10-QPeriod: Q2 FY2004

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Aug 2, 2003

Filed September 12, 2003For Securities:DLTR

Summary

Dollar Tree Stores, Inc. (DLTR) reported its financial results for the second quarter ended August 2, 2003. The company demonstrated significant top-line growth, with net sales increasing by 22.2% year-over-year, driven by both new store openings and a 5.1% rise in comparable store net sales. This expansion was reflected in the growth of store count and selling square footage. The company successfully integrated the acquisition of Greenbacks, Inc. during the quarter, adding 100 stores and expanding its geographical reach. While growth was robust, profitability metrics saw a slight pressure. Gross profit margin declined due to a higher mix of lower-margin merchandise, increased depreciation from FIN 46 adoption, and the initial impact of Greenbacks' lower margins. Selling, general, and administrative expenses as a percentage of sales remained stable. Financially, the company saw a significant increase in cash from operating activities compared to the prior year's quarter, which had been negatively impacted by inventory and tax timing. Investing activities were heavily influenced by the Greenbacks acquisition and capital expenditures for store and distribution center expansion. The company also enhanced its credit facility to $150 million to support its growth initiatives.

Key Highlights

  • 1Net sales for the second quarter increased by 22.2% to $626.0 million compared to the prior year period, driven by comparable store sales growth of 5.1% and expanded store count.
  • 2Acquisition of Greenbacks, Inc. was completed for approximately $100 million in cash, adding 100 stores and expanding the company's presence to 47 states.
  • 3The company continued its aggressive store expansion, operating 2,468 stores with 15.7 million selling square feet at the end of the quarter.
  • 4Gross profit margin decreased slightly to 35.3% from 35.7% year-over-year, impacted by merchandise mix, increased depreciation related to FIN 46, and the inclusion of Greenbacks' lower margins.
  • 5Selling, general, and administrative expenses as a percentage of net sales remained stable at 27.7%.
  • 6Net income increased to $28.8 million ($0.25 per diluted share) from $24.6 million ($0.21 per diluted share) in the prior year's quarter.
  • 7Cash flow from operating activities significantly improved, turning positive at $3.1 million for the six months ended August 2, 2003, compared to a negative $21.7 million in the prior year.

Frequently Asked Questions

The primary driver of the 22.2% increase in net sales was a combination of increased sales from new and expanded stores, alongside a 5.1% increase in comparable store net sales, indicating healthy same-store performance and foot traffic.

The acquisition of Greenbacks, Inc. for $100 million expanded Dollar Tree's geographical reach to 47 states by adding 100 stores and a distribution center. While contributing to top-line growth, Greenbacks' lower margins initially put some pressure on the consolidated gross profit margin.

The company expects continued sales growth, projecting third-quarter net sales of $665-$680 million with comparable store net sales remaining flat or slightly increased. While gross margin is expected to be slightly lower year-over-year in the third quarter, it is anticipated to improve in the fourth quarter, with an expected full-year gross margin of approximately 36.0%. The company also anticipates improvements in Greenbacks' gross profit margin to be realized in 2004.

Dollar Tree has enhanced its liquidity by entering into a $150 million revolving credit facility. The company expects to utilize this facility for seasonal inventory purchases and distribution center construction. Cash from operations has improved significantly, supporting capital expenditures for store expansion and new distribution centers.