The bears shouldn't count Dollar Tree (DLTR) out just yet.
Shares of the discount retailer rose slightly in premarket trading as earnings excluding one-time items came in at 81 cents a share, beating Wall Street estimates of 78 cents. Dollar Tree had forecast earnings in a range of 76 cents to 82 cents a share. Net sales rose 1.1% from the prior year to $5 billion, narrowly missing analysts' projections for $5.06 billion. Same-store sales, or sales from stores open for longer than a year, increased 1.7% against expectations for a 1% gain.
For Dollar Tree, the quarter could be seen as an argument against the bear case that has enveloped the stock. Shares have fallen about 14% over the past three months to $81.99 as investors have feared sharply slowing sales due to food price deflation, an ongoing price lowering campaign by Walmart (WMT) and state cuts to food stamps. Further, the company has had some stumbles in integrating its prized acquisition of one-time rival Family Dollar.
"We believe some of the same factors that hurt Dollar Tree's second quarter remained in play in the third quarter such as reduced SNAP assistance [food stamps] in more than 20 states including most of the important Southeast region, food price deflation, and Walmart's more aggressive pricing in grocery and consumer products," said MKM Partners analyst Patrick McKeever in a note. Reductions in food stamp outlays in the summer have been a particular headwind for dollar stores such as Dollar Tree and Dollar General (DG) .
In May, 43.5 million Americans were receiving food stamps, down 9% from the 2012 peak. Food stamp enrollment is on the wane as several states have ended benefits earlier than they were required to. Seven states -- all Republican-led -- opted to end waivers for some enrollees that were created in the 2009 government stimulus package, despite the benefits being federally funded.