Shares of Dollar Tree Stores Inc. rose Friday to their highest prices in nearly three weeks after the company announced record earnings for the first quarter of the year.
The Chesapeake, Va., company, a discount retailer that sells most of its products for one dollar or less, said it made a series of small business improvements that led to higher sales and earnings despite flat profit margins.
Dollar Tree shares rose 17 cents Friday to close at $27.90 on the Nasdaq Stock Market. They have risen $2.81 since reaching a 52-week low on May 14.
Dollar Tree reported net income of $35.15 million, or 31 cents per share, for the first quarter of the year, compared with $32.79 million (29 cents) for the comparable quarter last year. Sales increased from $615.5 million to $710.3 million. Dollar Tree’s first quarter ended May 1.
Company executives said Dollar Tree was able to report better earnings and sales by making its supply line more efficient and getting products out of warehouses and onto shelves. The amount of inventory per square foot declined 13 percent during the quarter.
“Our inventory controls are better, and the flow of product into the distribution centers and stores is much improved over last year,” said Chief Executive Officer Bob Sasser.
Analysts said Dollar Tree’s earnings were ahead of their estimates, but cautioned that operating margins are likely to decline in the second quarter because sales from stores that have been open more than a year are not expected to increase sharply. They also noted that there was a larger-than-expected drop in sales after the Easter holiday.
Analysts said record-high gasoline prices could be causing some Dollar Tree customers to spend less.
“We believe the discount store sector continues to struggle due to the negative impact of high gasoline prices on discretionary income and spending for the lower-income consumer,” said Wachovia analyst Ralph Jean.
Analysts also said that high gas prices could raise the company’s costs because most of its merchandise is imported from overseas.
But nothing appears to be slowing Dollar Tree’s plans for growth. The company, the largest retailer of its kind, opened 79 stores during the first quarter while expanding or relocating 43. In the second quarter, it expects to open 75 stores while expanding or relocating 30. Next year, it expects to open 250 stores and expand or relocate 123. It operated 2,579 stores as of May 1.
If investors pay attention to the expansion and increased earnings, the company’s stock price could rise to about $30 without being overpriced, Merrill Lynch reported last week. But the brokerage cautioned that some investors could move away from retail stocks if profits from other corporations rise this year.
Dollar Tree did not give detailed guidance for the second quarter of the year, but it said it expects sales of $700 million to $715 million. It also said that earnings will rise at least 14 percent for the year.