In its Q1 Investor Letter, RiverPark Large Growth Fund discussed its investment thesis on Dollar Tree, Inc. (NASDAQ: DLTR) and other companies. We have already discussed Adidas, MasterCard, Booking Holdings, Adobe Systems, and Amazon.com. In this article, we’re going to focus on RiverPark’s comments about Dollar Tree.
So, here are the fund’s thoughts:
Dollar Tree shares were the top detractor for the quarter as investors were disappointed in the company’s 2018 guidance given as part of its fiscal fourth quarter earnings release. Dollar Tree’s fourth quarter results were solid with revenue up 13%, gross margins up 90 bps, operating margins up 160 bps and an operating income increase of 31%. However, the company’s comparable store sales increase of 2.4% was modestly below expectations and the company’s 2018 guidance, which included an incremental $100 million investment in additional store wages and training (funded by the company’s significantly lower tax rate) was poorly received by investors.
We believe the sell-off on the company’s near-term spending increase to be short-sighted and took advantage of the weakness to add to our position in what we continue to believe to be one of the best run retailers in the market. The company’s unique merchandising and pricing strategy, continued synergy gains from its Family Dollar acquisition, and its best in class management, should continue to position DLTR for years of double-digit operating income growth and greater than 20% per year bottom-line growth, as operating performance is augmented by material tax rate savings, continued Family Dollar debt pay-down and an expected resumption of the company’s formally aggressive share repurchase program. Dollar Tree remains a top five holding in the portfolio.
Dollar Tree, Inc. (NASDAQ: DLTR) is a Virginia-based chain of discount variety stores that sells items for $1 or less through 14,835 stores throughout the 48 contiguous U.S. states and Canada.
For the first quarter ended May 5, the company reported a 5.0% increase in sales to $5.55 billion from $5.29 billion in the prior year’s first quarter. Gross profit rose 4.5% to $1.70 billion in the quarter compared to $1.63 billion in the prior year’s same quarter. Operating income for the quarter was $437.6 million, higher than $388.8 million in the same period last year. The company’s net income fell $40.0 million, compared to the prior year’s first quarter, to $160.5 million. Earnings per share was $0.67 compared to $0.85 in the prior year’s quarter.
If we look at the stock market, Dollar Tree, Inc. (NASDAQ: DLTR)’s performance isn’t very impressive. Since the beginning of the year, the value of the company’s stock dropped by 24%. Over the past three months, the share price has decrease nearly 21%. But, over the past 12 months, the stock has gained 2.69%. For DLTR, the consensus average recommendation among analysts polled by FactSet is ‘Overweight’ and the consensus average target price is $110.50. On Friday, the stock was trading at around $81.49.
Meanwhile, as far hedge funds’ interest in the stock is concerned, Dollar Tree is a popular stock among funds tracked by Insider Monkey. There were 49 funds in our database, as of the end of 2017, with positions in the chain of discount variety stores.