10-QPeriod: Q1 FY2007

DOLLAR TREE, INC. Quarterly Report for Q1 Ended Apr 29, 2006

Filed June 8, 2006For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported a solid first quarter for fiscal year 2006, with net sales increasing by 14.3% to $856.5 million compared to the prior year period. This growth was driven by new store openings, store expansions, and a notable 4.0% increase in comparable store net sales. The company successfully integrated 138 Deal$ stores acquired in March 2006, which contributed to the overall sales increase. Diluted earnings per share were $0.31, an increase from $0.26 in the prior year's first quarter, reflecting improved operational performance and a favorable tax rate. Despite a slight decrease in gross profit margin due to a shift towards lower-margin consumables and increased inbound freight costs, the company managed SG&A expenses effectively, resulting in improved operating income as a percentage of sales. Management expressed confidence in continued growth, projecting sales between $3.855 billion and $3.940 billion for the full fiscal year, supported by a consistent store expansion strategy and initiatives to enhance customer spending. Investors should note the ongoing legal proceedings, though the company believes they will not materially impact its financial condition.

Key Highlights

  • 1Net sales increased by 14.3% to $856.5 million for the 13 weeks ended April 29, 2006, compared to $749.1 million in the prior year period.
  • 2Comparable store net sales increased by 4.0%, driven by a 3.4% increase in transaction size and a 0.6% increase in the number of transactions.
  • 3Diluted earnings per share rose to $0.31, up from $0.26 in the same period last year.
  • 4The company acquired 138 Deal$ stores on March 25, 2006, adding to its store base and contributing to sales growth.
  • 5Gross profit margin slightly decreased to 33.4% from 33.9% due to merchandise mix shift and increased inbound freight costs, but SG&A as a percentage of sales improved.
  • 6The company repurchased approximately 1.9 million shares for $50.2 million during the quarter under its existing stock repurchase program.
  • 7The company is on track to meet its fiscal 2006 square footage growth target of 12%-14%, having added approximately 2.0 million selling square feet in the first quarter.

Frequently Asked Questions

Dollar Tree projects full fiscal year 2006 sales to be in the range of $3.855 billion to $3.940 billion and diluted earnings per share between $1.70 and $1.82. This guidance is based on flat to low single-digit comparable store net sales growth.

The acquisition of 138 Deal$ stores on March 25, 2006, contributed to the overall sales increase for the quarter. While the Deal$ store operations did not have a material impact on the first quarter's operating results, the acquisition is expected to leverage Dollar Tree's infrastructure for testing new merchandise concepts, including higher price points.

The gross profit margin decreased slightly due to a shift in merchandise mix towards lower-margin consumables and increased inbound domestic freight costs driven by higher fuel prices. These were partially offset by decreased occupancy and distribution costs, and lower markdown expenses.

The company is involved in several legal proceedings, primarily related to wage and hour claims from former employees in California, Oregon, and Washington. While Dollar Tree is vigorously defending itself and does not believe these matters will have a material adverse effect, it acknowledges that there is no assurance they won't impact future operating results.