Dollar Tree Inc. (DLTR, Financial) released its third-quarter results before the market opened on Nov. 24. Both earnings and revenue surpassed analysts' projections and rose year over year.
Snapshot of the quarter
The Chesapeake, Virginia-based company recorded earnings of $1.39 per share, which was more than the $1.08 reported in the year-ago period. Revenue of $6.18 billion surged 7.5% on a year-over-year basis. Analysts had anticipated earnings of $1.15 on $6.11 billion in revenue.
Comparable store sales improved 5.1% in the reported quarter thanks to strong performance at Family Dollar (up 6.4%) and Dollar Tree stores (up 4%). The Dollar Tree segment recorded its best comps performance of the last 10 quarters.
Selling, general and administrative expenses rose to 23.7% of sales compared to 23.5% of sales in the year-ago quarter. This was driven by coronavirus-related expenses of $35.3 million, which was associated with frontline worker wage premiums as well as field management bonuses. By contrast, operating income of $465.5 million was up roughly 30%.
Store count
During the quarter, Dollar Tree launched 143 new outlets, modernized or repositioned 34 stores and closed 16 locations. The company also rejuvenated 371 Family Dollar stores in the H2 format. It also plans to open 480 stores in fiscal 2020 and complete 750 Family Dollar H2 store renovations. At quarter's end, the retailer operated just over 15,600 stores located in 48 U.S. states and five Canadian provinces.
Financials
The discount retailer had cash and cash equivalents of $1.12 billion as of Oct. 31. During the quarter, the company repaid $500 million borrowed under its revolving credit facility. It also plans to pay down the $300 million legacy Family Dollar note, which is due in February. Net long-term debt (barring current maturities) stood at $3.22 billion.
The company has temporarily halted its stock buyback program.
Looking forward
The company is off to a very strong start in the fourth quarter, given that the same-store sales at both Family Dollar and Dollar Tree are "above reported third quarter levels." President and CEO Mike Witynski commented on the company's outlook:
"Our focus will continue to be on opening new stores, refining our store formats and upgrading our assortments to drive improved store productivity, increasing operating efficiencies, generating free cash flow and buying back shares. These efforts are designed to deliver continued value to our long-term shareholders."
In light of the pandemic and lack of clarity related to government stimulus initiatives, the company did not provide full-year fiscal 2020 outlook. However, the company did estimate that capital spending would be $1 billion, which is in line with its previous forecast.
Disclosure: I do not hold any positions in the stocks mentioned.
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