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Summary

  • Dollar Tree reported revenue that exceeded expectations for the quarter, but profits that fell shy of what analysts anticipated.
  • This data confirms my earlier opinion that the retailer, while possessing potential, won't be able to grow on the top and bottom line as quickly as expected without acquisitions.
  • This evidence was anticipated in my previous article suggesting what analysts expected for the quarter and the potential of Dollar Tree's bid for Family Dollar.

Shares of Dollar Tree (NASDAQ:DLTR) fell around 1% on August 21 after news broke that the discount retailer reported stronger-than-expected revenue, but earnings that fell short of analyst expectations. For the quarter, the company reported revenue of $2.03 billion, up nearly 10% from the $1.85 billion reported the same quarter a year earlier. This rise in revenue was driven by a 4.5% jump in comparable store sales, combined with a 7% increase in store count from 4,842 locations to 5,166.

Earnings Overview

Last Year's Forecasted Actual
Revenue (billions) $1.85 $2.01 $2.03
Earnings per Share $0.56 $0.64 $0.59

Profits also rose during the quarter, but not as much as Mr. Market had hoped for. For the quarter, Dollar Tree reported earnings per share of $0.59. While this represents a 5% increase from the $0.56 reported last year and can be attributed to higher sales that were partially offset by an increase in its cost of goods sold from 65% of sales to 65.8%, the company's bottom line fell short of the $0.64 analysts hoped to see. Even after adding back its acquisition-related costs for the quarter, earnings would have amounted to only $0.61 on a per share basis.

In a previous article on the subject, I announced that Dollar Tree's high expectations would be a challenge to meet, but that its proposed acquisition of Family Dollar (NYSE:FDO) would likely be the means through which management can grow the enterprise more quickly. While this prospect was thrown into doubt when rival Dollar General (NYSE:DG) announced a bid for nearly $5 billion more for Family Dollar, the latter's refusal on grounds of anti-trust issues implies that Dollar Tree can still have a good shot of completing the transaction and using the larger store base and historically faster growth of Family Dollar to leverage its own growth.

Source: Update: Dollar Tree's Earnings