10-KPeriod: FY2007

DOLLAR TREE, INC. Annual Report, Year Ended Feb 3, 2007

Filed April 4, 2007For Securities:DLTR

Summary

Dollar Tree Stores, Inc. (DLTR) filed its annual report on Form 10-K for the fiscal year ended February 3, 2007. The company reported robust net sales growth of 16.9% to $3.97 billion, driven by a 4.6% increase in comparable store sales and the acquisition of 138 Deal$ stores. The company continued its expansion strategy, growing its store count to 3,219 locations and increasing selling square footage by approximately 14%. Despite strong sales growth, gross profit margin saw a slight decrease to 34.2% due to a shift towards lower-margin consumable products and increased merchandise costs. Diluted earnings per share increased to $1.85 from $1.60 in the prior year. Dollar Tree demonstrated effective cost management, although SG&A expenses as a percentage of sales saw a minor uptick. The company's liquidity remains strong, supported by significant cash flow from operations, and it continues to execute share repurchase programs. Key strategic initiatives include the expansion of larger store formats, increased penetration of consumable merchandise, and enhancements to its supply chain and information systems. The company faces ongoing risks related to cost inflation, import reliance, and competitive pressures, but remains focused on its value-driven, fixed-price model and disciplined expansion.

Key Highlights

  • 1Achieved significant net sales growth of 16.9% to $3.97 billion, fueled by comparable store sales increases and strategic acquisitions.
  • 2Expanded store footprint to 3,219 locations, with a 14% increase in selling square footage, demonstrating continued growth momentum.
  • 3Introduced freezers and coolers in approximately 700 stores to increase consumable merchandise offerings, aiming to boost traffic and transaction size.
  • 4Reported diluted earnings per share of $1.85, an increase from $1.60 in the prior fiscal year.
  • 5Executed a share repurchase program, repurchasing approximately $148.2 million worth of stock in fiscal year 2006.
  • 6Maintained a strong liquidity position, with operating cash flow exceeding capital expenditures.
  • 7Focus on cost control and supply chain efficiency, including inventory management improvements and technology investments.

Frequently Asked Questions

Dollar Tree's primary growth driver was its continued store expansion, which led to a 16.9% increase in net sales. This was supported by a 4.6% increase in comparable store net sales and the strategic acquisition of 138 Deal$ stores, contributing to an overall expansion of selling square footage by approximately 14%.

The shift towards consumables, driven by the installation of freezers and coolers in stores, resulted in a slight decrease in gross profit margin to 34.2% from 34.5% in the prior year. While consumables aim to increase store traffic and transaction size, they generally have lower margins than variety merchandise. Management indicated this trend is expected to continue and may pressure margins but contribute to overall sales and earnings growth.

Key risks include vulnerability to cost increases (merchandise, wages, shipping, fuel) as Dollar Tree operates on a fixed price point model, potential decreases in gross profit due to product mix shifts towards lower-margin consumables, challenges in profitably expanding square footage, and risks associated with a reliance on imported merchandise, particularly from China, including supply chain disruptions and cost fluctuations. Competitive pressures in the retail industry are also a significant risk.

Dollar Tree is transitioning towards larger store formats, with an optimal size of 10,000-12,500 square feet. The company is relocating smaller, older stores and opening new stores predominantly around 9,000 selling square feet. This larger format allows for a wider merchandise selection, including more basic consumables, and aims to improve the shopping environment to encourage longer visits and higher spending. The acquisition of Deal$ stores also introduced 'combo' stores that sell items above the $1 price point, providing an avenue to test new merchandise concepts.