01—Abstract
Summary
Summary of the 10-K filed March 15, 2012. Cited figures are marked; the original filing is the authoritative source.
Dollar Tree's fiscal 2011 10-K (year ended January 28, 2012) shows a company delivering strong growth and margin expansion.
Net sales rose 12.7% to $6.63 billiona, comparable store net sales grew 6.0%, and the company opened 278 stores while ending the year with 4,351 stores and 37.6 million selling square feet. Gross margin improved to 35.9% from 35.5%, operating margin reached 11.8% (up from 10.7%), and diluted EPS climbed 30% to $4.03. Growth was driven by transactions (up 4.8%) and a higher average ticket (up 1.2%), with consumables, now 50.8% of sales, and freezer/cooler rollouts cited as key contributors.
Capital returns were the dominant use of cash in 2011. The company repurchased about 8.7 million shares for $645.9 millionb, including accelerated share repurchase programs, and retained roughly $1.2 billion of Board authorization. Operating cash flow rose to $686.5 million, while capital expenditures increased to $250.1 million, and the company ended the year with $288.3 million in cash and no short-term investments.
Total debt was stable at $265.5 millionc, consisting of a $250 million term loan under a credit agreement expiring in February 2013 and $15.5 million of revenue bonds. Management does not expect to pay dividends.
Key risks for investors include cost inflation the company cannot pass on given its fixed $1.00d price point, dependence on Chinese imports (roughly 40-42% of direct purchases), employment-related class actions, and a Winn-Dixie exclusivity lawsuit set for trial in May 2012. The company also plans to invest about $330-340 million in fiscal 2012 capex, including a new Northeast distribution center and freezer/cooler additions to roughly 325 stores.
02—Key points
Key Highlights
- Net sales increased 12.7% to $6,630.5 million, with comparable store net sales up 6.0%
- Operating margin expanded to 11.8% from 10.7%, and diluted EPS rose 30% to $4.03
- Gross margin improved to 35.9% from 35.5%, supported by initial markup gains and occupancy and distribution leverage
- Share repurchases totaled $645.9 million (8.7 million shares) in fiscal 2011, with about $1.2 billion of authorization remaining
- Operating cash flow grew to $686.5 million, and total debt was stable at $265.5 million with $288.3 million in cash
- Consumables reached 50.8% of sales, and freezers/coolers were in 2,220 stores, with 325 more planned for 2012
- Significant litigation exposure includes multiple FLSA and class action suits and the Winn-Dixie exclusivity case set for trial May 7, 2012
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Dollar Tree, Inc. kept $0.07.
- Revenue$6.63B100.0%
- Cost of revenue−$4.25B64.1%
- Gross profit$2.38B35.9%
- Operating costs−$1.60B24.1%
- Operating income$782.1M11.8%
- Interest, other & tax−$293.8M4.4%
- Net income$488.3M7.4%
Where FY2012 revenue went
$6.63B- Cost of revenue: $4.25B, 64% of revenue
- SG&A: $1.60B, 24% of revenue
- Net income: $488.3M, 7.4% of revenue
- Interest, other & tax: $293.8M, 4.4% of revenue
Kept 7.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed March 15, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $6.63B$5.88B | +12.7% |
| Cost of Revenue | $4.25B$3.77B | +12.8% |
| Gross Profit | $2.38B$2.09B | +13.9% |
| SG&A Expenses | $1.60B$1.46B | +9.5% |
| Operating Income | $782.10M$630.00M | +24.1% |
| Net Income | $488.30M$397.30M | +22.9% |
| EPS (Basic) | $2.03$1.56 | +30.1% |
| EPS (Diluted) | $2.01$1.55 | +29.7% |
| Shares Outstanding (Basic) | 240.60M254.10M | −5.3% |
| Shares Outstanding (Diluted) | 242.40M256.00M | −5.3% |
05—Questions
Frequently Asked Questions
How did Dollar Tree perform in fiscal 2011?
Dollar Tree grew net sales 12.7% to $6.63 billion, with comparable store sales up 6.0% driven by a 4.8% increase in transactions and a 1.2% increase in average ticket. Operating income rose to $782.1 million, and diluted EPS increased 30% to $4.03.
How is the company returning capital to shareholders?
Dollar Tree does not pay dividends. Instead, it repurchased 8.7 million shares for $645.9 million in fiscal 2011, including accelerated share repurchase agreements. About $1.2 billion remained under Board authorization as of January 28, 2012, and management expects to retain cash for growth, debt repayment, and buybacks.
What are the main risks to margins?
The company does not raise prices above $1.00, so it must absorb cost increases in merchandise, wages, freight, and fuel. Its growing mix of lower-margin consumables could also pressure gross margin. About 40-42% of direct purchases are imported, mainly from China, exposing it to trade, currency, and shipping disruptions.
Is the company's debt a concern?
Debt is modest at $265.5 million. It consists of a $250 million term loan under a credit facility that matures in February 2013, with no revolver borrowings outstanding, plus $15.5 million of revenue bonds. The facility will need to be refinanced or repaid within about a year, though cash generation is strong.
What is the outlook for 2012 growth?
The company plans to open stores averaging 8,000-10,000 selling square feet and expects its earlier Easter (April 8, 2012) to reduce first-quarter 2012 sales by about $8.0 million. Fiscal 2012 capital expenditures are projected at $330-340 million, including about $80 million for a new Northeast distribution center and freezer/cooler additions to about 325 stores.
06—Continue