Dollar Tree (NASDAQ:DLTR) released its first-quarter earnings of fiscal 2021 on May 27. The company reported a solid quarter where sales of $6.48 billion grew 3% year over year and same-store sales were up 0.8%. Net income of $374.5 million soared 51% higher than in the previous year as the company's cost of sales were relatively unchanged despite the modest top line growth, allowing it to bank more profit for the period.
But despite the positive performance, the stock fell sharply to under $100 – at the start of May, it was trading comfortably above $115. The reason investors aren't too bullish on the stock is due to its outlook for the rest of the year as the company projects freight costs for the last three periods will be higher than in 2020.
Dollar Tree anticipates that the negative impact on diluted earnings per share (EPS) could be between $0.70 to $0.80. However, the company still projects that for the year its diluted EPS will be between $5.80 and $6.05, which would be higher than the $5.65 it reported in the last fiscal year.
Dollar Tree is still expanding and will open 600 new stores. It is also planning to renovate more than double that number of stores, which could produce better numbers for both brands -- Dollar Tree and Family Dollar. President and CEO Michael Witynski says that "Looking forward, I am most excited about the growth of Dollar Tree Plus! and our strategic store formats, which shoppers are responding to favorably, as evidenced by market share gains and improved customer satisfaction scores."
Although there are challenges ahead for Dollar Tree, the stock could be a solid buy for long-term investors as the business is growing and adapting to customer preferences.
Last year, shares of Dollar Tree rose a modest 15%, in line with the S&P 500's returns.
