Dollar Tree Shows Trade-Down Economy Peaking Too (DLTR)

Everyone keeps looking for the trade-down economy stock plays.  These had been great winners in 2008, but some have sold off with the broad market of late.  This morning’s earning report from Dollar Tree Inc. (NASDAQ: DLTR) was solid, but it also shows how even the trade-down economy is getting hit.

The dollar store operator posted earnings for the JAN-2009 quarter of $1.15 EPS on revenue of $1.39 billion, while First Call estimates were $1.13 EPS on $1.39 billion in revenue.  Same-store sales gained 2.2%.  Earnings jumped 10% from 2008 while revenue rose 3% growth.

As far as guidance, this looks somewhat in-line compared to most retailers.  Dollar Tree puts Q1-2009 at $0.49 to $0.54 EPS on about $1.13 billion to $1.16 billion in revenue. First Call has those targets at $0.52 EPS on $1.14 billion in revenue.  For the full coming year it sees $2.55 to $2.75 EPS on revenue of $4.96 billion to $5.09 billion, while First Call estimates are $2.72 EPS and $4.98 billion in revenues.

The annual estimate is based on low to low-mid single digit comparable-store sales, and square footage growth of approximately 6.5% for the year.

Dollar Tree initially ticked up on this news, but it has come off.  At a $36.06 close yesterday, this is still in the upper half of its $25.10 to $44.32 trading range over the last year.  But the gains have come off slightly.  What has to be considered is that this was at $22.00 at the start of last year and this stock petered out at $45.00 back in 2007 during the height of the private equity boom.

There is nothing wrong with this earnings report.  Most retailers would kill to have numbers like this.  The problem is that the growth seems to petering out.  Unfortunately, that is just one more bit of data pointing the fact that even the trade-down spending winners are getting harder to bet on.

Jon C. Ogg
February 25, 2009