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Dollar Tree: Picking Up The Pieces After -15% On Earnings Day

Mar. 09, 2018 5:41 AM ETDollar Tree, Inc. (DLTR)11 Comments
J Cooper profile picture
J Cooper


  • Solid 2017 with growth in comps, revenue, and margin.
  • The market didn't like management's 2018 forecast, but it was in line with my previous projections.
  • Even with conservative assumptions, Dollar Tree is a great value at these prices.

On March 7, Dollar Tree (NASDAQ:DLTR) released its fourth-quarter 2017 earnings report. Sales increased 12.9% to $6.36 billion, with rising same-store sales in both Dollar Tree-branded stores ("DT") and Family Dollar-branded stores ("FDO"). DLTR earned $1.89/share in adjusted earnings per share, excluding some hearty tax benefits, up from $1.36 a year ago. Shares fell 14.5% on the news, from $104.36 to $89.25. Why? Analysts had forecast revenue of $6.4 billion and adjusted EPS of $1.90. Wall Street was also disappointed by Dollar Tree's outlook for 2018.

I don't share Wall Street's concern with analysts' estimates. DT stores have now demonstrated rising comps for a 40th consecutive quarter, while FDO stores posted their third consecutive quarter of rising comps. Regardless of the short-term price movement, DLTR posted a strong quarter to cap of a very strong year.

Expanding margins at FDO stores will be an important area for DLTR to grow in the coming years. Family Dollar was purchased in mid-2015 and is a much lower-margin operation. This year showed improvements in FDO margins - gross margins rose 60 bps compared to DT margins rising 40 bps - but there is still a lot of work to do in getting FDO up to speed. Management is focused on that work and intends to continue investing money into FDO stores and its employees.

I rate DLTR as a buy. It was made even more attractive by the declines on earnings day.

The Fourth Quarter

4Q17 4Q16 Chg Weekly Chg
Revenue $6,360.6 million $5,635.6 million 12.9% 4.8%
Gross Margin 33.0% 32.1% 90 bps
SG&A % of Sales 21.7% 21.0% 70 bps
Operating Margin 12.0% 10.4% 160 bps
Operating Profit $691.5 million $586.5 million 17.9% 9.5%

Source: Dollar Tree earnings report

Dollar Tree had rising revenue (4.8% on a weekly basis), rising comps (2.4% excluding

This article was written by

J Cooper profile picture
I used to run a Marketplace service called The Growth Operation.  That service has subsequently been moved to Julian Lin, who is highly-skilled in analyzing and evaluating the cannabis investing marketplace.Julian has renamed the service to The Weed Investors, and it promises to continue to be a great resource and community for investors interested in this growing sector.  I am a contributor to Julian's The Weed Investors community.Thank you to each and everyone who previously subscribed to The Growth Operation.  I appreciate all of your support.-J. Cooper

Analyst’s Disclosure: I am/we are long DLTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (11)

Jonathan. What do you know about this settlement at FDO?
Does anyone know anything about this settlement? Is it gonna hit q 1?
Jonathan do you know anything about this 45 million dollar settlement at FDO? Wage discrimination.
Price conscious customers needs are filled at DT & FDO shelves and now more at their refrigerators and freezers. Top management improving lives of the common people with longer store hours, higher paid employees, expanding and renovating stores, etc.
Now a newbie DT stockholder, I couldn't resist the opportunity of the big unjustified price drop. Sold out-of-money puts and bought stock. Good Luck to all Longs.
Cool_coder profile picture
This company will take a beating due to inflation, Target price $75!!!
glssmrbl profile picture
I hope so. It's been a long time since I bought shares.

glssmrbl profile picture
that was my concern from the day of the announced acquisition. why add on a problem to a perfect situation? but debt has been paid down quite fast except this last quarter.
Also if this settlement is real we all know the market is gonna panic and act like it’s part of q 1 numbers just like they did q 1 of last year over the dollar express impairment. I mean, I’ll likely re enter eventually but im seeing some red flags in the short term that could bring this down to $85.
FDO is still adding value to share holders. The concern is if margin improvement drys up. FDO could become dead weight. With 900 million cap ex 2018. That won’t happen. If this q 1 FDO settlement is real. Dltr is gonna stay around $85-90. I’m personally out and all in on semis. More shareholder value currently than DLTR who refuses to change the culture at FDO. PHILBIN and company seem overwhelmed by the total number of stores and refuse to entertain the idea that FDO is struggling because of poor worriers, poor cleanliness in the stores and non motivated store managers. It all starts with the people and dltr management is only seeing the lipstick to put on the pig!!!!!!!!
Great article! Finally, someone who understands retail operations. This company is growing constantly. Shopping at Dollar Tree is a great experience. Always a bargain to be found there. The price drop on the stock was way over blown this week. I fully expect the stock price to be back over $100 soon. Then, later this year over $110. This is a great company who wants to give something back to its employees this year. I applaud this move. It will only make the company stronger in the long run. Pick up some DLTR shares at these lower "on sale" prices today. They will reward you in the long run.
I believe that what has worried the market is that the whole premise for buying FD is under question and instead of a fast margin improvement it could be a margin squeeze caused by wage inflation, higher fuel costs which reduce the number of visits with a very competitive backdrop. And possibly there may therefore be huge number of fd stores which do not generate returns.

Or not and it will turn out to be a great purchase.
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