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Dollar Tree (DLTR) in Investors' Good Books: Time to Hold?

Dollar Tree Inc. DLTR is in investors’ good books, driven by robust comparable store sales (comps) and improved margins. Also, it is benefiting from the integration of Family Dollar. While its top and bottom lines lagged estimates in the most recent quarter, it has delivered positive earnings and sales surprise in the preceding two quarters. However, volatile consumer environment, intense competition and significant global exposure remain impediments.

Notably, shares of Dollar Tree have gained 24.3% in the past year, outperforming the industry’s growth of 12.6%. Let’s analyze the pros and cons of this Zacks Rank #3 (Hold) company.


Solid Q4 & Outlook

Despite posting lower-than-expected results, Dollar Tree’s earnings and sales improved year over year in fourth-quarter fiscal 2017. Earnings gained from higher sales, rise in comparable store sales (comps) and higher margins. Meanwhile, sales benefited from a solid performance at both Dollar Tree and Family Dollar stores. Additionally, it witnessed the expansion of both gross and operating margins. While gross margin growth was backed by reduced merchandise costs, lower markdowns and occupancy expenses; operating margin benefited from SG&A leverage.

Going forward, the company provided a robust outlook for first-quarter and fiscal 2018. It forecasts consolidated net sales for the first quarter to be $5.53-$5.63 billion while earnings are envisioned to be $1.18-$1.25 per share. For fiscal 2018, it expects net sales of $22.70-$23.12 billion and earnings of $5.25-$5.60 per share.

Remarkable Comps Growth

Dollar Tree displayed remarkable comps growth for the last several quarters, mainly due to competitive pricing and strategic store expansion plans, including remodeling and relocations. Dollar Tree continues the positive trend with consolidated constant-currency comps growth of 2.4% in fourth-quarter fiscal 2017, which marked the 40th straight quarter of comps growth. The fourth-quarter comps growth can be attributed to improved customer count and average ticket.

While Dollar Tree banner posted comps growth of 3.8% (in constant-currency), comps at the Family Dollar banner climbed 1%. This also marked the third straight quarter of positive comps at Family Dollar, driven by a continued rebuilding of the business. Moreover, the company anticipates comps growth in a low-single-digit range for both the first-quarter and fiscal 2018.

Store-Fleet Growth to Drive Top Line

Currently, Dollar Tree is concentrating on expanding its store base and incorporating technological advancements. This, in turn, enables it to generate healthy sales and gain market share. During fourth-quarter fiscal 2017, it opened 137 new stores and expanded or relocated eight. Moreover, the company opened total 603 stores in fiscal 2017.

For fiscal 2018, the company expects to open nearly 650 new stores, including 350 Dollar Tree and 300 Family Dollar. Further, it plans to undertake renovations of at least 450 Family Dollar stores, relocate or expand nearly 100 stores and re-banner 50 from Family Dollar stores to Dollar Tree. Notably, it remains on track to operate over 10,000 Dollar Tree and over 15,000 Family Dollar outlets across the United States in the long term.

Family Dollar Integration on Track

Dollar Tree is befitting from the ongoing integration of Family Dollar that was acquired in July 2015. The company is undertaking significant store renovation initiatives for Family Dollar to attract more customers. Through the integration, it expects to generate annual run rate synergies worth at least $300 million by the end of the third year of this acquisition.


While all seems well, Dollar Tree has been facing problems regarding highly competitive market and volatile consumer behavior. Also, significant global exposure poses a serious threat to its performance. However, we believe, its strategies will be able to offset these headwinds.

Do Retail-Wholesale Stocks Grab Your Attention? Check These

Interested investors may consider some better-ranked stocks like Burlington Stores Inc. BURL, Dollar General Corporation DG and Nordstrom Inc. JWN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores delivered an average positive earnings surprise of nearly 15% in the trailing four quarters. It has a long-term earnings growth rate of 18.7%.

Dollar General pulled off an average positive earnings surprise of 2.3% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 14.6%.

Nordstrom, with a long-term earnings growth rate of 6%, has delivered an average positive earnings surprise of 16.8% in the trailing four quarters.

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