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DOLLAR TREE, INC. Annual Report, Year Ended Dec 31, 1997

Filing Date
Filed March 30, 1998
Period End
December 31, 1997
Security
DLTR
In the record · 2016–202610-K1210-Q328-K227

DLTR filed 12 annual reports (10-K), 32 quarterly reports (10-Q) and 227 current reports (8-K) between 2016 and 2026.

  1. FY2017 annual report10-K · Mar ’17Mar ’17
  2. Leadership change8-K · Dec ’19Dec ’19
  3. Material agreement8-K · Dec ’21Dec ’21
  4. Leadership change8-K · Sep ’25Sep ’25

01—Abstract

Summary

Summary of the 10-K filed March 30, 1998. Cited figures are marked; the original filing is the authoritative source.

Dollar Tree Stores, Inc. (DLTR) reported a strong fiscal 1997, with net sales rising 28.9% to $635.5 milliona from $493.0 million and net income growing 43.6% to $48.6 million, or $1.13 diluted EPS.

Comparable store sales increased 7.8%, and operating margin expanded to 12.9% from 12.2%, driven by a higher gross margin of 37.5% (vs. 36.9%) and modest SG&A leverage. The company operated 887 stores at year-end across 26 states, having opened 151 stores during 1997, and it expects to open roughly 200 to 205 stores in 1998. Its single-price-point ($1.00b) model, with store-level operating income of about 22% of sales for stores in their first full year, supports attractive unit economics.

The balance sheet strengthened meaningfully. Cash rose to $43.7 million, shareholders' equity increased to $154.9 millionc, and the company issued $30 million of 7.29% Senior Notes in April 1997 to pay down its revolver. Total debt of $31.1 million remains modest relative to equity.

Operating cash flow of $69.7 milliond covered $57.5 million of capital expenditures, mainly for the new Chesapeake Store Support Center. The company plans roughly $50 million in capital spending in 1998, including about $20 million for a new Olive Branch, Mississippi distribution center, which will be funded partly by a proposed $20 million loan. Investors should weigh several risks.

Roughly 34% of merchandise by cost is imported, much of it from China, so the potential loss of China's most-favored-nation tariff status would raise costs materially. The company also faces a 2 to 3 percent price-point risk from the minimum wage increases and a possible 10% Asian shipping rate hike.

Management expects comparable store sales growth to slow, and it notes that the Easter shift and a new distribution center transition could affect 1998 results. Finally, the company is facing litigation from the former Dollar Bills owners and a product liability exposure tied to a dog-leash recall.

02—Key points

Key Highlights

  1. Net sales grew 28.9% to $635.5 million in 1997, with comparable store sales up 7.8%, indicating solid growth from both new stores and existing locations.
  2. Net income rose to $48.6 million ($1.13 diluted EPS) from $33.8 million in 1996, while operating margin improved to 12.9% from 12.2%.
  3. Gross margin improved to 37.5% from 36.9%, driven by better merchandise costs and lower inventory shrinkage, though management does not expect the 1996 mix-related benefit to recur.
  4. The store base grew to 887 stores in 26 states, with 151 openings in 1997 and a plan for 200 to 205 new stores in 1998.
  5. Balance sheet strengthened: equity reached $154.9 million, cash was $43.7 million, and total debt was $31.1 million, mostly the $30 million 7.29% Senior Notes.
  6. Heavy reliance on Chinese imports (about 34% of cost) creates exposure to MFN tariff status renewal, which is up for review in July 1998.
  7. Planned 1998 capital expenditures of about $50 million include a $20 million Olive Branch distribution center expected to open in early 1999 and raise store service capacity to about 2,000 stores.

03—Questions

Frequently Asked Questions

  1. How profitable are Dollar Tree's stores and how consistent is that performance?

    The company reports average store-level operating income of about $163,000, or roughly 22% of net sales, for stores whose first full year was 1997. Over 90% of stores open for the full year achieved store-level operating margins above 15% in 1997, which points to consistent unit economics.

  2. What are the biggest risks to Dollar Tree's sourcing and margins?

    Imports account for about 34% of merchandise by cost, mostly from China. Loss of China's MFN tariff status could significantly raise costs. Other risks include Asian shipping rate increases of up to 10%, the Asian financial crisis affecting supply, and federal minimum wage increases of $0.50 per hour in 1999 and 2000 proposed by the administration, which management says would hurt payroll costs more than past increases.

  3. Is Dollar Tree's balance sheet able to support its expansion plans?

    Yes. Year-end equity of $154.9 million and cash of $43.7 million compare with total debt of $31.1 million. Operating cash flow of $69.7 million exceeded 1997 capex of $57.5 million. Management believes operations and its credit facilities, which have $135 million of capacity, can fund capex and working capital, though the Olive Branch facility will need an added $20 million loan.

  4. What legal or operational issues could affect future results?

    The former owners of Dollar Bills (the Alpers) could refile state-law claims seeking at least $10 million in damages, though the company believes they are unlikely to prevail. A recall of about 155,000 retractable dog leashes involves one serious injury that could lead to a product liability claim. Operationally, the company is transitioning distribution to the Chesapeake center and building Olive Branch, and disruptions could affect store deliveries. Management also notes Easter timing shifts could weigh on first-quarter 1998 comparable store sales.

04—Continue

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