Deep discount retailer Dollar Tree Inc. (Nasdaq:DLTR) posted impressive results for its third quarter, as it joined other retailers who've recently delivered strong earnings. The company once again had robust gains in revenues, net income and same-store sales, and also raised its guidance.

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Dollar Tree Doing Everything Well
DLTR's consolidated net sales grew to $1.43 billion from $1.25 billion in last year's same quarter. Net income rose 43% to $93.2 million or 73 cents per diluted share, compared to $68.2 million or 51 cents per diluted share last year's quarter. Same-store sales grew by 8.7%, while last year's same quarter had same store sales growth of 6.5%. Increased customer traffic along with higher average transactions drove the results this quarter. Food, housewares, along with health and beauty were some of the leading categories. The stores have made timely seasonal transitions and are well set up for the holiday season.

The Retail Resurgence Continues
All across the spectrum, retail produced some big winners in the third quarter. Luxury department store Saks (NYSE:SKS) increased same store sales 5.7%. Nordstrom (NYSE:JWN) also posted a good quarter, though it had mixed results in its discount Nordstrom Rack stores. Nordstrom is competing well across the spectrum, including against discounters TJX Companies (NYSE:TJX) and Ross Stores (Nasdaq:ROST). What is fascinating is that the high-end and low-end, even while competing against each other, are both producing impressive results. In addition, the mid-level retailers such as Macy's (NYSE:M) and deep discount dollar stores such as Dollar Tree are also doing well.

Dollar Tree's Stirring Year
At the three-quarter pole, 39 weeks into the fiscal year, Dollar Tree has racked up results much like it did this quarter. Revenue is up to $4.16 billion from $3.67 billion, a 13.2% increase. Same store sales have risen 7.3%, on top of the 7.5% increase of the first 39 weeks of the prior year. Net income stands at $234.8 million or $1.84 per share, compared to $185.5 million or $1.38 per share in the same period of a year ago. The company has increased its cash on hand (including investments) to $392 million from $342 million at the end of the third quarter in 2009. The numbers show Dollar Tree's consistently strong performance this year.

Outstanding Prospects
Dollar Tree now expects full year 2010 earnings to be from $3.01 to $3.08 per share, on sales of $5.88 to $5.92 billion. Dollar Tree's previous forecast had EPS for the full year pegged at $2.97. Investors have taken notice of the stock as it's risen 70% this year. Dollar Tree has performed so well that its competitive reach may now be extending to a more mid-market mainstream space. A Reuters piece suggested that part of Sears Holdings (Nasdaq:SHLD) problem is going up against smaller players like Dollar Tree. Dollar Tree also announced the purchase of 86 Canadian Dollar Giant stores, part of its continued expansion and growth plan.

Dollar Tree Stock
The stock, by virtue of its strong run up this year, traded recently at $54.70, and has a 52-week high of $57.99. The company carries only $250 million in long-term debt, and trades at a P/E of 19, with a forward P/E of slightly over 15. This valuation is not that high when you consider the income growth rate is nearly 37%. Still, most investors will wisely want more of a safety margin, so when the stock price retreats on this impressive growth retailer, that's the best time to buy it. (For more, see The Industry Handbook: The Retailing Industry.)

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Tickers in this Article: DLTR, SKS, JWN, TJX, ROST, M, SHLD

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