10-QPeriod: Q3 FY2006

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Oct 29, 2005

Filed December 8, 2005For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported its third-quarter results for the period ending October 29, 2005. The company experienced a slight decrease in net income for the 13-week period, reporting $31.1 million compared to $31.9 million in the prior year, with diluted earnings per share remaining flat at $0.29. For the 39-week period year-to-date, net income also saw a decline to $87.4 million from $96.6 million in the prior year, with diluted earnings per share decreasing to $0.80 from $0.85. Net sales for the quarter increased by 10.1% to $796.8 million, driven by new store openings, though comparable store net sales decreased by 1.0%, impacted by higher fuel costs affecting customer traffic and a shift towards lower-margin consumables. The company continued its expansion, operating 2,899 stores by the end of the quarter, an increase of 225 stores year-over-year, and is actively managing its share repurchase program.

Key Highlights

  • 1Net sales for the third quarter increased by 10.1% to $796.8 million, driven by store expansion.
  • 2Comparable store net sales decreased by 1.0% for the quarter, primarily attributed to higher fuel costs impacting consumer spending and a shift in merchandise mix towards consumables.
  • 3Gross profit margin declined to 34.7% from 35.7% in the prior year's quarter, influenced by increased occupancy costs and merchandise costs (including higher inbound freight due to fuel prices).
  • 4Selling, general, and administrative expenses as a percentage of net sales slightly decreased to 28.1% from 28.3%, benefiting from lower payroll-related and operating expenses.
  • 5Operating income as a percentage of net sales decreased to 6.5% for the quarter, reflecting the pressure on gross margins.
  • 6The company repurchased approximately 2.2 million shares for $50.0 million during the third quarter under its new share repurchase authorization.
  • 7Dollar Tree operated 2,899 stores by the end of the quarter, reflecting continued expansion efforts.

Frequently Asked Questions

The decrease in comparable store net sales, down 1.0% for the quarter and 1.8% year-to-date, was primarily attributed to the impact of higher fuel costs, which reduced customers' disposable income and led to fewer shopping trips. Additionally, there was a shift in merchandise mix towards more consumables, which typically carry lower margins.

The company is actively managing its inventory, with an 11% decrease in inventory per store at October 29, 2005, compared to the prior year. This was a result of an initiative to lower backroom inventory levels and increase inventory turns by reducing current year purchases.

Dollar Tree continues to expand its store base. During the 39 weeks ended October 29, 2005, they opened 203 new stores and expanded 78 existing ones, bringing the total store count to 2,899. The company is focusing on larger store formats (approximately 10,000 selling square feet) that are expected to generate higher sales and operating income per store.

The company is experiencing increased inbound freight costs due to higher fuel prices, which have impacted merchandise costs. To mitigate these pressures, Dollar Tree is focused on improving operational efficiencies, such as reducing inventory levels and better managing store expenses. They are also expanding payment options, like debit card acceptance, to potentially improve customer shopping experience and sales.