Analysts see value in Dollar Tree despite weak forecast

Thu Nov 21, 2013 1:36pm EST

Shoppers enter a Dollar Tree store in Arvada, Colorado February 25, 2009. REUTERS/Rick Wilking

Shoppers enter a Dollar Tree store in Arvada, Colorado February 25, 2009.

Credit: Reuters/Rick Wilking

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(Reuters) - Dollar Tree Inc (DLTR.O) forecast current-quarter results below estimates after reporting disappointing quarterly same-store sales, but analysts said it was too early to write off the discount store chain that is fighting weak consumer spending.

The company's shares fell as much as 6.4 percent on Thursday to a two-month low.

"We remain bullish on the dollar store sector," Guggenheim Securities analyst John Heinbockel wrote in a note.

He predicted that dollar stores, including Dollar General Corp (DG.N) and Family Dollar Stores Inc (FDO.N), were well placed to expand margins by taking significant market share from food and drug retailers.

Dollar stores have battled a weak economy and increased competition from large discount chains such as Wal-Mart Stores Inc (WMT.N), which are increasingly chasing budget-conscious consumers by offering more items priced at $1.00 or less.

Dollar Tree said on Thursday that it expects fourth-quarter earnings of $1.01-$1.07 per share on sales of $2.25 billion-$2.31 billion.

Analysts on average were expecting fourth-quarter earnings of $1.10 per share, on revenue of $2.32 billion, according to Thomson Reuters I/B/E/S.

Six fewer selling days between Thanksgiving and Christmas are expected to hurt sales by $25 million, Chief Financial Officer Kevin Wampler said on a post-earnings conference call with analysts.

The company expects comparable-store sales for the holiday quarter to be in the low-single digit percentage range.

"At first glance Dollar Tree's Q3 results were a bit disappointing, but not entirely surprising given the ongoing macroeconomic headwinds on the low income consumer," BB&T Capital Markets analyst Anthony Chukumba wrote in a note

Dollar Tree reported a 3.1 percent increase in same-store sales in the third quarter ended November 2, helped by sales of consumables, which include frozen foods and beverages, and seasonal items, Chief Executive Officer Bob Sasser.

Net income fell to $125.4 million, or 58 cents per share, from $155.4 million, or 68 cents per share, a year ago.

The company said last year's earnings included a one-time gain of 17 cents per share related to the sale of its ownership interest in Ollie's Holdings Inc.

Analysts had expected Dollar Tree to earn 60 cents per share and its same-store sales to rise 4.5 percent.

Net sales rose 9.5 percent to $1.88 billion, but missed analysts' average expectations of $1.91 billion.

The company's results mirrored those of Target Corp (TGT.N), which reported a smaller-than-expected 0.9 percent rise in comparable store sales, blaming what it called "constrained" consumer spending.

Dollar Tree shares, which have risen 42 percent in one year through Wednesday's close, were down 5.3 percent at $55.77 on the Nasdaq on Thursday.

(Corrects company name in headline to Dollar Tree from Dollar Store)

(Reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das)

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