We highlighted Dollar Tree (DLTR) as a key stock to watch this week, among a dozen others. For those who may not know, Dollar Tree is discount store chain that sells its items for $1 or less. It operates in the United States and Canada and is one of our top plays in the space. As you probably know, or at least surmised from the way it operates, Dollar Tree competes for business in the low-end retail markets. You might be surprised, but it offers everything from food and snacks to electronics and books. It has significant deals in place with manufacturers and distributors to run a very profitable business. That said, the stock is reeling a bit today, so let’s dive in and see how things are going.

Source: Yahoo finance

Strong property management

One of the things we love about this company is that it wastes no time shutting down losing operations and opening up new shops in high demand areas. During the quarter, Dollar Tree opened 137 stores, expanded or relocated 8 stores, and closed 46 stores. Retail selling square footage at fiscal year-end was approximately 116.6 million square feet, and we think it moves higher in 2018. But did this activity help with sales?

Sales in Q4

Well, sales were up nicely. Consolidated net sales increased 12.9% to $6.36 billion from $5.64 billion in the prior year’s fourth quarter. We were also pleased with the action in comparable sales. We saw that enterprise same-store sales increased 2.4% on a constant currency basis

This same-store sales growth was driven by increases in average ticket and comparable transaction count. Same-store sales for Dollar Tree increased 3.8%. Same-store sales for Family Dollar banner increased 1.0%. Did this growth lead to profits rising?

Expenses and profit

We were pleased that gross profit increased 16.3% to $2.10 billion compared to $1.81 billion in the prior year’s fourth quarter. As a percentage of sales, gross margin increased to 33.0% compared to 32.1% in the prior year. This happened because of lower merchandise costs, markdowns and occupancy costs as a percentage of sales.