Dollar Tree Q2 Adj Profit Misses View, But Sales Top

(RTTNews) - Discount retailer Dollar Tree, Inc. (DLTR), which agreed to buy Family Dollar Stores, Inc. (FDO), reported Thursday a profit for the second quarter that declined from last year, despite improved sales at established stores, reflecting lower gross margins.

Adjusted earnings per share missed analysts' expectations by a penny, while quarterly sales topped their estimates. The company also provided earnings and revenue forecast for third quarter, in line with Street view, and adjusted outlook for the full-year 2014.

Dollar Tree agreed in late July to acquire Family Dollar Stores for $74.50 per share in a cash and stock deal valued $9.2 billion. Recently, discount retailer Dollar General Corp. (DG) made a superior all-cash proposal of $78.50 per share or $9.7 billion to thwart the Dollar Tree bid.

Earlier in the day, Family Dollar Stores announced that its board has unanimously rejected the non-binding proposal made by Dollar General on the basis of antitrust regulatory considerations. The Family Dollar board also unanimously reaffirmed its recommendation in support of the merger agreement with Dollar Tree.

"I am very pleased with our second quarter results. Expanded assortments of high-value product contributed to our strongest quarterly comparable store sales performance in two years. Pet supplies, hardware, household products, food, electronics and party goods all performed well in the quarter," CEO Bob Sasser said in a statement.

The Chesapeake, Virginia-based operator of discount variety stores selling everything for $1 or less, reported net income of $121.5 million for the second quarter, lower than $124.7 million n the prior-year quarter, while earnings per share increased to $0.59 from last year's $0.56.

Excluding acquisition-related costs, adjusted net income for the quarter was $126.1 million or $0.61 per share.

On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $0.64 per share for the quarter. Analysts' estimates typically exclude special items.

Consolidated net sales for the quarter grew 9.5 percent to $2.03 billion from $1.85 billion in the same quarter last year, and topped twenty-two Wall Street analysts' consensus estimate of $2.01 billion.

Consolidated comparable store sales for the quarter increased 4.5 percent on a constant currency basis, reflecting increases in both customer traffic and average ticket. Adjusted for the impact of Canadian currency fluctuations, comparable store sales grew 4.4 percent. The company delivered its 26th consecutive quarter of positive comparable store sales growth.

Gross margin for the quarter contracted 80 basis points to 34.2 percent, while selling, general and administrative expenses remained flat at 24.1 percent.

Dollar Tree continues to grow as it opened 90 stores, closed 4 stores, and expanded or relocated 20 stores in the second quarter. Retail selling square footage increased 6.8 percent to 44.8 million square feet from last year.

Looking ahead to the third quarter, the company expects earnings in a range of $0.61 to $0.66 per share, on projected quarterly sales between $2.02 billion and $2.07 billion, based on low- to mid-single digit positive comparable store sales. Analysts project earnings of $0.66 per share on revenues of $2.05 billion for the quarter.

For fiscal 2014, Dollar Tree now expects earnings in a range of $2.94 to $3.06 per share, on projected annual sales in the range of $8.44 billion to $8.55 billion and low- to low-mid-single digit positive comparable store sales.

Street is currently looking for full-year 2014 earnings of $3.13 per share on revenues of $8.51 billion.

Earlier, the company projected earnings in a range of $2.94 to $3.12 per share, on sales in the range of $8.37 billion to $8.54 billion and low single-digit positive comparable-store sales.

"In challenging macro environments, consumers are increasingly relying on Dollar Tree to be part of the solution in managing their family's budget. Our stores are well-stocked with incredible values and we are prepared for the fall selling season," Sasser added.

DLTR closed Wednesday's regular trading session at $55.00, up $0.24 on a volume of 3.50 million shares. In the past 52-week period, the stock has been trading in a range of $49.59 to $60.19.