Foolish Forecast: Dollars Growing on Dollar Tree

Deep discount retailer Dollar Tree (Nasdaq: DLTR  ) will report fourth-quarter and full-year financial results on Wednesday, Feb. 27. Let's see if earnings will be worth more than the goods at one of its stores.

What analysts say:

• Buy, sell, or waffle? Six of the 15 analysts handicapping the discount chain think it's worth planting a seed with a buy recommendation, while eight say to wait for sunnier days. Only one analyst thinks it'll take more than a dollar and a dream, and rates it a sell.
• Revenues. Could be that analysts have taken that wait-and-see position because sales are expected to fall 1% to $1.3 billion.
• Earnings. Profits, though, are expected to grow 6.3% to $1.02 per share, showing that dollars can indeed grow on trees.

What management says:
Although no one can fully escape the impact of a cutback in consumer spending as the economy worsens, Dollar Tree and the various dollars stores like Family Dollar (NYSE: FDO  ) and 99 Cents Only (NYSE: NDN  ) ought to feel it less because of the value proposition they represent. Dollar Tree has been leveraging that value through the acquisition of the Deals chain, which it is expanding. This is a $5-and-under concept which has the benefit of increasing the average baskets price of spending through Dollar Tree. It's a concept working well at other discounters offering higher price points and has seen more competitors moving in, like privately held Five Below, which operates a chain on the East coast.

With a greater assortment of goods from which to choose, new markets that it's opening stores in, and an expansion of refrigerators and freezers -- a ploy that didn't work as well with Big Lots (NYSE: BIG  ) , but has been well received here -- it looks like Dollar Tree can sprout more growth.

What management does:
As management grows its store base and continues to invest in infrastructure, the company expects to become more efficient and improve its inventory management. This will allow it to enhance margins, and help fend off any rising costs Dollar Tree encounters, such as the increasing cost of diesel it experienced last quarter.

Margin	10/06	02/07	5/07	08/07	11/07
Gross	34%	34.2%	34.2%	34.2%	34.4%
Operating	7.9%	7.8%	7.8%	7.9%	7.8%
Net	4.9%	4.8%	4.8%	4.8%	4.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Dollar Tree has successfully introduced refrigerators and freezers into its stores, and it has expanded its deep discount concept to include slightly higher-priced items. That's proven to be a good mix of business that positioned it well against deep discounters like Dollar General and Family Dollar, and now ahead of higher-priced competitors like Big Lots and Fred's (Nasdaq: FRED  ) .

Comparisons to last year may be harder because of the lack of the extra selling week coupled with the season. And with higher fuel prices pushing costs up at a time when all sectors of the economy are feeling the pressure, it wouldn't surprise me to see Dollar Tree reporting tighter numbers, even if those broad macroeconomic factors drove more customers to its stores.

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