10-QPeriod: Q1 FY2002

DOLLAR TREE, INC. Quarterly Report for Q1 Ended Mar 31, 2001

Filed May 11, 2001For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported its first quarter 2001 results, showing a significant increase in net sales, primarily driven by the expansion of larger format stores and new store openings. However, profitability was impacted by a decrease in gross profit margin and an increase in selling, general and administrative expenses. This was largely attributed to factors such as inventory shrink, operational inefficiencies at a distribution center, and higher occupancy costs. Despite these challenges, the company's liquidity remains adequate, supported by new credit facilities and a strong focus on managing working capital. Management anticipates continued growth, largely through square footage expansion, while acknowledging potential headwinds from declining consumer confidence and rising operational costs.

Key Highlights

  • 1Net sales increased by 18.4% to $387.3 million in Q1 2001 compared to Q1 2000, driven by new store openings and the expansion of larger format stores.
  • 2Gross profit margin decreased by 0.8% to 33.9% due to inventory shrink, operational inefficiencies, and increased occupancy costs.
  • 3Selling, general, and administrative expenses as a percentage of net sales increased to 26.3% from 25.0%, primarily due to a loss of leverage from flat comparable store net sales and increased operating costs.
  • 4Operating income decreased by 22.7% to $17.9 million, and as a percentage of net sales, it declined to 4.6% from 7.1% year-over-year.
  • 5The company implemented new revolving credit and letter of credit facilities totaling $50 million and $125 million, respectively, and a new $165 million operating lease facility.
  • 6Cash used in operating activities increased to $89.1 million, mainly due to a rise in inventory expenditures.
  • 7Capital expenditures increased by $8.3 million to support new store openings, relocations, expansions, supply chain improvements, and the conversion of Dollar Express stores.

Frequently Asked Questions

The primary driver of the net sales increase was the expansion of larger format stores and the opening of new stores. The company's total gross square footage increased by 6.9% in the first quarter of 2001 compared to the prior year period.

The gross profit margin decreased due to several factors including inventory shrink (both at a distribution center and in stores), temporary workforce inefficiencies, ongoing challenges at the Philadelphia distribution center, and an increase in occupancy costs as a percentage of net sales, partly due to flat comparable store net sales.

The company has established new credit facilities, including a $50 million revolving credit facility and a $125 million letter of credit agreement, both maturing in March 2002. They also entered into a $165 million operating lease facility. Borrowings under senior notes and bonds were $43.0 million, with $50.0 million available on their bank facility at the end of the quarter.

Management anticipates that comparable store net sales may decrease by up to 10% in the second quarter of 2001, remain flat in the third quarter, and increase approximately 2% to 3% in the fourth quarter.