Dollar Tree Slips To Loss In Q2; Sees Q3, 2015 Revenues Below View

(RTTNews) - Discount retailer Dollar Tree, Inc. (DLTR) on Tuesday reported a loss for the second quarter, reflecting costs related to the acquisition of Family Dollar Stores Inc. and on lower margins that more than offset higher revenues.

However, revenues for the quarter missed analysts' expectations and the company forecast revenues for the third quarter as well as fiscal 2015 also below their estimates.

Dollar Tree completed its acquisition of bigger rival Family Dollar Stores, Inc. on July 6, 2015. Since that date, the company has been executing its integration plan.

The Chesapeake, Virginia-based operator of discount variety stores selling everything for $1 or less, reported net loss for the second quarter of $98 million or $0.46 per share, compared to net income of $121.5 million or $0.59 per share in the prior-year quarter.

Excluding acquisition-related adjustments, adjusted net income for the latest quarter was $53.5 million or $0.25 per share, compared to $126.1 million or $0.61 per share in the year-ago period.

Excluding all acquisition-related costs and share changes, adjusted earnings for the Dollar Tree segment was $0.67 per share, compared to $0.61 per share in the year-ago period.

On average, nine analysts polled by Thomson Reuters expected the company to report earnings of $0.62 per share for the quarter. Analysts' estimates typically exclude special items.

Consolidated net sales for the quarter grew 48 percent to $3.01 billion from $2.03 billion in the same quarter last year, but missed analysts' consensus revenue estimate of $3.04 billion.

The increase was the result of $811.6 million in sales from the Family Dollar segment since closing on the acquisition, and same-store sales increase of 2.7 percent on a constant currency basis for the Dollar Tree segment. Same-store sales increased 4.5 percent in the prior-year period for the Dollar Tree segment.

Adjusted for the impact of Canadian currency fluctuations, same-store sales for the latest quarter increased 2.4 percent, driven by increases in customer count and average ticket.

Gross margin decreased 580 basis points to 28.4 percent, reflecting markdown expense and amortization for Family Dollar as well as the impact of the overall lower-margin product mix for the Family Dollar business. Operating margin for the quarter contracted 600 basis points to 4.1 percent.

Dollar Tree's retail selling square footage at the end of the quarter was about 108.2 million square feet.

Looking ahead to the third quarter, Dollar Tree forecast consolidated net sales in a range of $4.78 billion to $4.87 billion, based on a low single-digit increase in same-store sales. Analysts expect revenues of $4.91 billion for the quarter.

For fiscal 2015, Dollar Tree forecast consolidated net sales in a range of $15.30 billion to $15.52 billion, based on a low single-digit increase in same-store sales. Earlier, the company forecast revenues of $9.24 billion to $9.42 billion for the year.

The Street expects revenues of $15.57 billion for the year.

The company did not provide earnings per share guidance for both the periods due to the recently-completed acquisition, the significant integration initiatives and the divestiture process.

Dollar Tree reaffirmed the confidence in its ability to deliver $300 million in annual run-rate synergies by the end of the third year post-acquisition.

DLTR closed Monday's trading at $76.26, down $0.47 or 0.61 percent on a volume of 4.79 million shares. In Tuesday's pre-market activity, the stock is down $4.36 or 5.72 percent to $71.90.