Discount retailer Dollar Tree Inc. (NASDAQ: DLTR) surprised the Street this morning with a stronger-than-expected third-quarter profit. The cut-rate retailer raked in earnings of $43.1 million, or 47 cents per share, an improvement of 23.7% over the same period last year. Analysts were expecting a more modest per-share profit of 44 cents. Revenue for the quarter rose by roughly 12% to $1.11 billion, with same-store sales increasing 6.2%.
As long as consumers maintain a death grip on their discretionary spending, Dollar Tree seems poised to benefit. Shoppers appear to be migrating away from mid-market retailers and toward discount chains, such as DLTR and Family Dollar (NYSE: FDO). President and CEO Bob Sasser stated, "We will continue to focus on the customer, and serving their needs in a very difficult economic environment."
Going forward, Dollar Tree expects that its focus on the ailing consumer will support solid earnings growth. The company once again raised its fiscal-year earnings forecast; it now expects an annual profit of $2.45 to $2.53 per share.
DLTR opened broadly higher, up more than 8% to hit an early peak of $41.35. The stock is currently hovering near the $40 region, which could exert some round-number resistance. Despite multiple challenges of this level, DLTR hasn't finished a month atop $40 since September 2007.
If short sellers get spooked by today's solid earnings and hiked forecast, a short-squeeze rally could help the shares surmount this technical obstacle. Short interest represents a hefty 7.8% of float, an accumulation of bearish bets that could translate to roughly three days' worth of buying pressure at the stock's average daily volume.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
Warren Buffett, tells us more!
Oil has dropped $13, so gasoline should drop 30 cents, Americans hope
Wal-Mart's new Supermercado concept could be huge
