10-QPeriod: Q2 FY2011

DOLLAR TREE, INC. Quarterly Report for Q2 Ended Jul 31, 2010

Filed August 19, 2010For Securities:DLTR

Summary

Dollar Tree, Inc. reported strong performance for the fiscal second quarter ended July 31, 2010, with net sales increasing by 12.7% year-over-year to $1,377.9 million. This growth was driven by a solid 6.7% increase in comparable store net sales, reflecting higher customer traffic and an increased average transaction value. The company also saw improvements in operating income margin, which rose to 9.3% from 7.3% in the prior year's quarter, benefiting from leveraged occupancy and distribution costs, reduced shrink, and improved payroll efficiencies. Financially, Dollar Tree demonstrated healthy cash flow from operations, generating $153.8 million for the 26 weeks ended July 31, 2010, an increase from $134.0 million in the same period last year. The company continued its expansion strategy, opening 130 new stores and expanding 68 existing ones in the first half of the fiscal year, contributing to the overall sales growth. Despite a one-time non-cash inventory accounting charge of $26.3 million in the first quarter, the company's financial position remains robust, with a significant share repurchase program authorized and ongoing.

Financial Highlights

42 data points
Beta

Revenue

$1.35B

33.3% Gross Margin

Net Income

$63.60M

4.7% Net Margin

EPS (Diluted)

$0.24

Total Assets

$2.26B

Cash & Equivalents

$429.30M

Free Cash Flow

-$9.30M

Financial Statements
Beta
Revenue$1.35B
Cost of Revenue$894.40M
Gross Profit$450.20M
SG&A Expenses$355.70M
Operating Income$102.60M
Net Income$63.60M
EPS (Basic)$0.30
EPS (Diluted)$0.24
Shares Outstanding (Basic)255
Shares Outstanding (Diluted)256

Key Highlights

  • 1Net sales increased 12.7% to $1,377.9 million for the 13 weeks ended July 31, 2010, compared to $1,222.8 million in the prior year.
  • 2Comparable store net sales grew by 6.7% for the quarter, driven by increased traffic and higher average ticket size.
  • 3Gross profit margin improved to 35.1% from 34.5% year-over-year for the 13-week period, benefiting from leveraged occupancy and distribution costs, and reduced shrink.
  • 4Selling, general, and administrative expenses decreased as a percentage of net sales to 25.8% from 27.2%, primarily due to payroll efficiencies and leveraged depreciation.
  • 5Operating income margin increased to 9.3% from 7.3% for the 13-week period.
  • 6Net cash provided by operating activities for the 26 weeks ended July 31, 2010, was $153.8 million, up from $134.0 million in the prior year.
  • 7The company continued its store expansion, opening 130 new stores and expanding 68 during the first 26 weeks of fiscal 2010.

Frequently Asked Questions

Net sales increased due to a combination of a 6.7% rise in comparable store net sales and contributions from newly opened stores. Factors contributing to the comparable store sales growth include increased customer traffic and a higher average transaction value, supported by initiatives like the expansion of frozen and refrigerated merchandise and increased SNAP acceptance.

The company changed its retail inventory calculation method at the beginning of fiscal 2010, moving from one inventory pool to approximately thirty. This resulted in a one-time, non-cash charge to gross profit of $26.3 million in the first quarter of 2010. While this charge reduced the reported gross profit margin for the 26-week period, the underlying operational performance, excluding this charge, showed an improvement.

Dollar Tree is actively expanding its store footprint. In the first 26 weeks of fiscal 2010, they opened 130 new stores and expanded 68 existing ones, adding approximately 1.3 million selling square feet. The company believes its optimal store size is around 8,400 square feet, which encourages longer shopping times and repeat visits.

Dollar Tree utilizes derivative contracts to manage market risks, specifically for interest rate fluctuations and diesel fuel costs. They have entered into interest rate swap agreements to hedge against variable rates on debt and fuel derivative contracts to lock in diesel fuel prices. These contracts are primarily for cash flow hedging purposes.