10-QPeriod: Q3 FY2002

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 14, 2001For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported its third-quarter and nine-month results for the period ending September 30, 2001. The company experienced significant net sales growth, driven by the opening of new stores and expansions, although comparable store sales saw a slight decline. This decrease in comparable store sales is attributed to a weaker U.S. economy and a shift in the Easter holiday timing. The company also saw a decrease in gross profit margin due to a change in merchandise mix towards higher-cost consumables, loss of leverage on occupancy and distribution costs, and inventory shrink. Selling, general, and administrative expenses increased as a percentage of sales, largely due to the same leverage issues and higher payroll-related costs. Operationally, Dollar Tree continued its aggressive store expansion strategy, opening a significant number of new stores and expanding existing ones. However, the company's cash flow from operations was negative for the nine-month period, mainly due to a substantial increase in merchandise inventories and a decrease in accounts payable timing. Capital expenditures remained high, primarily funding store growth and supply chain improvements. The company also entered into new credit facilities in March 2001, including a revolving credit facility and a letter of credit agreement, which provide liquidity for its operations.

Key Highlights

  • 1Net sales increased by 17.9% for the third quarter and 16.9% for the nine months ended September 30, 2001, compared to the prior year periods, driven by store square footage growth.
  • 2Comparable store net sales decreased by 0.1% in Q3 and 0.7% for the nine months, attributed to a weak economy and reduced customer traffic.
  • 3Gross profit margin decreased to 34.7% in Q3 2001 from 36.8% in Q3 2000, impacted by a shift towards higher-cost consumables and operational inefficiencies.
  • 4Selling, general, and administrative expenses as a percentage of net sales increased to 25.7% in Q3 2001 from 24.4% in Q3 2000.
  • 5The company continued its aggressive store expansion, opening 79 new stores and expanding/relocating 41 in Q3 2001, contributing to a 29% increase in total store gross square footage expected for the full year 2001.
  • 6Cash used in operating activities for the nine months was negative at $31.4 million, primarily due to a significant increase in merchandise inventories.
  • 7The company entered into new credit facilities in March 2001, including a $50 million revolving credit facility and a $125 million letter of credit agreement, to support working capital and merchandise purchases.

Frequently Asked Questions

Dollar Tree's sales growth is primarily driven by square footage growth from opening new stores and expanding existing ones, rather than increases in comparable store sales.

The decline in gross profit margin is attributed to a shift in merchandise mix towards higher-cost consumable products, a loss of leverage on occupancy and distribution costs due to stagnant comparable store sales, and inventory shrink related to distribution center transitions.

The company has access to a $50 million revolving credit facility and a $125 million letter of credit agreement, providing significant liquidity. However, cash flow from operations was negative for the nine-month period due to increased inventory levels.

SFAS No. 133, adopted in 2001, requires derivative instruments like interest rate swaps to be recorded at fair value. Some swaps did not qualify for hedge accounting, leading to 'other expense, net' on the income statement and changes recorded in accumulated other comprehensive income.