10-QPeriod: Q1 FY2004

DOLLAR TREE, INC. Quarterly Report for Q2 Ended May 3, 2003

Filed June 10, 2003For Securities:DLTR

Summary

Dollar Tree, Inc. reported solid revenue growth for the first quarter ended May 3, 2003, with net sales increasing by 20.8% year-over-year, driven by strong performance from newer and larger stores and favorable sales during the Easter season. Despite this revenue increase, the company experienced a slight decrease in gross profit margin due to inventory adjustments, higher shrink in larger stores, and costs associated with adopting FIN 46. Operating income as a percentage of net sales saw a marginal dip. The company also announced a significant strategic move with the agreement to acquire Greenbacks, Inc. for approximately $100 million, which is expected to close in late June 2003, along with plans for substantial distribution center expansion.

Key Highlights

  • 1Net sales increased by 20.8% to $615.6 million for the quarter ended May 3, 2003, compared to $509.7 million in the prior year quarter.
  • 2Comparable store net sales increased by 2.2% year-over-year, indicating healthy performance in existing store formats.
  • 3The company announced an agreement to acquire Greenbacks, Inc. for approximately $100 million in cash, expanding its store count and geographic reach.
  • 4Gross profit margin declined slightly to 35.4% from 36.2% due to inventory-related adjustments, increased shrink in larger stores, and FIN 46 adoption costs.
  • 5Selling, General, and Administrative (SG&A) expenses as a percentage of net sales improved to 26.5% from 27.2%, demonstrating operating leverage.
  • 6The company entered into a new $150.0 million unsecured revolving credit facility, enhancing its liquidity and financial flexibility.
  • 7Capital expenditures increased significantly to $63.3 million, reflecting investments in store growth and new distribution centers.

Frequently Asked Questions

Dollar Tree's sales growth was primarily driven by the strong performance of its newer and larger stores (10,000-15,000 square feet) and a stronger-than-expected Easter selling season. The company also benefited from comparable store sales growth of 2.2%.

The acquisition of Greenbacks, Inc. for approximately $100 million is a significant strategic move that will add 96 stores in 10 western states. It is expected to be consummated in late June 2003 and will be accounted for under the purchase method. The company plans to fund this acquisition using existing cash or its revolving credit facility.

The decline in gross profit margin was attributed to several factors: a benefit in the prior year's quarter from shrink adjustments, slightly higher shrink levels in the newer, larger stores, and approximately $1.0 million in additional non-cash expense related to the adoption of FIN 46. Shipping rate renegotiations and potential surcharges were also mentioned as ongoing considerations.

Dollar Tree replaced its $50.0 million revolving credit facility with a new $150.0 million unsecured revolving credit facility, significantly increasing its borrowing capacity. The company expects to use this facility, along with existing cash, to fund the Greenbacks acquisition and planned distribution center expansions.