10-QPeriod: Q2 FY2003

DOLLAR TREE, INC. Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 14, 2002For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported solid performance for the second quarter of 2002, with net sales increasing by 13.2% to $498.6 million compared to the prior year's quarter. This growth was driven by the opening of new stores, although comparable store net sales saw a slight decrease of 2.5%, attributed primarily to the shifting of the Easter holiday. The company successfully expanded its store base to 2,105 locations. Gross profit margin improved to 36.1% due to better inventory management and reduced shrink. Selling, general, and administrative expenses as a percentage of net sales remained stable at 27.7%, with cost efficiencies offsetting increased depreciation from new systems and store expansions. Diluted earnings per share were $0.22, consistent with the prior year quarter on a reported basis, but showing an improvement when considering the impact of goodwill amortization in the prior year. Financially, the company maintained a healthy liquidity position, although cash and cash equivalents decreased due to significant capital expenditures for store openings, expansions, and supply chain system implementation. The company continues to invest in growth, with plans for further store additions. Management provided a positive outlook, projecting full-year net sales growth of 18%-19% with a comparable store net sales increase of 1%-2% for the remainder of the year. Key areas of focus for investors include continued store growth, management of operating costs, and the potential impact of upcoming accounting standard changes related to special purpose entities.

Key Highlights

  • 1Net sales increased by 13.2% year-over-year to $498.6 million in Q2 2002.
  • 2The company operated 2,105 stores as of June 30, 2002, an increase from 1,863 stores in the prior year period.
  • 3Gross profit margin improved to 36.1% from 35.7% due to reduced shrink and better inventory flow.
  • 4Selling, general, and administrative expenses as a percentage of net sales remained stable at 27.7%.
  • 5Diluted earnings per share remained steady at $0.22, with an improvement in adjusted EPS excluding goodwill amortization.
  • 6Cash and cash equivalents decreased from $236.7 million to $159.1 million due to increased capital expenditures and short-term investment purchases.
  • 7The company anticipates full-year net sales growth of 18%-19% with comparable store sales growth of 1%-2%.

Frequently Asked Questions

The primary driver for the 13.2% increase in net sales was the opening of new stores. The company expanded its store base to 2,105 locations by the end of the quarter. However, comparable store net sales decreased by 2.5%, largely attributed to the shift of the Easter holiday from the second quarter in 2001 to the first quarter of 2002.

Dollar Tree Stores managed its selling, general, and administrative expenses effectively, with the expense ratio remaining stable at 27.7% of net sales. This stability was achieved through expense-management initiatives, particularly in payroll-related costs, which offset increases in depreciation and amortization expenses stemming from new supply chain systems and store expansions.

The company projects full-year net sales to increase by approximately 18%-19%. This projection is based on an expected comparable store net sales increase of approximately 1%-2% for the remainder of 2002. Management is planning inventory levels to support this anticipated sales growth.

Yes, the company adopted SFAS No. 142 regarding Goodwill and Other Intangible Assets, ceasing the amortization of goodwill. Additionally, changes have been proposed to accounting standards for special purpose entities, which could impact how the company accounts for its synthetic leases and potentially require consolidation of these entities onto the balance sheet, affecting future financial statements. The company is evaluating its options based on the finalization of these standards.