10-QPeriod: Q1 FY2003

DOLLAR TREE, INC. Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 13, 2002For Securities:DLTR

Summary

Dollar Tree, Inc. (DLTR) reported strong performance for the first quarter ended March 31, 2002. The company experienced a significant 26.4% increase in net sales, driven by both new store openings and a comparable store net sales increase of 6.5%. This growth was partially boosted by the earlier Easter holiday in 2002, shifting sales into the first quarter. Profitability also saw substantial improvement, with operating income increasing to 7.4% of net sales, up from 4.6% in the prior year. This was attributed to a higher gross profit margin, aided by improved inventory shrink and better occupancy/distribution cost leverage. Selling, general, and administrative expenses as a percentage of net sales decreased due to expense management initiatives and comparable store sales leverage, though partially offset by increased legal expenses. The company has also adopted new accounting standards, notably SFAS No. 142, which impacts goodwill amortization.

Key Highlights

  • 1Net sales surged by 26.4% year-over-year to $489.6 million, driven by store expansion and a 6.5% increase in comparable store sales.
  • 2Gross profit margin improved to 35.4% from 33.9% in the prior year, due to better inventory shrink and leverage on occupancy/distribution costs.
  • 3Operating income margin increased to 7.4% from 4.6%, reflecting improved gross profit and leverage of SG&A expenses.
  • 4The company opened 66 new stores and expanded 29 in Q1 2002, growing its store count to 2,031.
  • 5Adopted SFAS No. 142, ceasing amortization of goodwill and testing it for impairment annually, with no impairment identified at the transition.
  • 6Net income nearly doubled to $22.6 million ($0.20 per diluted share) from $10.8 million ($0.10 per diluted share) in the prior year.
  • 7Cash used in operating activities decreased significantly to $36.5 million from $89.1 million, largely due to inventory management and payment timing.

Frequently Asked Questions

The 26.4% increase in net sales was primarily driven by the opening of new stores, which contributed to a significant increase in selling square footage. Additionally, comparable store net sales grew by 6.5%, partly due to the Easter holiday shifting into the first quarter of 2002, consolidating all associated sales within this period.

Profitability was enhanced through a higher gross profit margin (35.4% vs. 33.9%) resulting from reduced inventory shrink and better leverage of occupancy and distribution costs. Furthermore, selling, general, and administrative expenses decreased as a percentage of net sales due to expense management initiatives and the leverage provided by comparable store sales growth.

Effective January 1, 2002, Dollar Tree adopted SFAS No. 142, which eliminated the amortization of goodwill. Instead, goodwill is now tested annually for impairment. This change resulted in a removal of goodwill amortization expenses, which positively impacted reported net income, particularly when compared to prior periods where such amortization was recorded. No impairment of goodwill was identified during the initial assessment.

Dollar Tree has access to a bank facility with $50.0 million available and a Letter of Credit Reimbursement and Security Agreement with $125.0 million available. The company generated $12.6 million in cash from financing activities, primarily from stock-based compensation and settlement of merger-related contingencies, and used $31.8 million in investing activities for capital expenditures, mainly for new store openings. While cash used in operating activities was $36.5 million, this represents a significant improvement from the prior year's $89.1 million usage, indicating better inventory management and cash flow from operations.