Dollar Tree hits 52-week high after raising FY16 profit outlook

Shares of discount retailer Dollar Tree (DLTR) are surging after the company's first quarter profit surpassed analysts' consensus estimates. The retailer also raised its fiscal 2016 profit outlook.

BETTER THAN EXPECTED PROFIT: This morning, Dollar Tree reported Q1 adjusted earnings per share of 89, topping the consensus of 81c, and revenue of $5.09B, narrowly missing the consensus of $5.1B. The company said same-store sales increased 2.3% year-over-year. SSS on a constant currency basis increased 3.4% in the prior-year period. Adjusted for the impact of Canadian currency fluctuations, the SSS increase was 2.2%.

INCREASED GUIDANCE: Looking ahead to Q2, Dollar Tree expects EPS of 66c-72c, below the consensus of 75c, on revenue of $5.03B-$5.12B, compared to the consensus of $5.09B. Guidance is based on a low single-digit increase in SSS and year-over-year selling square footage growth of 2.4%. Dollar Tree also raised its FY16 EPS view to $3.58-$3.80 from $3.35-$3.65, versus the consensus of $3.67. The company also narrowed its FY16 revenue view to $20.79B-$21.08B from $20.76B-$21.11B, compared to the consensus of $21.05B. This estimate is based on a low single-digit increase in SSS, and 4% square footage growth.

PEER RESULTS: Dollar Tree peers Dollar General (DG) and Fred's (FRED) reported better than expected profits this morning, with Dollar General reporting EPS of $1.03, topping the consensus of 95c, and revenue of $5.27B, slightly shy of the consensus of $5.28B. Dollar General reported Q1 SSS up 2.2%, resulting from increases in both customer traffic and average transaction amount. The company said SSS increases were driven by positive results in both the consumables category and certain of the non-consumables categories, with sales of consumable merchandise outpacing sales of non-consumable merchandise. The company said it was "very confident" in its FY16 SSS growth outlook of 2%-4%. Separately, Fred's reported Q1 EPS 3c, ahead of the consensus of consensus 2c, and revenue of $549.55M, slightly below the consensus of $553.9M, with SSS up 1% for the quarter, an increase of 0.8% versus Q1 of last year. Fred's forecast Q2 EPS of 0c-3c, topping the consensus of (4c), and sales are projected to range from flat to an increase of 2% versus the same quarter last year, compared to the consensus of $565.15M. Comparable store sales are projected to range from flat to an increase of 2%. For FY16, Fred's backed EPS of 27c-32c, compared to the consensus of 27c. For the full fiscal year, the company revised its total sales and comparable sales projections and now expects total sales to increase 2%-6%, versus the previous view of up 5%-9%, and SSS to increase 1%-4%, compared to the previous view of up 2%-5%. Analysts expect FY16 revenue of $2.26B. The change in outlook is primarily driven by the industry-wide slowdown in the Hepatitis C specialty drug market, Fred's said.

PRICE ACTION: In early afternoon trading, Dollar Tree rose $9.57, or about 12.2%, to $87.93 on nearly three times its average daily trading volume. Earlier in the session, the stock hit a fresh 52-week high of $88.38. Over the past year, the stock is up 16%. Dollar General is up $3.57, or about 4%.2, to $87.70 and it also touched a fresh 52-week high of $88.51 this morning. Fred's rose 51c, or about 3.7%, to $14.29.