Bargain shoppers, treasure hunters, and value investors, get ready. Discount merchandiser and Motley Fool Inside Value pick Dollar Tree (NASDAQ:DLTR) opens its books on its Q4 and full-year 2005 results bright and early tomorrow morning. In the few hours remaining before it does, let's peek through the window and see what's inside.

Wall Street Wisdom:

  • General consensus. Fourteen analysts follow Dollar Tree. Of these, six rate the stock a buy and eight call for a hold.
  • Revenues. Analysts expect Dollar Tree to report 8% sales growth versus Q4 2004, for $1.07 billion in total revenues.
  • Earnings. Profits are believed to have increased just 2% in the quarter, to $0.81 per share.

Margin watch:
Dollar Tree's margins continue their long-term slide, with rolling gross, operating, and net margins all down over the past 18 months. On the bottom line, the company is now 15% less profitable than it was a year and a half ago.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

36.4

36.2

35.6

35.2

34.8

34.6

Op.

10.1

9.7

9.4

9

8.7

8.5

Net

6.1

5.8

5.8

5.5

5.3

5.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Remember how I said that analysts were looking for 8% sales growth? Forget it. Dollar Tree reported three weeks ago that its sales actually grew 9% to $1.08 billion, beating both the company's own reiterated guidance of a month ago and analyst forecasts. Profits, however, could still underperform, because the company promised only $0.80 to $0.81 per share.

Whatever the profits number turns out to be, though, I believe Dollar Tree is doing just fine as a business, primarily thanks to good inventory management. If you look at the past two quarters' results, you'll see that Dollar Tree grew sales by 9% and 10% in Q2 and Q3 2005, respectively. Yet in each case, the company's inventory levels declined. As a result, in Q3 2005, the company booked its first free cash flow-positive quarter that wasn't a Christmas quarter since August 2003. Great news!

Foolish lookout:
Dollar Tree competes with several similarly named stores: 99 Cents Only (NYSE:NDN), Dollar General (NYSE:DG), and Motley Fool Stock Advisor pick Family Dollar (NYSE:FDO) among them. And in the background, always looming large, stands discount kingpin Wal-Mart (NYSE:WMT).

Dollar Tree is a Motley Fool Inside Value pick. Take the newsletter service that's dedicated to great stocks on the sales rack for a 30-day free spin.

Fool contributor Rich Smith does not own shares of any company named above.