Dollar Tree HOLD

DLTR : NASDAQ : US$57.83
Target: US$52.00


Jack A. Bass Managed Accounts prefers the Canadian Dollorama chain – please  see that review (earlier this month)


Dollar Tree is a leading operator of discount variety stores offering merchandising at a fixed price of $1.00.
Merchandise includes consumable products, seasonal goods, and a variety of discretionary items. The company operates over 4,800 locations under the names Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant, and Dollar Bills.
All amounts in US$ unless otherwise noted.

Investment recommendation
DLTR preceded its annual Capital Markets Conference with the announcement of a $2B share buyback program, including a $1B accelerated share repurchase. The company has historically used ASRs to buy back stock, but the latest program is larger than all prior agreements combined dating back to FY06.

We estimate the incremental share repurchase will add $0.04 to our FY13 EPS estimate, raising it to $2.80, in line with consensus. In addition to the lower share count, we expect DLTR will generate SG&A expense leverage of 22bps in FY14, up from our prior forecast of a 2bps improvement. This raises our EPS estimate from $3.05 to $3.26, $0.03 below consensus. Shares currently trade at 18x our FY14 EPS estimate and 10x FY14E EV/EBITDA, which we believe fairly reflects DLTR’s growth potential.
Investment highlights
 The tone of this year’s meeting was improved from 2012.
DLTR noted that an expanded assortment drove its best back-to-school season ever despite a difficult environment.
The company reaffirmed EPS guidance for Q3 of $0.54-0.59 and FY13 of $2.65-2.77, excluding the impact of buybacks.
 We are raising our DCF-model-generated price target from $49 to $52. Shares are currently trading near a 52-week


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