Why Dollar Tree Shares Popped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of discount variety store operator Dollar Tree climbed 12% today after its quarterly results topped Wall Street expectations.
So what: The stock has been crushed over the past several months as weak consumer spending and higher gas prices weighed on sales, but a better-than-expected fourth quarter -- EPS of $1.01 on sales of $2.25 billion versus Wall Street's view of $0.99 and $2.23 billion -- suggests that things are starting to turn. In fact, Dollar Tree's same-store sales increased 2.4%, while operating margins expanded 70 basis points to 16.2%, restoring some confidence in management's ability to control costs and grow profitably.
Now what: Management now expects 2013 EPS of $2.54-$2.74 on sales of $7.79 billion-$7.97 billion, versus the consensus view of $2.81 and $7.9 billion. "On top of a very strong fourth quarter performance in 2011, average basket size increased and customers responded this year in record numbers," President and CEO Bob Sasser said. "These results were achieved through the efforts of thousands of Dollar Tree associates across North America, working every day to provide a unique assortment of merchandise at great values in stores that are clean, bright, and fun to shop." With the stock still off about 20% from its 52-week highs even with today's surge, there might even be some room left to buy into that bullishness.
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