Dollar Tree (Nasdaq:DLTR) reported a tremendous upsurge in its revenue and earnings recently. The news was greeted by the market sending the stock up more than 10%. Dollar Tree and the dollar stores are returning big dollar results in both earnings and their stock prices. (For a comprehensive tutorial on how to start investing, see Investing 101: Introduction.)
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Another Great Quarter
Dollar Tree posted $1.56 billion in consolidated net sales in the fourth quarter, up from $1.39 billion last year. Net income was $135 million. up from $105.2 million. The company earned $1.52 a share, a 32% increase from the $1.15 per share it earned last year. Operating margin and inventory management improved.
As impressive as these quarterly numbers were, the fiscal year numbers were just as good or better. Revenue rose from $4.65 billion to $5.23 billion, with net income of $320.5 million, up from $229.5 million. Fourth quarter EPS was $3.56, compared to $2.53.
There is certainly no recession in Dollar Tree's business. It has benefited handsomely from the Great Recession, where consumers have found their way into Dollar Tree and other dollar stores and they keep coming back. Other dollar stores, such as Family Dollar (NYSE:FDO), have had healthy sales and earnings increases. 99 Cents Only Stores (Nasdaq:NDN) nearly doubled its earnings in the last quarter. Goldman Sachs (NYSE:GS) bought into the Dollar General (NYSE:DG) IPO. The stocks of the dollar store discounters have been booming as well, with 99 Cents Stores recently nearly touching a five-year high.
Recession Good to Dollar Tree
The recession has not only been driving consumers more and more into Dollar Tree and other dollar stores, it has enabled Dollar Tree and its dollar store cousins to position themselves to keep the new customers they've attracted. Dollar Tree is striving to offer value, new merchandise and a positive shopping experience.This approach will position the company for continued growth in value-conscious times. The argument that there has been permanent change in the retail buying habits of the consumer is gaining traction as each quarter goes by. Expect the idea of the "recession only" sweet spot for Dollar Tree and the other dollar retailers to be significantly challenged as we get into economic recovery.
Dollar Tree also has been buying back its stock. It has spent $193 million of the $500 million it intends to use to re-purchase shares. The company is keeping a tight supply chain and has an eye on management and other expenses. Dollar Tree also opened 240 new stores in the last year. So growth along with tight fiscal management is its watchword.
Dollar Tree's Future
With guidance for next year's earnings projecting $3.96 to $4.23 a share for Dollar Tree, the company has terrific ongoing prospects. The stock recently hit a new 52-week high, yet even on current earnings it is still trading at a reasonable multiple of 15.75, with a forward multiple as low as 13. Fundamentals point that this stock is moving in the right direction. (Setting goals is the first step in determining which investment vehicles are right for you. For more information, refer to Investing With A Purpose.)
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