However, the stock still was able to generate solid returns for investors, gaining as much as 55% since the beginning of 2016, driven by catalysts like its 2015 acquisition of Family Dollar. In 2018, its inconsistent performance seems to have caught up with the company as the stock is now down more than 20% on the year.
Taking a closer look at its Q1 report, it reported EPS of $1.19, which was $0.04 below consensus. This marks the company's third bottom line miss over the past five quarters. Gross margin fell by 20 basis points to 30.6% due to higher shrink, distribution, and occupancy costs. In the earnings press release, its CEO commented that it also faced increasing freight costs, as well as colder-than-normal spring weather in many markets.
Despite the unfavorable weather, DLTR's revenue was still inline though at $5.55 bln, up 5.0% year/year. Enterprise same store sales increased by 1.4%, a deceleration from Q4's +2.4%, but, an improvement from the year-ago quarter's +0.5% performance. Breaking it down by brand, Dollar Tree stores saw a +4.0% bump, driven by both an increase in average ticket and customer traffic. Offsetting this, unfortunately, was a -1.1% figure for the Family Dollar stores.
Turning to its outlook, DLTR issued downside Q2 EPS guidance of $1.07-$1.16 vs. the $1.18 consensus with revenue inline at $5.47-$5.57 bln. For FY19, it also issued downside EPS guidance of $5.32-$ 5.62 (excluding items) vs. the $5.64 consensus on inline revenue of $22.73-$23.05 bln, with comps in the low positive single digit territory.
On the positive side, management did comment that it is pleased with the acceleration in sales it has seen over the first several weeks of Q2. However, like many retailers, it is facing rising commodity and freight costs, which is pressuring margins. As a deep discount retailer, DLTR may struggle more than other retailers if it were to raise prices in order to offset these rising costs.
All in all, the company is still generating solid earnings growth (Adj EPS +21% in Q1) and cash flow ($387.6 mln). Despite this, its inconsistent track record of meeting or exceeding expectations, coupled with these rising costs, is enough to send shares sharply lower today.