Remember Pavlov's dogs? They were the canines that associated the sound of a bell with the imminent arrival of tasty food in a famous experiment, and they drooled in slick anticipation as soon as they heard the clanging (eww, kind of gross). Well, when you tell a consumer that everything in a particular establishment is priced at the attractive sum of $1, you tend to get that same slick, drooling response seen in the Russian pooches (OK, enough already with the drooling, I hear you). Anyway, that's roughly the business model of Dollar Tree Stores (NASDAQ:DLTR).
The company reported results for the first quarter yesterday (ending May 1). Net earnings per share came in at $0.31 compared to $0.29 for last year's first-quarter period. Net sales were $710.3 million, representing a 15.4% improvement over the comparable time frame. Granted, this is more of a top-line as opposed to bottom-line story, but gross margins held steady at 35.4%. If the company can continue its endeavors toward improved efficiencies, then it will hopefully be able to retain more of those gross profits and improve the net margin, which backed off a bit this quarter. Management foresees potentially flat same-store sales in its guidance, however, which is an important concern.
Let's go further. Cash and cash equivalents showed something that I personally like to see: a nice increase over the previous year. They jumped from approximately $90 million to $146.7 million -- that's a lot of dollars in the bank, to be sure. Dollar Tree continues its successful courtship of the anti-profligate set, and as Rick Munarriz stated, the pull of these stores is not dependent upon a gloomy, recessionary environment -- any thinking consumer enjoys the sensation that comes from a wallet or purse that does not feel as empty after a shopping excursion.
There are many players in this retailing segment, and they offer a mixed bag of performance. 99 Cents Only (NYSE:NDN) has been having a tougher time at the game than Dollar Tree. Family Dollar (NYSE:FDO), though, is faring better. And that five-star concern Dollar General (NYSE:DG) might be in need of a demotion in rank considering its recent brush with the Securities and Exchange Commission. Take a look at this chart to see how the investment community has evaluated them on a relative basis; you'll note that Dollar Tree is behaving quite well from that perspective. But you won't necessarily get the hottest long-term price action from any of them, so an individual looking to sock away some dollars in retailing equities might want to research firms in another category, such as a Wal-Mart (NYSE:WMT) or a Best Buy (NYSE:BBY).
Exorbitant gasoline prices were discussed in the conference call, and I have to agree that this is a source of anxiety for Dollar Tree (not only to the dollar stores, but in a macro sense as well). Target (NYSE:TGT) also may bring some worry since the discounter intends to compete with all of the dollar guys by devoting some square footage to the get-it-for-a-buck mentality.
Dollar Tree bought back approximately 700,000 shares out of its float this last quarter, and it will hopefully continue its buyback trend. Shareholders like it when the company thinks its stock represents value. So what do I think? Well, a good report overall, but I'm not necessarily inclined to add any of my portfolio dollars to Dollar Tree at this time, especially with the price-of-petro issue still surrounding the economy. But, hey, go and ring a bell. Even if I don't become a shareholder anytime soon, I can still vie for those bargains along with the rest of the Pavlovian masses.
Fool contributor Steven Mallas owns none of the companies mentioned.
