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Dollar Store Merchandise was Last modified: November 06, 2017;
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NEW YORK (Reuters) - Discount retailer Dollar Tree Stores Inc (DLTR.O: Quote, Profile, Research) reported a better-than-expected 10.5 percent rise in quarterly profit on Wednesday as customers loaded up on Halloween and back-to-school items.

But the retailer, which sells most of its merchandise for $1, forecast fourth-quarter earnings that could miss Wall Street expectations, and expects sales at stores open at least a year to be flat to up in the low-single-digit range for the holiday quarter.

"As we enter the holiday season, we know that our customers are somewhat under economic pressure," President and Chief Executive Bob Sasser said on a call with analysts. "They're challenged, especially from high and uncertain energy prices. Consumer confidence has declined and this has affected many retailers. We are not immune to this environment."

The company's shares fell 1 percent to $26.95 in early afternoon trading on the Nasdaq, after touching as low as $25.17 earlier in the session.

Earnings for its fiscal third quarter, ended November 3, were $35.9 million, or 38 cents per share, up from $32.5 million, or 32 cents per share, a year earlier.

Analysts, on average, had been expecting 37 cents per share, according to Reuters Estimates.

Earlier this month, Dollar Tree repeated its forecast for third-quarter earnings of 35 cents to 38 cents per share.

Sales increased almost 10 percent to $997.8 million, while comparable-store sales, which measure sales at stores open at least a year, rose 1.9 percent in the quarter
The company said the sales gains were driven by more customers coming to its stores and spending more during their visits.

NAVIGATING THE TOUGH ENVIRONMENT

Dollar Tree, which operates 3,401 stores, caters to lower income shoppers, a group that has been hit hard by rising food and fuel costs.

While the retailer says it should benefit from the tough environment as customers seek out low prices, analysts say Dollar Tree could face a tough holiday season as Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) aggressively promotes its low prices to win sales.

Charles Grom, a retail analyst with JP Morgan, said Dollar Tree's fourth-quarter comparable store forecast could be "aggressive" and its "multi-price initiative may not be enough to save the day."

Dollar Tree is testing selling some items in its namesake stores for more than $1, which it says allows it to stock pricier but popular products, such as fleece blankets and storage baskets, that it might not otherwise be able to offer.

But on a call with analysts, Sasser said the retailer has been facing issues with customers accepting the higher prices and it has no plans to extend the test beyond the roughly 50 stores where it is currently being offered.

He also said the retailer is still working to refine the merchandising mix at its Deal$ chain of stores, which carries items priced mainly between $1 and $5.

For the fourth quarter, which includes the critical holiday season, Dollar Tree forecast sales of $1.31 billion to $1.35 billion and earnings per share of 99 cents to $1.06.
Analysts, on average, expect $1.05 per share on revenue of $1.37 billion, according to Reuters Estimates.

(Reporting by Nicole Maestri; editing by John Wallace and Andre Grenon)
 

 

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Last modified: November 06, 2017