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.)

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