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Why Dollar Tree Lowered Its 2018 Earnings Guidance

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Dec. 3 2018, Updated 5:00 p.m. ET

Earnings in the third quarter of fiscal 2018

Dollar Tree (DLTR) reported EPS of $1.18 in the third quarter of fiscal 2018, which ended on November 3. The company’s fiscal 2018 third-quarter EPS surpassed analysts’ expectation of $1.14 and rose 16.8% year-over-year.

The company missed analysts’ consensus earnings estimate in the first quarter of fiscal 2018 and was in line with their estimate in the second quarter of fiscal 2018.

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What drove Dollar Tree’s third-quarter earnings?

Dollar Tree’s fiscal 2018 third-quarter EPS growth was driven by higher sales, lower net interest expenses, and the impact of a lower tax rate. The company’s fiscal 2018 third-quarter net interest expense fell 31.7% to $47.6 million owing to lower outstanding debt as a result of debt prepayments worth $750.0 million and its debt refinancing in the first quarter of fiscal 2018.

Dollar Tree’s effective tax rate of 17.1% in the third quarter of fiscal 2018 was significantly lower than its level of 32.4% in the third quarter of fiscal 2017.

Guidance lowered

Dollar Tree lowered its fiscal earnings guidance yet again following its fiscal 2018 third-quarter results. Earlier, the company had lowered its fiscal 2018 EPS guidance following its results in the first and second quarters of fiscal 2018.

Dollar Tree now expects its fiscal 2018 EPS to be between $4.86 and $4.95 compared to its previous outlook of $4.85–$5.05. This guidance reflects lower sales expectations, which we’ll discuss in the next article. Higher costs, including increased freight costs, are also expected to weigh on the company’s earnings.

Rival Dollar General (DG) is scheduled to report its fiscal 2018 third-quarter earnings results on December 4. Analysts expect Dollar General’s EPS to rise 28.6% to $1.26 in the quarter. Dollar General’s adjusted EPS are expected to rise 33.7% to $6.11 in fiscal 2018.

In the next article, we’ll discuss Dollar Tree’s fiscal 2018 third-quarter sales.

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