New York-based RiverPark Funds is bullish on Dollar Tree, Inc. (NASDAQ:DLTR), which operates discount variety stores in the United States and Canada. In its Long/Short Opportunity Fund Q4 Investor Letter, RiverPark made comments about Dollar Tree, saying that the company is in a perfect position – thanks to its unique merchandising and pricing strategies – to “compete successfully in a more Amazon-centric environment in the years to come.” Let’s take a look at the fund’s viewpoint about Dollar Tree.
Dollar Tree shares were our top contributor for the quarter after posting strong results that beat expectations across nearly every metric while also raising guidance. The company’s Dollar Tree segment posted strong 5.2% same store sales growth, its 39th straight quarter of positive same store sales growth and its best since the fourth quarter of 2014. The company’s Family Dollar division also showed continued signs of its turnaround under DLTR’s leadership, delivering 1.5% same store sales growth, a 130 basis point improvement in gross margin and a 190 basis point improvement in operating margin. For the combined company, operating margin increased 120 bps year-over-year and operating income and EPS increased 24% and 40% year-over-year, respectively. These results are particularly compelling given the skepticism around the Family Dollar acquisition and the overall negative sentiment around bricks and mortar retail.
We continue to believe that the company’s unique merchandising and pricing strategies position it to compete successfully in a more Amazon-centric environment in the years to come. In our view, continued top-line growth (driven by new stores and same store sales growth) combined with additional Dollar Tree-Family Dollar merger synergies, expense control, tax rate savings and debt pay-down should drive 20% annual earnings growth for the company for the next several years. In addition, we expect the company to use its substantial free cash flow to retire the Family Dollar acquisition-related debt (the company has already paid down $1.4 billion –20% of its debt– over the past 12 months) and then resume its long standing history of share repurchases.
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Virginia-based Dollar Tree, Inc. (NASDAQ:DLTR) is known as the most successful single-price-point retailer in North America. The company operates thousands of stores across 48 U.S. states and five provinces in Canada.
For the nine months of the fiscal-year 2017 ended October 28, Dollar Tree reported a 5.3% year-over-year increase in consolidated net sales to $15.88 billion. The company had net income of $674.2 million for the period, which is higher than $574.4 million in the first nine months of fiscal 2016. Earnings per share rose 16.9% to $2.84, versus $2.43 in 2016.
For the fourth quarter of 2017, DLTR estimates consolidated net sales to range from $6.32 billion to $6.43 billion. It expects earnings per share to be in the range of $1.80 to $1.89. For the full-year 2017, consolidated net sales are expected to range from $22.20 billion to $22.31 billion, versus the company’s previously expected range of $22.07 billion to $22.28 billion. Further, the company anticipates net income per share for full-year fiscal 2017 to range between $4.64 and $4.73, compared to its previous guidance of $4.44 to $4.60.
Dollar Tree shares are down 1.71% this year so far. However, the stock has surged more than 32% over the last 12 months. The stock – currently trading at $106.28 – has an average rating of ‘Overweight’ and an average price target of $118.22 from analysts polled by FactSet.
Meanwhile, Dollar Tree, Inc. (NASDAQ:DLTR) is a popular stock among the hedge funds tracked by Insider Monkey. As of the end of September 2017, there were 56 funds in our database with positions in the company, including Carbonado Capital and Shellback Capital.
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