What Drove Dollar Tree’s Earnings Beat in 2Q17?


Aug. 30 2017, Updated 10:06 a.m. ET

Dollar Tree beats on earnings by 12 cents

Dollar Tree (DLTR) reported a solid 37.5% YoY (year-over-year) rise in EPS (earnings per share) in its fiscal 2Q17 results on August 24, 2017. Adjusted diluted EPS stood at $0.99, which was about $0.12 more than the average Wall Street earnings forecast. The earnings beat was driven by better-than-anticipated comps (comparables), lower costs, and fewer markdowns.

“Both Dollar Tree and Family Dollar produced positive same-store sales, our enterprise operating margin improved 80 basis points and earnings per share exceeded the high end of our guidance range. Consumers continue to view Dollar Tree and Family Dollar as stores that provide great value and convenience,” said Bob Sasser, chief executive officer of DLTR.

Article continues below advertisement

What drove 2Q17 gross margins?

Dollar Tree’s 2Q17 gross profit rose 7.6% YoY to $1.6 billion, and its gross margin rose 50 basis points to 30.8% of sales.

The Dollar Tree business’s gross margin rose 30 basis points to 34.6% of sales. The Family Dollar business fell 60 basis points to 27.2%.

A decline in merchandise costs, occupancy costs, and freight costs, along with lower shrink due to favorable inventory, drove Dollar Tree’s margins. Family Dollar’s margins were driven by lower merchandise costs as well as lower discounts offered.

Dollar Tree segment drives 1Q17 margins

The Dollar Tree Enterprise operating margin rose 80 basis points to 7.9% of sales. The Dollar Tree segment’s operating margin rose 20 basis points to 11.2%, and Family Dollar’s operating margin rose 120 basis points to 4.8% of sales.

Enterprise;s SG&A (selling, general, and administrative) expenses fell 20 basis points to 22.9% of sales, driven by a 60-basis-point improvement in the Family Dollar segment’s expenses.

Investors looking for exposure to Dollar Tree through ETFs can consider the SPDR S&P Retail ETF (XRT), which invests 1.1% of its total holdings in the company.

In the next part, we’ll look at the company’s revised guidance, current valuations, and earnings potential.


More From Market Realist