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Dollar Tree’s 2Q17 Results Beat Expectations

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Part 4
Dollar Tree’s 2Q17 Results Beat Expectations PART 4 OF 7

Management Raises Dollar Tree’s Fiscal 2017 Guidance

Management revises fiscal 2017 guidance

Dollar Tree Stores (DLTR), which reported its fiscal 2Q17 results on August 24, 2017, revised its fiscal 2017 guidance for the second time this fiscal year. The company now expects total sales to be between $22.1 billion and $22.3 billion compared to its previously guided range of $22.0 billion to $22.3 billion.

At the mid-point, the current guidance reflects a 7.0% rise in sales over the previous year. A low single-digit increase in sales comps and a 3.9% increase in square footage are expected to drive growth during the year.

Diluted EPS (earnings per share) is expected to be between $4.40 and $4.60, which translates to a 19.0% rise at the mid-point.

Management Raises Dollar Tree’s Fiscal 2017 Guidance

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Comparing valuations and earnings potential with peers

Dollar Tree is currently trading at a one-year forward PE (price-to-earnings) ratio of 16.5x compared to the three-year average of 20.0x. Competitor Dollar General (DG) has a similar valuation of 16.8x.

While the two companies have similar valuations, DLTR has a better near-term earnings potential. Its earnings are expected to rise ~18.0% over the next 12 months. In comparison, Dollar General’s earnings are projected to rise ~3.0% over the same period.

The two companies are operating at a discount to variety store peers PriceSmart (PSMT) and TJX Companies (TJX), which are valued at 25.0x and 17.4x, respectively. Big-box retailers Walmart (WMT) and Costco (COST) also trade higher at 17.5x and 24.3x, respectively.

Investors looking for exposure to Dollar General and Dollar Tree can consider investing in the SPDR S&P Retail ETF (XRT), which invests 2.2% of its total holdings in the two companies.

Next, let’s look at Dollar Tree’s stock market performance.

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