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Why Dollar Tree, Inc. Stock Popped Today

By Steve Symington - May 26, 2016 at 3:02PM

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The discount retailer enjoyed a strong start to its new fiscal year.

Image source: Dollar Tree, Inc.

What: Shares of Dollar Tree Inc. (DLTR 0.27%) were up 12.5% as of 11:30 a.m. EDT Thursday after the discount retail chain announced stronger-than-expected fiscal first-quarter 2016 earnings.
 
So what: Quarterly revenue grew 133.6% year over year, to $5.09 billion, primarily thanks to a $2.7 billion increase included in sales from Family Dollar, which Dollar Tree acquired last year. Meanwhile, same-store sales rose a modest 2.3% at constant currencies (or 2.2% adjusted for the impact of Canadian currency fluctuations), driven by increases in both customer transactions and average ticket size.
 
That translated to net income of $232.7 million, or $0.98 per share, which includes a $0.09-per-share one-time tax benefit recognized during the quarter. Excluding the tax benefit and acquisition-related costs from last year's first quarter, diluted earnings per share rose 25.4% year over year, to $0.89.
 
Analysts, on average, were expecting lower adjusted earnings of $0.81 per share on revenue of $5.1 billion.
 
"I am very pleased with the company's performance in the first quarter," added Dollar Tree CEO Bob Sasser. "Through what continues to be a challenging economic environment, we delivered sales [at] the mid-point of our guidance range, and earnings that exceeded the high end of our guidance range."

Now what: Sasser also noted Family Dollar delivered its third straight quarter of positive same-store sales, and that the company remains on track with Family Dollar's integration and to achieve its previously outlined synergy targets.

In the meantime, for the current quarter, Dollar Tree anticipates revenue in the range of $5.03 billion to $5.12 billion, including year-over-year selling square footage growth of 2.4% and a low-single-digit increase in same-store sales, and diluted earnings per share of $0.66 to $0.72. By comparison, analysts' consensus estimates called for second-quarter revenue of $5.09 billion and earnings of $0.75 per diluted share.

For the full year, however, Dollar Tree now expects revenue of $20.79 billion to $21.08 billion (narrowed from its previous range of $20.76 billion to $21.11 billion) and net income per diluted share between $3.58 and $3.80 (up from its previous per-share range of $3.35 to $3.65).

In the end, after combining that strong full-year outlook with Dollar Tree's relative earnings outperformance and integration progress to start the new fiscal year, it's no surprise to see investors so aggressively bidding up shares today.

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