Highlights of Lone Pine Capital's positions in 1Q 2014

Part 7
Highlights of Lone Pine Capital's positions in 1Q 2014 (Part 7 of 8)

Stephen Mandel’s Lone Pine Capital sells its shares in Dollar Tree

Lone Pine Capital and Dollar Tree

Lone Pine initiated new positions in Actavis PLC (ACT), LPL Financial Holdings (LPLA), Adobe Systems Inc. (ADBE), Equinix Inc. (EQIX), and Jazz Pharmaceuticals PLC (JAZZ). Top positions the fund sold were Dollar Tree Inc. (DLTR) and American Express Co. (AXP).

DLTREnlarge Graph

Lone Pine shed a position in Dollar Tree Inc. (DLTR) last quarter that accounted for 1.97% of the fund’s 4Q 2013 portfolio.

Dollar Tree is a leading operator of discount variety stores offering merchandise at the fixed price of $1.00. As of May 3, 2014, the company operated 4,891 stores in 48 states and the District of Columbia, as well as 189 stores in Canada. The company said in its 2013 annual report that store growth has resulted primarily from opening new stores and the acquisition of Dollar Giant. In fiscal 2013, comparable-store net sales increased 2.4% and remained positively affected by a number of initiatives, as debit and credit card penetration continued to increase in 2013, and Dollar Tree continued to roll out frozen and refrigerated merchandise to more of its stores. The company’s peers include Dollar General (DG) and Family Dollar Stores (FDO). Rumors of a merger between Dollar General (DG) and Family Dollar Stores have circulated after activist investor Carl Icahn recently disclosed a 9.39% stake in the latter company.

Dollar Tree missed on earnings and revenue estimates for its 4Q 2013 results announced in February. Management said, “Dollar Tree delivered record earnings and our comparable-store sales grew, despite severe weather, a shorter Holiday selling period and a challenging economic environment.” Guidance too fell slightly short of street estimates.

DLTR hedgeEnlarge Graph

Dollar Tree misses revenue estimates in 1Q 2014

For the latest 1Q 2014 results, Dollar Tree missed revenue estimates, but profit grew 3.6%. Earnings totaled $138.3 million, or $0.67 per share, up from $133.5 million, or $0.59 per share, a year ago. For the 13 weeks ended May 3, 2014, comparable-store net sales increased 1.9%, primarily due to increased customer traffic. Consolidated net sales for the first quarter were $2.00 billion, a 7.2% increase compared to the $1.87 billion reported for the quarter ended May 4, 2013. Dollar Tree said, “Our first quarter sales grew as the result of increases in both traffic and average ticket with our discretionary business growing slightly faster than consumables.”

Gross profit margin decreased to 34.8% due to an increase in Freight and Distribution costs as a percentage of sales. During the first quarter, Dollar Tree opened 94 stores, closed six stores, and expanded or relocated 28 stores.

During the past four quarters, the company has invested more than $1 billion for share repurchases, primarily through a $1 billion accelerated share repurchase program (ASR) entered into in September 2013. Dollar Tree said in its earnings release that it has received a total of 18.1 million shares under the $1.0 billion accelerated share repurchase program and has $1 billion remaining on its share repurchase authorization.

Dollar Tree provides a lower-than-expected outlook

Dollar Tree narrowed its outlook and forecast sales for the second quarter of 2014 in the range of $1.97 billion to $2.02 billion, based on low–single digit positive comparable-store sales. Diluted earnings per share are estimated to be in the range of $0.58 to $0.64. Full-year sales are estimated to be in the range of $8.37 billion to $8.54 billion.

The Realist Discussions