Dollar Tree stock drops after earnings beat expectations, but full-year outlook was downbeat on margin pressure

Shares of Dollar Tree Inc. dropped 3.2% in premarket trading Tuesday, after the discount retailer reported fiscal third-quarter earnings that rose above expectations, but said full-year profit would be at the low-end of guidance as strong consumable sales pressure margins. Net income rose to $266.9 million, or $1.20 a share, from $216.8 million, or 96 cents a share, in the year-ago period. Sales grew 8.1% to $6.94 billion, above the FactSet consensus of $6.84 billion. Same-store sales increased 6.5%, beating expectations of 4.6% growth, as Dollar Tree branded store sales rose 8.6% and Family Dollar sales grew 4.1%. Gross margin improved by 2.40 percentage points to 29.9%, and merchandise inventories of $5.66 billion as of Oct. 29 was up 31.1% from a year ago. For the full fiscal year, the company raised its guidance range for sales to $28.14 billion to $28.28 billion from $27.85 billion to $28.10 billion, but said EPS would be in the lower half of the previously provided range of $7.10 to $7.40, which compares with the FactSet consensus of $7.29. The stock has run up 17.6% year to date through Monday, while the S&P 500 has dropped 17.1%.

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