10-QPeriod: Q2 FY2005

DOLLAR TREE, INC. Quarterly Report for Q2 Ended Jul 31, 2004

Filed September 9, 2004For Securities:DLTR

Summary

Dollar Tree Stores, Inc. (DLTR) reported its second-quarter results for the period ended July 31, 2004, demonstrating solid top-line growth driven by new store openings and square footage expansion. While net sales increased by 12.5% year-over-year for the quarter, the company experienced a slight decline in comparable store net sales (-0.2%), indicating a mixed performance in existing stores. The company's strategic focus on larger store formats (10,000-15,000 sq ft) continues, with plans to meet its 20% square footage growth target for the fiscal year, although some new store openings were delayed, impacting near-term sales expectations. Profitability metrics show some pressure. While gross profit margin remained stable at 35.3%, operating income as a percentage of net sales saw a slight decrease due to increased depreciation, store operating costs, and exit costs related to a distribution center closure. The company also utilized its new $450 million revolving credit facility, repaying older debt and investing in short-term securities, which increased interest expense. Despite these pressures, Dollar Tree remains focused on managing costs and inventory, with a commitment to offsetting increased freight and fuel costs through better merchandise pricing and operational efficiencies.

Key Highlights

  • 1Net sales increased 12.5% to $704.2 million for the 13 weeks ended July 31, 2004, compared to $626.0 million in the prior year period.
  • 2Comparable store net sales decreased by 0.2% for both the 13-week and 26-week periods ended July 31, 2004, indicating pressure on same-store performance.
  • 3The company opened 117 new stores and expanded 73 stores during the first 26 weeks of fiscal 2004, contributing to a 13.9% increase in net sales for the period.
  • 4Operating income margin declined slightly to 7.0% for the quarter due to increased operating expenses, including depreciation and exit costs from a distribution center closure.
  • 5Dollar Tree utilized its new $450 million revolving credit facility, repaying $142.6 million in variable-rate debt and investing in short-term securities.
  • 6The company is actively repurchasing shares under its $200 million authorization, having spent $31.8 million in the 26-week period.

Frequently Asked Questions

Dollar Tree is focusing on larger store formats, typically between 10,000 to 15,000 square feet. This strategy aims to improve the shopping experience, potentially leading to longer customer visits and higher sales per store. The company plans to achieve a 20% square footage growth target for fiscal year 2004, though some new store openings were delayed.

Dollar Tree expects gross margin to remain around 36% for fiscal 2004 despite increases in import freight rates and fuel costs. These increases are expected to be offset by lower merchandise costs and continued control over other expenses. The opening of new distribution centers is also intended to reduce transportation distances and mitigate some of these costs.

The company is involved in several employment-related lawsuits, primarily concerning employee classification and overtime pay, as well as meal and rest break claims in California. While Dollar Tree is vigorously defending these suits and currently believes they will not have an adverse effect on its business operations or condition, it cannot provide assurance that they will not impact its results of operations, accrued liabilities, or cash.

The company recently entered into a five-year, $450 million revolving credit facility. It used this facility to repay $142.6 million of variable-rate debt and also invested in short-term securities. Historically, Dollar Tree has funded its capital expenditures and working capital needs through internally generated funds and borrowings under its credit facilities.