10-QPeriod: Q1 FY2009

DOLLAR TREE, INC. Quarterly Report for Q2 Ended May 3, 2008

Filed June 12, 2008For Securities:DLTR

Summary

Dollar Tree, Inc. reported strong performance for the first quarter ended May 3, 2008, with net sales increasing by 7.8% to $1.05 billion compared to the prior year. This growth was driven by new store openings and a 2.1% increase in comparable store net sales, reflecting improved transaction volume and a slightly higher average transaction size. The company also achieved a gross profit margin of 33.9%, an improvement from 33.4% in the same period last year, attributed to lower merchandise costs and reduced shrink, partially offset by increased occupancy costs. Profitability saw a healthy increase, with net income rising to $43.6 million, or $0.48 per diluted share, up from $38.1 million, or $0.38 per diluted share, in the first quarter of 2007. This reflects effective cost management and sales growth. The company continues its strategic expansion, opening 83 new stores during the quarter, and maintains a positive outlook with updated fiscal year 2008 guidance, projecting sales between $4.52 billion and $4.63 billion and diluted earnings per share between $2.23 and $2.39. Key areas of focus include managing rising costs, particularly diesel fuel and freight, and navigating a shift towards lower-margin consumable products while seeking to increase customer traffic and transaction size.

Key Highlights

  • 1Net sales increased by 7.8% to $1.05 billion in the first quarter of 2008, compared to $975.0 million in the prior year.
  • 2Comparable store net sales increased by 2.1%, driven by a 2.0% increase in transactions and a 0.1% increase in transaction size.
  • 3Gross profit margin improved to 33.9% from 33.4% in the prior year's quarter, aided by lower merchandise costs and shrink reduction.
  • 4Net income grew to $43.6 million ($0.48 per diluted share) from $38.1 million ($0.38 per diluted share) year-over-year.
  • 5The company opened 83 new stores in the quarter, expanding its total store count to 3,474.
  • 6Dollar Tree reaffirmed its full fiscal year 2008 guidance, projecting sales between $4.52 billion and $4.63 billion and diluted EPS between $2.23 and $2.39.
  • 7A new $550 million Credit Agreement was established in February 2008, providing a $300 million revolving line of credit and a $250 million term loan.

Frequently Asked Questions

Dollar Tree reported a solid increase in net sales, up 7.8% to $1.05 billion, driven by new store openings and a 2.1% rise in comparable store sales. Net income also saw a significant improvement, growing to $43.6 million, or $0.48 per diluted share, from $38.1 million, or $0.38 per diluted share, in the same period last year.

Dollar Tree reaffirmed its guidance for the full fiscal year 2008. They project net sales to be in the range of $4.52 billion to $4.63 billion and diluted earnings per share to be between $2.23 and $2.39. This guidance anticipates low single-digit comparable store net sales growth.

The company is experiencing a shift towards more consumable products, which increases store traffic but has lower margins. While this shift negatively impacted margins in the past, the negative impact was smaller in Q1 2008 compared to Q1 2007. They are also expanding the roll-out of frozen and refrigerated merchandise. The company anticipates that consumables will continue to grow faster, and together with high diesel prices, may put pressure on margins for the rest of the year.

Dollar Tree opened 83 new stores during the first quarter, bringing the total to 3,474 stores. They also expanded 24 existing stores. The company has a new $550 million credit facility, providing flexibility for capital expenditures and working capital needs. They had $300 million available on the revolving credit portion of this facility and $453.7 million remaining under board-approved repurchase authorizations as of May 3, 2008.