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Why Dollar Tree Stock Popped Today

By Jeremy Bowman - May 28, 2020 at 10:52AM

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Shares of the discount retailer soared on a better-than-expected earnings report.

What happened

Shares of Dollar Tree (DLTR 0.58%) were moving higher today after the discount retailer posted better-than-expected results in its first-quarter report. The strong performance during the pandemic-afflicted period was led by the Family Dollar brand, which is focused more on essential goods like food and cleaning products, while results lagged at Dollar Tree stores.

The stock was up 10.9% as of 9:52 a.m. EDT.

A woman holding pushing a shopping cart in front of some Christmas ornament balls

Image source: Getty Images.

So what

Overall revenue increased 8.2% to $6.29 billion in the quarter, which was well ahead of expectations of $6.11 billion as growth was paced by a 15.5% jump in same-store sales at Family Dollar. Dollar Tree comps, on the other hand, were down 0.9%, while companywide same-store sales increased 7%.  

Management said sales spiked when the pandemic hit in March, but Dollar Tree brand's results were impacted by a decline in sales for seasonal and discretionary items like party, candy, and Easter items, which reduced same-store sales by 490 basis points.

Overall gross margin fell from 29.7% to 28.5% as sales mix shifted to lower-margin items and the company absorbed the impact of last year's tariffs, though it gained 40 basis points of leverage on overhead operating costs due to the increase in sales. Operating income fell from $385.5 million to $365.9 million as the company had $73.2 million in incremental operating expenses related to COVID-19. That led to earnings per share slipping from $1.12 a year ago to $1.04, but that was better than estimates of $0.91.

Now what

The company had pulled its guidance earlier in the year due to the uncertainty around the pandemic, but CEO Gary Philbin said the second quarter was off to a good start:

Following a volatile sales environment in the first quarter, I am extremely pleased with the momentum we are seeing in our business early in the second quarter. At Family Dollar, we are seeing continued sales strength with improvements in our discretionary categories. For Dollar Tree, we have seen a rebound on the discretionary side of the business following the Easter holiday, especially in crafts, graduation, stationery, Mother's Day seasonal and balloons.

As a discount retailer, Dollar Tree should be in a position to capture market share in the coming months as consumers trade down and look for savings during a down economy.

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