Dreams Come True at Dollar Tree

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The signs were there last quarter for Dollar Tree (Nasdaq: DLTR), when it reported that customers began shopping in its stores in larger numbers in December. The news wasn't enough to help the fourth quarter, but it was a sign that the first quarter was going to be robust.

That's turned out to be largely true. Not only did the deep discounter report an 8% rise in sales, but per-share profits jumped as well, up 26% to $0.48 a share. The results were helped along by a 2% increase in same-store sales, a lower tax rate, and share repurchases, and allowed the company to put on a performance unlike many of its rivals. In fact, over the past year, Dollar Tree has trounced all but one of its main competitors in growing the bottom line among dollar-store retailers.

Company Name	Revenue	1-Year Growth Rate, Op. Income	1-Year Growth Rate, Net Income
Dollar Tree	6.9%	6.4%	4.8%
Family Dollar (NYSE: FDO)	1.6%	(8.5%)	(8.7%)
Big Lots (NYSE: BIG)	(1.8%)	27.8%	27.7%
99 Cents Only (NYSE: NDN)	9.8%	(77.0%)	(31.8%)
Fred's (Nasdaq: FRED)	0.8%	(24.1%)	(59.9%)
Industry Median	1.6%	(8.5%)	(8.7%)

Source: Capital IQ, a division of Standard & Poor's.

Equally important was that the company saw margins improve across the board, witnessing double-digit basis-point improvements in gross, operating, and net profits. While expenses crept higher as well, that was primarily due to greater advertising and the expanded use of credit and debit cards. It was only last year that Dollar Tree dropped its resistance to the use of electronic forms of payment, and it has been reaping the benefits ever since, as more customers have been dropping dimes -- and dollars -- in its stores.

While second-quarter sales are expected to miss expectations, full-year results are still within the broad range of forecasts. The company is also not waiting on the good graces of stimulus checks, which its customers will probably end up putting toward gas or food.

As the economy continues to stagnate, the dollar proposition has the potential to be a hit with consumers. More often than not, though, they've opted for the low-price, good-quality mix found at Wal-Mart (NYSE: WMT) or Costco (Nasdaq: COST) rather than the perceived low-end goods found at the dollar stores.

Dollar Tree, however, has done well with its mix of goods and concepts -- it also runs Deal$, a chain of $5 and under stores -- that has been putting cash in its pocket.

Pocket these related Foolish articles:

• A Dollar and a Dream at Dollar Tree
• Dollar Tree Sprouts Growth
• Family Dollar Stretches Credulity