Dollar Tree (DLTR) reported good first-quarter results yesterday, with earnings per share (EPS) of $1.60 versus $1.04 in the prior year. This was $0.20 above expectations.

Sales were up 3.0% and 0.8% on a same-store sale basis. These were all good results, especially when considering the fact that a tough comparison of a 15.5% increase in same-store sales last year was aided by the stores remaining open as an essential service during the height of the COVID-19 crisis.

Despite the good results, the stock dropped over 7% yesterday as the company lowered EPS guidance for the current fiscal year to the range of $5.80 to $6.05, compared to analysts’ estimates of $6.20.

The shortfall is largely attributable to an increase in freight costs of $0.70 to $0.80 a share from the prior year, as strong demand for shipping has led to temporary tightness in certain markets. However, the company does not believe that this is a structural issue, and the excess costs will decline over time.

While I am disappointed in the stock’s reaction to earnings, the company is doing well with the things it can control. Margins at its Family Dollar units are improving, Dollar Tree store sales are strong and the rollout of combination stores in small markets is keeping pace. Dollar Tree remains a buy below $110. My target is still $125.

If you are an Inner Circle subscriber, I am adding DLTR to the Model Portfolio with a 5% allocation in the stock in the Value Sector.