Dollar Tree (Nasdaq: DLTR) powered ahead with another good earnings report. The dollar item discounter posted positive gains in both revenue and earnings, and the company continued to expand with new store growth. The stock showed steel-like strength as it powered up even during the market's ferocious sell-off.

Not Just For The Recession
The contention of the dollar discount retailers is that they are now built for more than recession. While some investors have taken a "show me" attitude, others have bid the stock up. Dollar Tree continues to trade near its 52-week high. With the European financial crisis well under way, a bad-case scenario of a double-dip recession in the U.S. would find Dollar Tree and its peers, Family Dollar (NYSE: FDO), Dollar General (NYSE: DG) and 99 Cents Only Stores (NYSE: NDN) sitting in a rare sweet spot. They would have powered through the recession, poised to keep growing through the recovery, yet should be able to better handle a potential double-dip than traditional retailers.

Dollar Tree Posts Strong Numbers Again
Revenue was up from $1.2 billion to $1.35 billion in the first quarter this year compared with Q1 2009. Net income was $63.6 million, a gain from the $60.4 million posted for last year's same quarter. Earnings per share were 73 cents with charges, 92 cents without, compared to 66 cents last year. Exclusive of the charges, the operating margin rose from 8.1 percent in Q1 2009 to 9.5 percent in this year's Q1. The company executed superbly during the recession, continues to do so in the tepid recovery, and looks to continue this trend regardless of which way the economy goes.

CEO Bob Sasser cited "continued momentum", an appropriate term to describe the company's results. The categories such as foods, party goods, beauty care and health products led the way. Not very exotic stuff, right? Very profitable, though.

Guidance was raised for both the Q2 and the full year, as the company projected a diluted EPS range of $4.10 to $4.31, with fiscal year sales expected to be in the $5.67 to $5.80 billion range.

Dollar Tree Not Alone
The once-humble dollar stores are having their day. Family Dollar's analyst estimates project a 25 percent increase quarter-over-quarter and for the fiscal year. The stock is way up this year. Dollar General stock hit a 52-week high, and 99 Cents Only Stores' shares were rising while the market was sliding.

If the Euro mess becomes a strong enough contagion or just enough of a drag on the U.S. recovery, we could see not only a surge in the dollar discount stores' business, but an equal downward pull on traditional retailers. While Big Lots (NYSE: BIG) and Costco (Nasdaq: COST), mid-line rather than deep discounters, should do well, the drag will be felt even by renewed Macy's (NYSE: M), or strong players such as Kohl's (NYSE: KSS). Vulnerable, weaker retailers such as Sears Holdings (Nasdaq: SHLD) may be pulled back down by the Greek debt virus.

Only One Negative
With Dollar Tree and the other dollar stores, the only real negative for long-term, fundamental value players is their stock prices, which are too rich. You will have to be very patient and wait quite awhile until they come back within buying range. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!