TLDR
- Dollar Tree boosted its full-year profit forecast to $5.60-$5.80 per share from $5.32-$5.72 per share.
- Q3 results exceeded expectations with $4.75 billion in revenue and $1.21 earnings per share.
- Same-store sales jumped 4.2% as shoppers from all income levels hunt for bargains.
- Holiday products and essentials like home decor and cleaning supplies are selling well.
- Wealthy households earning over $100,000 are shopping at Dollar Tree more frequently.
Dollar Tree lifted its annual earnings outlook on Wednesday after posting better-than-expected third-quarter results. The discount retailer is benefiting from consumers searching for value during uncertain economic times.
The company increased its fiscal 2025 adjusted earnings forecast to a range of $5.60 to $5.80 per share. The previous guidance stood at $5.32 to $5.72 per share.
Third-quarter performance crushed Wall Street predictions. Revenue hit $4.75 billion while adjusted profit reached $1.21 per share. Analysts had projected $4.70 billion in sales and $1.09 per share in profit.
Shares jumped roughly 2% in premarket trading after the earnings announcement. The stock later climbed 1.7% to $110.85.
Strong Performance Across Stores
Same-store sales grew 4.2% year over year. This beats the 1.8% growth from the same period last year.
The retailer is attracting customers from different financial backgrounds. Its strategy of offering varied price points is paying off.
High-earning households are visiting more often. CEO Mike Creedon explained these customers making over $100,000 annually buy more items per visit. Growing trip frequency from this group will drive future growth.
Holiday merchandise is resonating with shoppers. Thanksgiving and Christmas products are moving quickly. Customers are purchasing home decor items priced at $3 and $5. Essential products like household cleaning supplies, personal care items, snacks and cookies are also performing well.
Financial Details and Outlook
Operating margin expanded to 7.2% from 4.4% in last year’s third quarter. This improvement came despite rising costs.
Expenses as a share of revenue increased 140 basis points to 29.2%. Store wages, upgrade investments and liability costs pushed expenses higher. However, lower domestic and import freight costs helped balance things out.
Free cash flow turned negative at $57.1 million. This compares to positive $354.4 million in the year-ago quarter.
Fourth-quarter revenue guidance came in at $5.45 billion at the midpoint. This topped analyst estimates by 0.6%.
The company’s market cap sits at $21.99 billion. Analysts expect revenue growth to accelerate to 6.6% over the next 12 months.
Zak Stambor from eMarketer said Dollar Tree benefits from tough economic conditions. “Value is top of mind for shoppers this holiday season,” he noted. Retailers delivering value are best positioned to capture limited consumer spending.
Dollar Tree has kept its store count relatively flat over the past two years. The focus is on driving more sales from existing locations rather than expansion. The 4.2% same-store sales growth shows this strategy is working as both foot traffic and online sales increase.
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