by Ethan Roberts | November 21, 2013 2:01 pm
Shares of Dollar Tree (DLTR) were substantially lower this morning after the company reported third-quarter earnings. Dollar Tree earnings tallied 59 cents per diluted share of DLTR stock, which missed analyst estimates by two pennies.
The results also compared poorly to earnings of 68 cents per share of DLTR stock in the third quarter of 2012. However, that quarter also included a one-time gain of 17 cents per diluted share due to the company’s sale of Ollie’s Holdings.
Plus, the Dollar Tree earnings report showed that consolidated net sales for DLTR increased by nearly 10% to $1.88 billion. While that was an improvement, the revenue figures also missed DLTR stock analysts’ expectations.
Following the earnings announcement, DLTR Chief Executive Officer Bob Sasser said, “I am pleased with our performance in the third quarter.” He also cited fast growth in higher-margin variety categories as a contributing factor for the improved sales numbers.
However, Dollar Tree stock investors were not so pleased. DLTR stock opened significantly lower this morning at $55.55, down around 6% from yesterday’s close of $58.92.
DLTR stock has ranged from a low of $37.47 to a high of $60.19 over the past 52 weeks. Although Dollar Tree stock has traded sideways recently, as the accompanying chart shows, share of DLTR have been on a blistering pace, up some 57% year-to-date before this morning’s gap lower.
The other dollar store stocks were also seen somewhat lower after the news. Dollar General (DG) opened down 1.9 % while Family Dollar Outlet (FDO) was lower by 1.4%.
This is not the first time that Wall Street has crushed Dollar Tree stock and other discount retailer stocks. One year ago, DLTR stock fell from $49 to $37 after disappointing the Street, while fellow discounters FDO stock and DG stock were also trounced at various times during 2012 following disappointing earnings reports.
However, all three of these stocks subsequently bounced back, rising to new 52-week highs. It seems like the Street continually overreacts to what are essentially terrific business models whenever the earnings fail to match the lofty expectations of the analysts. Investors who have picked up shares of DLTR stock or DG stock at far lower levels within three to four weeks after the earnings reports have been rewarded handily for their faith.
Plus, the Dollar Tree earnings report wasn’t all bad news. Year-to-date earnings per diluted share of DLTR stock tallied $1.73 vs. earnings per diluted share of $1.69 through three quarters last year. And excluding the gain from the sale of Ollie’s Holdings, earnings per share of DLTR stock through three quarters last year came to just $1.53.
Plus, Dollar Tree has recently entered into a $1 billion accelerated share repurchase program, which is expected to be completed by June of 2014. The company received 15 million shares of DLTR stock during the third quarter.
Therefore, the negative earnings report coupled with the repurchase program provides long-term investors with an opportunity to pick up shares of DLTR stock well-below its late October high of $60.19.
However, having now fallen through the 50-day moving average, Dollar Tree stock is likely to head towards its recent support area just below $53. Should that fail to hold, the next stop for DLTR stock would be the 200-day moving average, currently at $51.45.
If you can pick up shares at or near that level, DLTR stock will be a screaming buy.
As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities,
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