There was a lot to like in the second quarter earnings report from Dollar Tree Stores (DLTR 80.75, +6.43), primarily because its report read like few others in the retail space. To wit, there was sales growth, comparable sales growth, gross margin expansion, operating margin expansion, a positive earnings surprise, and increased full-year guidance.
It is little surprise, then, to see shares of DLTR up 8.7% in pre-market trading as there is ample reason for investors to be cheering the company's earnings news.
Apparently, the dollar-store niche is one area that hasn't been trampled on by Amazon (AMZN 958.00) -- or at least Dollar Tree hasn't been.
There is no better testament to Dollar Tree's competitive resilience than the 2.4% increase in enterprise same-store sales growth in the second quarter. That growth was paced by a 3.9% increase in same-store sales for Dollar Tree and a 1.0% increase in same-store sales for Family Dollar.
The more important takeaway is that the enterprise same-store sales growth was spurred by increases in both comparable transaction count and average ticket. In other words, customer activity increased in the period and those customers spent more on average than they did in the same period a year ago.
That is a reflection of Dollar Tree's appeal as a deep value-based retailer in an environment where weak disposable income growth has prompted many consumers to be more cost-conscious.
To its credit, Dollar Tree managed its business very well in the face of increased customer demand. The company's gross margin increased 50 basis points to 30.8% and its operating margin increased 80 basis points to 7.9%. Merchandise inventories, meanwhile, declined 1.6% year-over-year even though the company increased its store count and square footage by 3.2% and 3.3%, respectively.
Consolidated net sales for the period increased 5.7% to $5.28 billion, which was ahead of expectations, and its diluted earnings per share surged 36% to $0.98, which was well ahead of analysts' average expectation.
The positive surprises for the second quarter were a springboard for the company to increase its full-year guidance. Specifically, Dollar Tree now expects full-year net sales to range from $22.07 billion to $22.28 billion, versus prior guidance of $21.95 billion to $22.25 billion, and income per diluted share to be between $4.44 and $4.60, compared to previous guidance of $4.17 to $4.43.
The full-year sales estimate is based on a low single-digit increase in same-store sales and 3.9% square footage growth.
Based on where DLTR is trading in pre-market action, the stock trades at approximately 17.9x estimated FY17 earnings.