10-QPeriod: Q1 FY2006

DOLLAR TREE, INC. Quarterly Report for Q1 Ended Apr 30, 2005

Filed June 9, 2005For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported its first quarter results for the period ended April 30, 2005. While net sales saw a modest increase of 5.5% to $749.1 million, driven by new store openings, comparable store net sales declined by 3.7%. This decline was attributed to fewer Easter shopping days, adverse weather, and the impact of higher fuel costs on consumer spending. The company experienced a decrease in gross profit margin to 33.9% from 35.6% in the prior year, largely due to increased occupancy, buying, and distribution costs, as well as higher markdown expenses related to lower-than-planned Easter seasonal sell-through. Operating income also decreased as a percentage of net sales. Despite these pressures, the company continued its share repurchase program, significantly increasing buybacks in the quarter, signaling management's confidence in the company's valuation. Looking ahead, Dollar Tree provided guidance for the second quarter and full fiscal year 2005, projecting sales in the range of $755.0 to $770.0 million for Q2 and $3.340 billion to $3.415 billion for the full year. Diluted EPS guidance for the full year was projected between $1.61 and $1.72. The company is also preparing for the adoption of new accounting standards for share-based payments in fiscal year 2006.

Key Highlights

  • 1Net sales increased by 5.5% to $749.1 million for the 13 weeks ended April 30, 2005, compared to $710.3 million in the prior year period.
  • 2Comparable store net sales decreased by 3.7% due to fewer Easter shopping days, adverse weather, and higher fuel costs impacting consumer disposable income.
  • 3Gross profit margin declined to 33.9% from 35.6% year-over-year, impacted by deleveraging from lower comparable store sales and increased markdown expenses.
  • 4Operating income as a percentage of net sales decreased to 6.4% from 8.3% in the prior year quarter.
  • 5The company significantly increased its share repurchase activity, buying back approximately 4.7 million shares for approximately $128.3 million during the quarter under a new $300 million authorization.
  • 6Dollar Tree opened 65 new stores and expanded 30 stores in the quarter, contributing to the overall store count growth to 2,791.
  • 7The company reaffirmed its full fiscal year 2005 diluted EPS guidance to be in the range of $1.61 to $1.72.

Frequently Asked Questions

The decrease in comparable store net sales by 3.7% was primarily attributed to 14 fewer Easter shopping days in the current year, adverse weather conditions impacting store traffic, and the effect of continued higher fuel costs on customer disposable income.

Profitability margins were under pressure. Gross profit margin decreased to 33.9% from 35.6% in the prior year's quarter. This was mainly due to increased occupancy, buying, and distribution costs related to lower comparable store sales, and higher markdowns. Consequently, operating income as a percentage of net sales also decreased to 6.4% from 8.3%.

Dollar Tree significantly ramped up its share repurchase activities. In March 2005, a new $300 million repurchase program was authorized, replacing a previous $200 million program. During the quarter, the company repurchased approximately 4.7 million shares for about $128.3 million, indicating management's belief that the stock is undervalued.

The company forecasts second quarter 2005 sales between $755.0 to $770.0 million and diluted EPS between $0.25 to $0.27. For the full fiscal year 2005, estimated sales are projected at $3.340 billion to $3.415 billion, with diluted EPS estimated between $1.61 and $1.72.