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Category: Stock Market and Greif Inc
Date: 29 August 2019 Stock Price: $99.60 We take a look at the 2nd quarter of their 2019 fiscal year earnings report of Dollar Tree Inc, the variety discount store group
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About Dollar Tree Inc
We have worked hard to create an environment where shopping is fun... a place where our customers can discover new treasures every week... a store where entire families can enjoy hunting for that special something. Every Dollar Tree store is bright and well lit, clean and well organized, and stocked with endless hidden treasures!
Just as important, we continue to offer our customers products they need at extreme values! We carry a broad, exciting mix of merchandise that includes many trusted national and regional brands. Some of the product departments you'll find at Dollar Tree include housewares, glassware, dinnerware, cleaning supplies, candy, snacks, food, health and beauty, toys, gifts, gift bags and wrap, party supplies, stationery, craft supplies, teaching supplies, books, seasonal décor, and so much more. Everything you need for every day, every holiday, every occasion... and every single item is only $1 (or less)!
The best part is that there is probably a Dollar Tree store near you! We are a national American based company with thousands of stores conveniently located in shopping centers and malls in all 48 contiguous states. You can also shop online for larger quantities of the same items you'd find in our stores, plus check out craft and project ideas
Just as important, we continue to offer our customers products they need at extreme values! We carry a broad, exciting mix of merchandise that includes many trusted national and regional brands. Some of the product departments you'll find at Dollar Tree include housewares, glassware, dinnerware, cleaning supplies, candy, snacks, food, health and beauty, toys, gifts, gift bags and wrap, party supplies, stationery, craft supplies, teaching supplies, books, seasonal décor, and so much more. Everything you need for every day, every holiday, every occasion... and every single item is only $1 (or less)!
The best part is that there is probably a Dollar Tree store near you! We are a national American based company with thousands of stores conveniently located in shopping centers and malls in all 48 contiguous states. You can also shop online for larger quantities of the same items you'd find in our stores, plus check out craft and project ideas
Financial overview of Dollar Tree's latest earnings report
Numbers we are interested in: (for the quarter):
- Net sales: $5.741 billion (up from $5.526 billion)
- Cost of sales: $4.092. billion (up from $3.862 billion)
- Gross profit: $1.648 billion (down from $1.664)
- Net income :$180.3 million (down from $273.9 million)
- Diluted earnings per share: $0.76 (down from $1.15 for the same quarter of previous year)
- PE ratio: 32.7 (assuming this quarter's earnings carries on for full fiscal year)
- Number of shares in issue: 238.3 million
- Cash and equivalents: $623.4 million
- Cash and equivalents per share: $2.61
- Cash and equivalents makes up 3.2% of total assets
- Inventories: $3.471 billion
- Inventories makes up 17.86% of the group's total assets (we see anything more than 20% as concern)
- Shareholders equity: $5.86 billion
- Shareholders equity per share: $24.60
- Long term liabilities increased substantially due to a long term operating lease liability of $4.7 billion
- Cash generated from operations: $448.2 million
- Cash generated from operations per share: $1.88
Dollar Tree's management commentary on the results and earnings guidance
CHESAPEAKE, Va.--(BUSINESS WIRE)--Aug. 29, 2019-- Dollar Tree, Inc. (NASDAQ: DLTR), North America's leading operator of discount variety stores, today reported financial results for the quarter ended August 3, 2019.
“The turnaround of the Family Dollar business continues to gain momentum. Family Dollar’s same-store sales increase of 2.4% was the third consecutive quarter of sequential acceleration and represented a 160 basis point improvement in the two-year stacked comp. And, despite sales headwinds created by the global helium shortage, the Dollar Tree segment delivered a same-store sales increase of 2.4%, while cycling a strong 3.7% increase from the prior year’s quarter. Dollar Tree has now delivered 46 consecutive quarters of positive same-store sales, and eight consecutive quarters with two-year stacked comps exceeding 6%,” stated Gary Philbin, President and Chief Executive Officer. “I am proud of the team’s accomplishments. During the quarter, we successfully consolidated our store support centers and, as planned, closed 296 Family Dollar stores as part of our store optimization efforts. Additionally, we completed 542 Family Dollar renovations into the H2 format.”
Second Quarter Results
Consolidated net sales increased 3.9% to $5.74 billion from $5.53 billion in the prior year’s second quarter. Enterprise same-store sales increased 2.4%. Same-store sales for the Dollar Tree segment increased 2.4% on a constant currency basis (or 2.3% when adjusted to include the impact of Canadian currency fluctuations). The Company estimates the helium shortage negatively impacted Dollar Tree same-store sales by approximately 40 basis points. Same-store sales for the Family Dollar segment increased 2.4%.
Gross profit was $1.65 billion in the quarter compared to $1.66 billion in the prior year’s second quarter. As a percentage of sales, gross margin was 28.7% of sales compared to 30.1% of sales in the prior year. The decrease in gross profit margin was driven by higher freight costs for both segments, and markdowns and shrink in the Family Dollar segment.
Selling, general and administrative expenses were 24.0% of sales compared to 23.2% of sales in the prior year's second quarter. The increase was driven by operating and corporate expenses related to the consolidation of the Company’s store support centers, asset write-offs for closed stores, and payroll costs resulting from higher average hourly rates and store-level initiatives.
Operating income for the quarter was $268.9 million compared with $382.5 million in the same period last year and operating income margin was 4.7% of sales in the second quarter compared to 6.9% of sales in last year’s quarter. Net income was $180.3 million in the second quarter and GAAP diluted earnings per share for the quarter were $0.76 compared to $1.15in the prior year’s quarter.
The Company repurchased 881,624 shares during the quarter for $88.4 million. The Company has approximately $812 million remaining on its share repurchase authorization.
During the quarter, the Company opened 150 new stores, expanded or relocated 19 stores, and closed 296 Family Dollar stores and nine Dollar Tree stores. The Family Dollar store closings related to the Company’s previously announced store optimization efforts. Additionally, the Company opened 106 Dollar Tree stores that were re-bannered from Family Dollar. Retail selling square footage at quarter end was approximately 119.7 million square feet.
Tariff update
On August 23, 2019, the USTR announced that tariffs on List 1, 2, and 3 products would increase from 25% to 30% on October 1, 2019, tariffs on List 4A products would increase from 10% to 15% on September 1, 2019, and tariffs on List 4B products would increase from 10% to 15% on December 15, 2019. The Company estimates that without mitigation List 4A and the additional 5% tariff on Lists 1, 2, and 3 would cost the Company approximately $26 million in additional tariffs between September 1, 2019 and December 15, 2019.
Prior to the recent announcements on List 4 as well as the additional 5% tariff increase on all Lists, the Company believes it has successfully mitigated most of the adverse effects of the Section 301 tariffs. The Company has negotiated price concessions, cancelled orders, modified specifications, evolved product mix, and diversified vendors. The Company is now implementing actions that may mitigate the recently announced tariff increases, and will continue to assess the future impact of those tariffs.
Company Outlook
The Company estimates consolidated net sales for the third quarter of 2019 will range from $5.66 billion to $5.77 billion, based on a low single-digit increase in same-store sales for the enterprise. Diluted earnings per share are estimated to be in the range of $1.07 to $1.16. This estimate includes approximately $9 million, or $0.03 per diluted share, of discrete costs.
Consolidated net sales for full-year fiscal 2019 are now expected to range from $23.57 billion to $23.79 billion compared to the Company’s previously expected range of $23.51 billion to $23.83 billion. This estimate is based on a low single-digit increase in same-store sales and 1.3% selling square footage growth. The Company now anticipates net income per diluted share for full-year fiscal 2019 will range between $4.90 and $5.11. The Company’s updated outlook does not include the recently announced tariff increases, as the Company is currently working to mitigate these costs.
“I am very pleased with the traction and momentum we are seeing in the Family Dollar business. The team’s efforts to improve the consistency of execution across the store base and our acceleration of initiatives to optimize the real estate portfolio are paying off. We are increasing our planned Family Dollar H2 renovations for fiscal 2019 by 150 stores, most of which will occur in the third quarter,” Philbin added. “We are thrilled to now be operating from one consolidated store support center. One workspace should materially enhance alignment, communication, and efficiency, as well as our ability to support stores more effectively. Our focus continues to be to grow and improve our business to deliver increased value to long-term shareholders.”
“The turnaround of the Family Dollar business continues to gain momentum. Family Dollar’s same-store sales increase of 2.4% was the third consecutive quarter of sequential acceleration and represented a 160 basis point improvement in the two-year stacked comp. And, despite sales headwinds created by the global helium shortage, the Dollar Tree segment delivered a same-store sales increase of 2.4%, while cycling a strong 3.7% increase from the prior year’s quarter. Dollar Tree has now delivered 46 consecutive quarters of positive same-store sales, and eight consecutive quarters with two-year stacked comps exceeding 6%,” stated Gary Philbin, President and Chief Executive Officer. “I am proud of the team’s accomplishments. During the quarter, we successfully consolidated our store support centers and, as planned, closed 296 Family Dollar stores as part of our store optimization efforts. Additionally, we completed 542 Family Dollar renovations into the H2 format.”
Second Quarter Results
Consolidated net sales increased 3.9% to $5.74 billion from $5.53 billion in the prior year’s second quarter. Enterprise same-store sales increased 2.4%. Same-store sales for the Dollar Tree segment increased 2.4% on a constant currency basis (or 2.3% when adjusted to include the impact of Canadian currency fluctuations). The Company estimates the helium shortage negatively impacted Dollar Tree same-store sales by approximately 40 basis points. Same-store sales for the Family Dollar segment increased 2.4%.
Gross profit was $1.65 billion in the quarter compared to $1.66 billion in the prior year’s second quarter. As a percentage of sales, gross margin was 28.7% of sales compared to 30.1% of sales in the prior year. The decrease in gross profit margin was driven by higher freight costs for both segments, and markdowns and shrink in the Family Dollar segment.
Selling, general and administrative expenses were 24.0% of sales compared to 23.2% of sales in the prior year's second quarter. The increase was driven by operating and corporate expenses related to the consolidation of the Company’s store support centers, asset write-offs for closed stores, and payroll costs resulting from higher average hourly rates and store-level initiatives.
Operating income for the quarter was $268.9 million compared with $382.5 million in the same period last year and operating income margin was 4.7% of sales in the second quarter compared to 6.9% of sales in last year’s quarter. Net income was $180.3 million in the second quarter and GAAP diluted earnings per share for the quarter were $0.76 compared to $1.15in the prior year’s quarter.
The Company repurchased 881,624 shares during the quarter for $88.4 million. The Company has approximately $812 million remaining on its share repurchase authorization.
During the quarter, the Company opened 150 new stores, expanded or relocated 19 stores, and closed 296 Family Dollar stores and nine Dollar Tree stores. The Family Dollar store closings related to the Company’s previously announced store optimization efforts. Additionally, the Company opened 106 Dollar Tree stores that were re-bannered from Family Dollar. Retail selling square footage at quarter end was approximately 119.7 million square feet.
Tariff update
On August 23, 2019, the USTR announced that tariffs on List 1, 2, and 3 products would increase from 25% to 30% on October 1, 2019, tariffs on List 4A products would increase from 10% to 15% on September 1, 2019, and tariffs on List 4B products would increase from 10% to 15% on December 15, 2019. The Company estimates that without mitigation List 4A and the additional 5% tariff on Lists 1, 2, and 3 would cost the Company approximately $26 million in additional tariffs between September 1, 2019 and December 15, 2019.
Prior to the recent announcements on List 4 as well as the additional 5% tariff increase on all Lists, the Company believes it has successfully mitigated most of the adverse effects of the Section 301 tariffs. The Company has negotiated price concessions, cancelled orders, modified specifications, evolved product mix, and diversified vendors. The Company is now implementing actions that may mitigate the recently announced tariff increases, and will continue to assess the future impact of those tariffs.
Company Outlook
The Company estimates consolidated net sales for the third quarter of 2019 will range from $5.66 billion to $5.77 billion, based on a low single-digit increase in same-store sales for the enterprise. Diluted earnings per share are estimated to be in the range of $1.07 to $1.16. This estimate includes approximately $9 million, or $0.03 per diluted share, of discrete costs.
Consolidated net sales for full-year fiscal 2019 are now expected to range from $23.57 billion to $23.79 billion compared to the Company’s previously expected range of $23.51 billion to $23.83 billion. This estimate is based on a low single-digit increase in same-store sales and 1.3% selling square footage growth. The Company now anticipates net income per diluted share for full-year fiscal 2019 will range between $4.90 and $5.11. The Company’s updated outlook does not include the recently announced tariff increases, as the Company is currently working to mitigate these costs.
“I am very pleased with the traction and momentum we are seeing in the Family Dollar business. The team’s efforts to improve the consistency of execution across the store base and our acceleration of initiatives to optimize the real estate portfolio are paying off. We are increasing our planned Family Dollar H2 renovations for fiscal 2019 by 150 stores, most of which will occur in the third quarter,” Philbin added. “We are thrilled to now be operating from one consolidated store support center. One workspace should materially enhance alignment, communication, and efficiency, as well as our ability to support stores more effectively. Our focus continues to be to grow and improve our business to deliver increased value to long-term shareholders.”
Dollar Tree Inc (NASDAQ: DLTR) stock price history
The image below, obtained from Google, shows the stock price history of Dollar Tree Inc. over the last 5 years. And as the image shows while its been a rather volatile ride for Dollar Tree shareholders the overwhelming trend has been upwards. The group's stock traded at around $50 a share 5 years ago and is currently trading just under $100 a share. Excellent returns over the last 5 years.
Dollar Tree Inc. (NASDAQ: DLTR) latest stock valuation
Based on Dollar Tree Inc. latest earnings report and their guidance provided for the next quarter we value the group's stock at $88.30 a share.Our target price for Dollar Tree Inc of $88.30 takes into account the potential impact of the trade war (and continue tariff increases between the USA and China). At its current price we do not see this as a good buying opportunity for long term fundamental investors and we would look to get in at a price about 10% below our target (full value price). So we would advise to try and enter the stock around $80 a share.