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Strong Comps to Boost Dollar Tree's (DLTR) Q4 Earnings

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We expect Dollar Tree, Inc. (DLTR - Free Report) to beat expectations when it reports fourth-quarter fiscal 2017 results on March 7, before the market opens.

Dollar Tree delivered an earnings surprise of 12.2% in the preceding quarter. Also, the company outperformed the Zacks Consensus Estimate by an average of nearly 7.4% in the trailing four quarters, with earnings beat in three of the last four quarters.

So let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at $1.90 per share, reflecting year-over-year growth of 36.7%. We note that the consensus mark has witnessed an uptrend in the last 30 days. Further, analysts polled by Zacks expect revenues of $6.4 billion, up 13.6% from the year-ago quarter.

Dollar Tree, Inc. Price, Consensus and EPS Surprise

Dollar Tree, Inc. Price, Consensus and EPS Surprise | Dollar Tree, Inc. Quote

In the past six months, Dollar Tree’s shares have surged 26.2% outperforming the industry’s 21.3% rally.

Factors at Play

Of late, Dollar Tree has witnessed a spectacular surprise trend, with second straight earnings and sales beat in third-quarter fiscal 2017. Results were driven by strong comps and improved margins.

Meanwhile, the company has maintained an impressive comps performance for the past several quarters. Evidently, it has delivered comps growth for 39 straight quarters. In third quarter, strong growth in comps was driven by improved customer count and average ticket. Moreover, margins were aided by reduced merchandise costs, lower markdowns and occupancy expenses.

Furthermore, Dollar Tree is on track with the Family Dollar integration and re-banner process, which is likely to generate run rate savings of about $300 million in the next three years. It is also undertaking significant store renovation initiatives for Family Dollar to attract more customers. Additionally, the company remains focused on its store base expansion and incorporating technological advancements.

Driven by the solid results and progress on Family Dollar integration, the company raised guidance for fiscal 2017 and provided a solid view for the to-be-reported quarter. Moreover, the company anticipates comps growth in a low-single digit range for the fourth-quarter and fiscal 2017. Dollar Tree also anticipates the additional 53rd week to increase sales by $400-$430 million and earnings by 19-22 cents per share. The aforementioned factors make us optimistic of the upcoming quarter results.

What the Zacks Model Unveils

Our proven model shows that Dollar Tree is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dollar Tree’s Earnings ESP of +1.41% and a Zacks Rank #2 makes us confident about an earnings surprise.

Other Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

American Eagle Outfitters, Inc. (AEO - Free Report) has an Earnings ESP of +0.53% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. (ZUMZ - Free Report) has an Earnings ESP of +0.56% and a Zacks Rank of 2.

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +2.88% and a Zacks Rank #2.

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