Discounter raises outlook as earnings soar

Dollar Tree on Tuesday reported a third-quarter profit that more than doubled compared to last year amid lower merchandise and freight costs. The retailer also lifted its guidance for the fourth quarter.



Dollar Tree’s net income for the quarter, ended Oct. 29, rose to a better-than-expected $171.6 million, or 72 cents a share, up from $81.9 million, or 35 cents a share, in the year-ago period. The prior year included some charges and markdowns related to the Family Dollar business, which Dollar Tree acquired in 2015.



“Our results demonstrated a solid performance in our Dollar Tree segment, continued meaningful progress in our integration of Family Dollar, and our ability to refinance and pre-pay a portion of our outstanding debt in order to reduce future interest costs,” said Dollar Tree CEO Bob Sasser. “After adding back $0.09 per share of expenses related to our debt refinancing, our operating performance of $0.81 per diluted share was near the top end of our third quarter EPS guidance range of $0.76 to $0.82."



Speaking on the chain’s quarterly conference call with analysts, Sasser said he believed Dollar Tree would surpass its target of synergies of $300 million in the three years after the closing of the Family Dollar deal.



Net sales increased 1.1% to $5 billion from $4.95 billion last year, just missing estimates. The prior year’s quarter included sales from 325 Family Dollar stores that were divested following third quarter 2015.



Same-store sales increased 1.7%, on a constant currency basis. The same-store sales growth, which was the chain’s 35th consecutive quarter of positive same-store sales, was driven by increases in comparable customer count and average ticket.



During the quarter, Dollar Tree opened 153 stores, expanded or relocated 39 stores, and closed 10 stores. Additionally, as part of its re-banner initiative, the company opened 42 former Family Dollar store locations as new Dollar Tree stores. Retail selling square footage at the end of the quarter was approximately 112.0 million sq. ft.



Consolidated net sales for full-year 2016 are now expected to range between $20.67 billion and $20.77 billion compared to the company’s previously expected range of $20.69 billion to $20.87 billion. Dollar Tree now anticipates net income per diluted share for full-year 2016 will range between $3.67 and $3.76. This compares to its previous EPS guidance range of $3.67 to $3.82, which did not include the $0.09 per diluted share of expenses related to our debt refinancing incurred in third quarter 2016.



"I am encouraged by our continued progress in building the foundation for a larger, stronger and more profitable Family Dollar business,” said Sasser. “The stores are cleaner, the values are greater and our customer feedback scores regarding merchandise assortments and in-stocks have improved. As a combined organization, we are uniquely positioned to efficiently grow our businesses to better serve more customers in more markets. We are well-positioned and prepared for the upcoming fourth quarter and holiday selling season.”