Across the country, leaves have been turning from bright green to autumnal shades of red, gold, and brown. Meanwhile, over on Wall Street, investors hope to see discount retailer Dollar Tree (NASDAQ:DLTR) buck this trend and turn from brown to green.
In our most recent report on the company, fellow Fool W.D. Crotty took Dollar Tree to task for blaming its declining same-store sales growth on -- get this -- high gas prices. A weak excuse at best, and not by any means original. In recent quarters, everyone from fellow discounter Wal-Mart (NYSE:WMT) to such surprising sources as restaurateursApplebee's (NASDAQ:APPB) and Cracker Barrel (NASDAQ:CBRL) have been crying crocodile tears over the high price of gas. Although there's logic in the restaurants' complaint -- a natural response to declining disposable income would be for people to eat out less -- the excuse rings hollow for discount retailers. As gas costs drain their wallets, you'd expect people strapped for cash to shop at discounters more rather than less.
Tomorrow, Dollar Tree is expected to report its third straight quarter of year-over-year declining profitability. Analysts project that the company will report $790 million in sales and $0.27 per share in profits (a penny less than last year), an estimate that has already been reduced three times in as many months. Dollar Tree contributed to the analysts' pessimism -- in October, the company warned that hurricane damage to 14 of its stores would shave $0.03 per share off of this quarter's profits.
Three weeks ago, however, the company announced third-quarter sales results that hit near the top of its own and exceeded analysts' expectations: $797 million compared with the expected $790 million. When that number gets confirmed tomorrow, it should officially make for a 10% year-over-year increase in sales, despite same-store sales declining by 1%.
But while the sales numbers are in, two things remain to be revealed in tomorrow's earnings release: First, has the company stemmed the tide of declining margins sufficiently to eke at least some earnings growth out of its greater sales? There's some hope on this score. Last quarter was the first in almost two years in which the company reported inventories lower than where they had been in the respective year-ago period. And the fewer the inventories, the less pressing the need to discount prices to clear those inventories out (thus compressing margins).
Second, what excuse will the company come up with if it failed to grow earnings? With gas prices now falling steadily, albeit slowly, it would seem that that excuse has had its time in the sun. Tune in tomorrow to find out whether Dollar Tree changes colors, or just excuses.
Fool contributor Rich Smith does not own shares of any company named above, but Dollar Tree is a recommendation of Motley Fool Inside Value . For a 30-day free trial, click here. The Motley Fool has an ironclad disclosure policy .
