Dollar Tree Expects Continued Tax Act Benefit

Having seen a fourth-quarter $583.7 million benefit from the recently passed Tax Cuts and Jobs Act, Dollar Tree Inc. expects more to come, currently estimating the fiscal 2018 benefit at around $250 million.

As a result of this estimated cash benefit, the company plans to invest about $100 million in:

• Stores with more hours, including training for associates
• People, with increased average hourly rates
• Adding eligible Family Dollar associates to its defined contribution plan starting in fiscal 2017, and increasing contributions in fiscal 2018
• Paid maternity leave for eligible associates

The retailer’s effective tax rate for its 14-week fourth quarter ended Feb. 13, was a benefit of 50.4 percent, compared with 35.3 percent last year, as a result of the legislation. Other companies to have seen benefits from the Tax Act include Walmart, Publix and Kroger.

Also for the quarter, Dollar Tree posted a net income increase from last year of $718.3 million to $1.04 billion and diluted earnings per share (EPS) growth of 221.3 percent to $4.37, compared with $1.36 in the year-ago period. The 53rd week in the company’s fiscal 2017 represented a benefit of about 21 cents per diluted share, and adjusted EPS for the quarter was $1.89.

The retailer also posted a 12.9 percent net consolidated sales increase to $6.36 billion, from $5.64 billion in the year-ago period. Enterprise same-store sales grew 2.4 percent on a constant currency basis (adjusted to include the impact of Canadian currency fluctuations, they were up 2.5 percent). According to Dollar Tree, same-store sales growth was spurred by increases in average ticket and comparable transaction count. Same-store sales for the Dollar Tree banner rose 3.8 percent on a constant currency basis, or 3.9 percent when adjusted to include the impact of Canadian currency fluctuations, while same-store sales for the Family Dollar banner edged up 1.0 percent.

During the quarter, the company opened 137 stores, expanded or relocated eight stores, and closed 46 stores.

Full-Year Results

For the 53-week fiscal year, net income grew 91.3 percent to $1.71 billion, from $896.2 million in the year-ago period, and diluted EPS rose 90.7 percent to $7.21, versus $3.78 last year. Included in the company’s net income is a benefit of $583.7 million related to the Tax Act for the year. Adjusted EPS for the year was $4.86.

Dollar Tree’s full-year consolidated net sales increased 7.4 percent to $22.25 billion, from $20.72 billion in the prior year. Enterprise same-store sales were up 1.9 percent on a constant currency basis and when adjusted to include the impact of Canadian currency fluctuations. As with Q4, the same-store sales growth was caused by increases in comparable transaction count and average ticket, according to the company, which noted that same-store sales for the Dollar Tree banner increased 3.4 percent on a constant currency basis (3.5 percent when adjusted to include the impact of Canadian currency fluctuations), while same-store sales for the Family Dollar banner ticked up 0.4 percent.

The company’s full-year gross profit grew 9.8 percent to $7.02 billion from $6.39 billion in the year-ago period. As a percentage of sales, gross margin rose 80 basis points to 31.6 percent, compared with last year’s 30.8 percent.

“I am proud of our team’s performance in the fourth quarter and our results for 2017,” said Gary Philbin, president and CEO of the Chesapeake, Va.-based retailer. “For the quarter, we posted positive same-store sales in our Dollar Tree and Family Dollar banners, while improving gross margin and leveraging costs. For the year, we opened 603 new stores, exceeded $22 billion in sales and improved our operating margin by 80 basis points. I would like to thank each of our associates for their dedicated work and continued efforts throughout the year to deliver value, convenience and our brand standards to our customers every day.”

For the first quarter of 2018, Dollar Tree expects consolidated net sales to range from $5.53 billion to $5.63 billion, based on a low single-digit increase in same-store sales for the combined enterprise. Diluted EPS are expected to range from $1.18 to $1.25. For fiscal 2018, the company anticipates a net sales range of $22.70 billion to $23.12 billion, based on a low single-digit increase in same-store sales and 3.7 percent square footage growth, while the fiscal year’s diluted EPS are expected to range from $5.25 to $5.60.