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How Investors Reacted to Dollar Tree’s First-Quarter Results

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First-quarter sales growth

Dollar Tree (DLTR) announced better-than-expected sales in the first quarter of fiscal 2019, which ended on May 4. The company’s sales grew 4.6% to $5.81 billion in the quarter, surpassing analysts’ expectation of $5.78 billion. Dollar Tree stock was up 3.4% as of 2:22 PM today as investors were pleased with the company’s improved Family Dollar business.

Dollar Tree’s same-store sales grew 2.2%, driven by 2.4% same-store sales growth in the Dollar Tree banner and 1.9% same-store sales growth in the Family Dollar banner. According to Dollar Tree, Family Dollar’s same-store sales growth in the first quarter was the highest since the company started reporting the banner’s same-store sales.

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Family Dollar was acquired by Dollar Tree in 2015. However, it was dragging down Dollar Tree’s overall growth due to several issues, including unattractive merchandise assortment and store layout. Dollar Tree has been investing significantly in improving its Family Dollar banner, including in remodeling stores. In March, the company announced that it was accelerating its strategic plans for improving the Family Dollar banner.

Dollar Tree rolled out a new model, H2, for new and renovated Family Dollar stores. Under the new model, Family Dollar stores will have additional features, such as Dollar Tree’s $1 merchandise sections and more freezers and coolers. In the first quarter, the company relocated or expanded five Family Dollar stores, renovated 372 Family Dollar stores under the new H2 format, and re-bannered 45 Family Dollar stores as Dollar Tree stores.

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In January, activist investor Starboard Value advised Dollar Tree to consider strategic options for its Family Dollar banner, and to test different price points at its Dollar Tree stores. Dollar Tree announced today that, in mid-May, it started testing Dollar Tree Plus! merchandise (merchandise priced at more than $1), and it intends to expand this initial test phase to over 100 Dollar Tree stores. In the first quarter, Dollar Tree’s adjusted EPS fell 4.2% to $1.14, in line with analysts’ estimate.

Outlook revised

Dollar Tree expects fiscal 2019 sales of $23.51 billion–$23.83 billion and low single-digit same-store sales growth. Its previous sales outlook was $23.45 billion–$23.87 billion. The company has lowered its fiscal 2019 EPS outlook to $4.77–$5.07 from $4.85 to $5.25 to account for $30 million in store closure costs and $15 million in import freight costs.

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