North America’s leading operator of discount variety stores, Dollar Tree (DLTR, Financial), pleased everyone with strong results for the second quarter. The retailer posted robust improvement in revenue and net income. Expanded assortments of high-value products contributed to Dollar Tree’s strongest quarterly comparable store sales performance in two years. Management is confident of delivering better comp sales. With Dollar Tree’s future looking bright, it will be interesting to see how it manages to fight with peers such as Dollar General (DG, Financial) and Family Dollar (FDO, Financial).
Strong performance
Looking at the financials, in the recently reported quarter Dollar Tree’s net income increased approximately $3.2 million to $121.5 million. Its sales improved by 9.5% to $2.03 billion. This is better than $1.85 billion as compared to the same quarter last year. In addition, the gross profit of the company also increased 7.0% to $694.1 million from $648.7 million as compared to last year’s same quarter. On the earnings part, Dollar Tree posted EPS of $1.28, an increase of 11.3% compared with $1.15 per share in the first half last year.
Dollar Tree is on fire having delivered some impressive growth in net income and profit. The company is seeing good improvement in comp sales, which led it to post good growth for the 26th consecutive quarter. Dollar Tree is further seeing positive signs for improvement in the sales on the back of changing consumer behavior as in this stiff macroeconomic environment, customers are playing their cards close to their nose and relying much on the stores like Dollar Tree as a solution to manage their family budgets
Focusing on the future
Dollar Tree is now focusing on various other initiatives to improve its profitability. It looks geared up to deliver better offerings to the customers, sustained growth and increased profitability. Dollar Tree thinks that it has much room to grow on the back of different ways it is under taking.
Dollar Tree has expansion strategies. It is planning to open more stores by increasing the productivity of all stores. It is working aggressively to develop new formats for the new potential end markets. It also has good strategy of increasing productivity in all of its stores. It is keeping its eye on sales and productivity initiatives which are working to ramp up category expansion. In addition, the company has great expectations from its top performing activities such as pet puppies, hardware, house hold products, food electronics and party.
The customers are also finding value in Dollar Tree as it continues to rationalize and expand assortments in these top performing categories. Dollar Tree is also trying its hand in the frozen and the refrigerated category. To satisfy the basic needs and to drive increased shopping frequency it is making such a shift to these two categories.
Besides the Dollar Tree Stores, the company is also expecting a lot from including Deal$ and Dollar Tree Canada and other brands in the portfolio. Deal$ stores deliver low prices on every day essentials, party goods, seasonal and home product which can also be a further sales driver for Dollar Tree in future.
Moreover, its online is also growing in size and performance. With this growth, Dollar Tree is expecting the customer base to broaden which will further enhance the market recognition of the brand. Also, to support and further make its online store attractive, Dollar Tree has also launched a newly created section on its Web site called Extreme Values and New Arrivals. This provides online to efficiently shop for amazing bonus buys, fantastic deals on manufacturers close outs and exciting new arrivals.
Conclusion
Dollar Tree looks fairly valued with a trailing P/E of 19.41 and a forward P/E of 15.73, which shows good earnings growth in the future. The valuation levels for Dollar Tree show that the stock could be a good investment venture, and it is expected to gain market share in the future. So, I would suggest that investors definitely consider Dollar Tree for their portfolio.
