10-QPeriod: Q3 FY2007

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Oct 28, 2006

Filed December 6, 2006For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported solid performance in the third quarter of fiscal year 2006, ended October 28, 2006. The company saw a notable increase in net sales, driven by both new store openings and comparable store sales growth. This growth was supported by initiatives such as expanded payment options and the rollout of freezers and coolers, which also led to a shift in merchandise mix towards consumables. While sales increased, the company experienced a slight compression in gross profit margin due to factors like increased shrink expense, higher occupancy costs, and changes in merchandise costs. Selling, general, and administrative expenses were managed effectively as a percentage of sales, leading to a slight decrease in operating income margin compared to the prior year. The company also completed the acquisition of 138 Deal$ stores, which did not have a material impact on operating results in this quarter but offers strategic opportunities for future growth and testing new concepts. The company is actively engaged in share repurchases and continues to expand its store footprint.

Key Highlights

  • 1Net sales increased by 14.3% to $910.4 million for the 13 weeks ended October 28, 2006, compared to the same period in the prior year.
  • 2Comparable store net sales increased by 4.0% for the quarter, indicating healthy performance in existing stores.
  • 3The company acquired 138 Deal$ stores on March 25, 2006, which are being integrated and offer opportunities for new merchandise concepts.
  • 4Gross profit margin decreased slightly to 33.8% from 34.7% due to increased shrink, occupancy costs, and merchandise costs.
  • 5Selling, general, and administrative expenses as a percentage of net sales decreased to 27.9% from 28.1%, reflecting leverage from sales growth and cost management.
  • 6The company generated $90.7 million in net cash from operating activities for the 39 weeks ended October 28, 2006.
  • 7Dollar Tree has authorized a new $500 million share repurchase program, in addition to the remaining balance on its previous authorization.

Frequently Asked Questions

Dollar Tree reported a 14.3% increase in net sales to $910.4 million for the 13 weeks ended October 28, 2006, driven by new store openings and a 4.0% increase in comparable store sales. Net income was $32.5 million, or $0.32 per diluted share. While sales grew, the gross profit margin saw a slight decrease due to factors like increased shrink and occupancy costs.

The acquisition of 138 Deal$ stores on March 25, 2006, contributed to the overall sales increase. However, management stated that the Deal$ store operations did not have a significant impact on the company's operating results through October 28, 2006, and the acquisition was considered immaterial to the company's operations as a whole.

Dollar Tree generated $90.7 million in cash from operating activities for the first 39 weeks of fiscal 2006. The company's long-term debt was $268.8 million at the end of the quarter, with $200.0 million available under its revolving credit facility. Additionally, the company is actively repurchasing its stock, with a new $500 million authorization announced in November 2006.

Key risks include vulnerability to cost increases (merchandise, fuel, labor), potential inability to expand profitably, adverse effects of economic downturns, reliance on imported merchandise with potential cost increases or unavailability, and disruptions in the supply chain. The company is also facing several ongoing legal proceedings related to wage and hour violations, though it believes they will not have a material adverse effect on its business.