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May 25, 2017

Dollar Tree comparable sales miss on tax refund delays

A shopper searches her purse outside a Dollar Tree store in Encinitas, Calif. Dollar Tree

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Dollar Tree Inc (DLTR.O), the biggest U.S. dollar-store chain operator, reported lower-than-expected quarterly comparable sales on Thursday, as late tax refunds led low-income customers to rein in spending at its Family Dollar stores.

Family Dollar reported a surprise 1.2 per cent drop in comparable store sales for the first quarter ended April 29, compared with the 0.1 per cent rise expected by analysts.

Income tax refunds started later this year for low-income earners due to a new law requiring the Internal Revenue Service to wait until Feb. 15 to issue refunds related to some kinds of tax credits.

 "They bought what they needed to get by," Chief Executive Bob Sasser said on an earnings call.

"The difference of what they wanted to buy across discretionary departments was really what we felt in period one."

Dollar Tree is not the first retailer to have been affected by late tax refunds.

Several retailers, including Foot Locker and Citi Trends, highlighted the impact on their first-quarter sales.

Dollar Tree said overall sales at stores open for more than a year rose 0.5 per cent, below the 0.9 per cent increase expected by analysts polled by research firm Consensus Metrix.

However, the company's shares were up 2.5 per cent at US$80.22 as investors focused on robust performance at core Dollar Tree stores.

 "Our belief is that the core DT comp of 2.5 per cent was a little better than expectations," UBS analyst Michael Lasser wrote in a note.

UBS had estimated a 2 per cent growth, while analysts polled by Consensus Metrix expected a 1.5 per cent rise.

Family Dollar's results are a reminder that it is going to take time for the business, acquired by Dollar Tree in 2015, to reach its potential, Lasser said.

Dollar Tree's net income fell 13.8 per cent to $200.5 million, or 85 cents per share, largely due to a US$50.9 million impairment charge.

The charge was related to the non-payment by Dollar Express for stores bought from the company.

Dollar Express is in the process of liquidation and is in default of its obligations, Dollar Tree said.

The prior-year quarter also included a one-time tax rate benefit of 9 cents per share, the company said.

Excluding items, the company earned 98 cents per share, in line with the average analysts' estimate, according to Thomson Reuters I/B/E/S.

Net sales rose 4 per cent to US$5.29 billion, also matching the average analysts' estimate.