Last week, Dollar Tree (NASDAQ:DLTR) released its Q3 of fiscal 2017 results which, like the previous quarter, beat convincingly on the bottom line. Many things went right for the discount retailer during the period; let's take a look at the earnings report to see how Dollar Tree managed to bring in the dollars this time.

Tree of growth

Dollar Tree's Q3 saw the low-cost retailer book net sales of $5.32 billion, which was 6% higher on a year-over-year basis. The company's same-store sales rose by 3.3%, powered by the 5% of its flagship Dollar Tree brand. (It also owns Family Dollar, a 2015 acquisition.) On the bottom line, the company netted a profit of just under $240 million for the quarter, for a considerable 40% improvement.

That works out to $1.10 per share, well above the average of $0.90 analysts predicted. Revenue also beat the consensus, although not as spectacularly -- prognosticators were modeling $5.28 billion. The overall same-store-sales growth figure also topped the average expectation of a 2.4% increase.

Sunny tree canopy

Image source: Getty Images

It seems that holidays and other once-a-year occasions were the motors of top-line growth for Dollar Tree during the quarter. In a conference call with analysts to discuss the results, recently appointed CEO Gary Philbin said the company saw good comps at Halloween, the fall harvest season, and the back-to-school period.

This is the second quarter in a row that Dollar Tree has posted encouraging growth in key metrics and handily beat analyst estimates. In the company's Q2, it similarly expanded its revenue by 6%, while overall comps rose by 2.4%, and net income increased by 36%. Note that the latter two rates were topped in Q3.

As with Q2, this quarter's set of results included a guidance increase for the full fiscal year. Dollar Tree now expects that total sales will amount to $22.20 billion to $22.31 billion for 2017; before the Q2 upgrade, the company was modeling $21.95 billion to $22.25 billion. EPS has received a more considerable upgrade; the company believes it will hit $4.44 to $4.60, against the pre-Q2 estimate of $4.17 to $4.43.

Even if it meets only the low end of those projections, Dollar Tree will experience significant growth. Revenue for fiscal 2016 was $20.72 billion, while EPS was $3.78.

Bucking the trend

Times are not great for the wider retail industry right now, what with customers forgoing the mall and corner store for online shopping. This trend isn't affecting the discount end of the market much, however. 

Witness the recent performance of Dollar Tree's rival Dollar General (NYSE:DG), for example. In its most recently reported quarter, Dollar General experienced an 8% year-over-year improvement in its net sales, and 2.6% growth in same-store sales -- in other words, growth that was in the neighborhood of Dollar Tree.

Although it's not as comparable as Dollar General, The TJX Companies (NYSE:TJX) slots into the budget segment, so we can use it to help illustrate the trend. For its Q3, TJX enjoyed a 6% rise in sales, even if its comps were flat on a year-over-year basis.

There are numerous factors behind the resiliency of the discount segment. In Dollar Tree's case (plus that of the similar Dollar General), the wares it sells don't port over well into online sales. Would you, as a consumer, poke diligently around a website to scoop up a bunch of items selling at or below a buck? Dollar Tree is more a place to visit in person to grab a few necessities, plus an impulse buy -- or several.

Considering that, the twice-raised guidance for the entirety of 2017 feels achievable. Dollar Tree is proving more than resilient and nimble enough to thread its way through a challenging environment for the retail sector just now. I see no reason that momentum would slow, and I wouldn't be surprised if we get more quarters of estimates-beating growth from the company. 


Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.