10-QPeriod: Q2 FY2007

DOLLAR TREE, INC. Quarterly Report for Q2 Ended Jul 29, 2006

Filed September 7, 2006For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported a solid second quarter for fiscal year 2006, demonstrating consistent growth and operational improvements. Net sales increased by 14.9% year-over-year for the thirteen-week period, reaching $883.6 million, driven by new store openings, successful acquisitions, and a healthy 4.2% increase in comparable store net sales. This growth was supported by improvements in transaction size and volume, as well as the strategic rollout of debit card acceptance and in-store freezers/coolers. Despite a slight decrease in gross profit margin due to increased merchandise and freight costs, the company managed its selling, general, and administrative expenses effectively, leading to a slight improvement in SG&A as a percentage of net sales. While operating income as a percentage of net sales saw a modest decline, the overall financial performance indicates a business that is expanding its footprint and optimizing its operations to meet customer demand and navigate a changing retail landscape. The company also reaffirmed its full-year guidance, signaling confidence in its continued growth trajectory.

Key Highlights

  • 1Net sales increased by 14.9% to $883.6 million for the thirteen weeks ended July 29, 2006, compared to $769.0 million in the prior year period.
  • 2Comparable store net sales increased by 4.2% for both the thirteen and twenty-six week periods ended July 29, 2006.
  • 3Acquired 138 Deal$ stores on March 25, 2006, which contributed to sales growth but had a minimal impact on operating results to date.
  • 4Gross profit margin decreased slightly due to higher merchandise costs (including a shift to consumables) and increased inbound freight costs.
  • 5Selling, General, and Administrative (SG&A) expenses as a percentage of net sales improved due to leveraging positive comparable store sales and more efficient advertising spend.
  • 6The company repurchased approximately 3.4 million shares for $88.7 million during the thirteen-week period as part of its ongoing share repurchase program.
  • 7The company reaffirmed its full-year fiscal 2006 guidance for sales and diluted earnings per share.

Frequently Asked Questions

The increase in net sales was driven by the opening of new stores, the expansion of existing ones, and the acquisition of 138 Deal$ stores in March 2006. Additionally, a comparable store net sales increase of 4.2% contributed significantly to the growth.

The gross profit margin decreased primarily due to an increase in merchandise costs, including inbound freight. This was partly attributed to a shift in merchandise mix towards consumables, which typically have lower margins, and higher inbound domestic freight costs driven by increased fuel prices.

Dollar Tree reaffirmed its full-year fiscal 2006 guidance. They estimate sales to be in the range of $3.895 billion to $3.955 billion and diluted earnings per share to be between $1.74 and $1.82. This guidance is based on expected low single-digit comparable store net sales growth.

The acquisition of 138 Deal$ stores contributed to overall sales growth. However, their results did not have a significant impact on the company's operating results through July 29, 2006, and the acquisition was deemed immaterial to the company's operations as a whole.