Dollar Tree Stock is Presenting a Buying Opportunity; Here's Why
Dollar Tree stock price is surprisingly in negative territory so far this year despite posting robust sales and earnings growth. Although the pace of store opening dropped slightly due to the pandemic, the retailer has again started working on aggressive growth strategies.
It plans to open almost 500 new stores this year and seeks 750 Family Dollar H2 store renovations. The retailer has opened 131 new stores during the second quarter.
The resumption of the share buyback plan also indicates the company’s confidence in its cash generation and growth potential. The retailer announced to repurchase $800 million of common stock.
After stronger than expected second-quarter results and strong sales trend, Moody’s ratings upgraded Dollar Tree credit ratings to a Baa2 from Baa3.
“Dollar Tree has demonstrated continued strong operating performance and cash flow generation despite the headwinds caused by the coronavirus pandemic with double-digit comparable store sales growth at its Family Dollar stores”, says Moody’s Vice President Mickey Chadha.
The retailer’s second-quarter revenue of $6.28 billion grew 9.4% year over year, beating the analyst’s consensus estimate by $50 million. Its same-store sales grew by 7.2% from the past year period compared to the consensus of a 6.2% increase.
The company has also been turning revenue growth into big profits. Its second-quarter diluted earnings per share jumped to $1.10 relative to the estimate for $0.76 per share.
“The teams delivered strong same-store sales of 7.2%, a 180 basis point improvement in gross profit margin, and a 130 basis point increase in operating profit margin, despite incurring COVID-19 and civil unrest-related costs exceeding $150 million in the quarter,” stated Mike Witynski, President and Chief Executive Officer.
Dollar Tree stock price is currently trading around $90, down 4% year to date, and down 20% in the past twelve months. Its shares had hit an all-time high of $119 during the final quarter of last year.