The holiday season indeed brings in good news for the retail industry. People are willing to splurge and are tempted by huge promotions and discounts. Even lower-income consumers are ready to spend, particularly on the regular food and household items. This was further helped by an increase in disposable income and lower gasoline prices, which increased the budgets of the customers.
Thus, the discount retail stores witnessed the benefits of higher demand the most. Traffic at such stores increased during the winters, resulting in higher sales. Dollar Tree (DLTR, Financial), one of the leading players of the industry, registered great fourth-quarter results since demand for its products increased. Both the top line and the bottom line were ahead of the Street’s estimates, sending its shares higher.
A sneak peek into the quarter
Revenue for the quarter grew 10.8% to $2.48 billion, over last year. The top line was higher than the analysts’ estimate of $2.47 billion and was driven by a same-store sales growth of 5.6%. The comparable store sales were helped by a 5% increase in the number of transactions as demand for household products and party supplies increased.
Further, the retailer opened 90 outlets in the last year, which added to the revenue. Also, it relocated six and closed five stores during the same period. Thus, the retail selling square footage grew 7.4% to 46.5 million. One of the key strengths of the company is that it sells items for $1 or less.
For the full year, sales grew 9.7% to $8.6 billion, as compared to the previous year. Further, earnings jumped 14.7% to $3.12 per share, over FY 2013.
The gross margin of the company expanded 20 basis points to 37.1%. This increase was mainly because of higher markups and lower distribution and occupancy expenses. Moreover, earnings surged 13.7% to $1.16 per share, over the prior year. This was a penny higher than the analysts’ expectations of $1.15 per share.
The pending buyout
Dollar Tree is on the verge of buying Family Dollar Stores (FDO, Financial). The acquisition is expected to be completed in April. In order to turn around Family Dollar’s business, Dollar Tree plans to make a number of efforts, including rebranding most of the low-performing stores and improve store productivity. It intends to expand high-performing categories and eliminate products that do not meet the standards.
Sales per square feet for Family Dollar stand at $165, whereas that of Dollar tree stands at $187 per square feet. Thus, these initiatives will help in boosting the sales. Also, it plans to improve the selection of products at Family Dollar Stores.
Dollar Tree will also be providing incentives to employees to improve customer service and take measures to control expenses and increase operating efficiencies.
Conclusive thoughts
Dollar Tree is headed in the right direction. Its strategic efforts on offering products for $1 or less and the potential acquisition make it an attractive bet. Also, it plans to turn around Family Dollar’s business look interesting. Further, the discount retailer is expected to witness higher demand in the spring season and expects sales to be in the range of $9.21 to $9.45 billion. Overall, this company should be one of the most lucrative investment bets.
